I’ll Let YOU Decide What To Do With My Money..

Something that I’ve known about for a year now, but has recently become official: The government of Singapore has full discretion over our CPF money. (CPF stands for Central Provident Fund, sort of like the equivalent of Social Security in America )

This article was cleverly worded (and headlined) to give us the impression that this policy is actually a good idea: “CPF payouts are for life. Singaporeans will receive  monthly payouts from the Central Provident Fund (CPF) Life annuity scheme for the rest of their lives although the law does not provide for it.”

However, the next paragraph reads: “…premiums and payouts are at the Government’s discretion and will vary with factors such as interest rates.” What that means is that once you’re thinking of retirement, you won’t even have full access to your hard earned cash. Even if you’ve saved up say, 200 grand, our benevolent leaders get to decide how much you’re gonna get each month. Maybe $500, maybe $100, maybe even $10, since everyone lives so long anyway, right?

Now I normally wouldn’t be too worried about this in a country that tells you how your dollars are at work. However, as you can tell from this post, I don’t have that much faith in our dear leaders’ ability to manage our money AND be honest with us. What? You’re not letting me have my money when I want it, you’re mismanaging it, AND you’re not telling us about it? I don’t know about you, but that leaves me feeling JUST a little uncomfortable with who I trust 20% of my savings with.

Let’s break down the rationale for why a government would implement a CPF plan in the first place. The answer: To help less people with less financial savvy get access to better rates of return than they would normally have. (Placing your money in a 30 year bond would make much better sense than hiding it under your bed) A second reason would be to force people to save for retirement, and make sure that they don’t blow it all on the upcoming Integrated Resort or something. These are good reasons – a government steps in and corrects a market failure of imperfect information.

What would be the most obvious solution for this? A Social Security program where people make regular contributions out of their salaries. These contributions are invested in fixed income securities, which pay off once an individual retires. These securities could come either as a lump sum upon maturity, or as an annuity, which pays every month, guaranteeing a fixed “salary” even after the individual retires. However, as someone else puts it, the key word is “guarantee.” Bank savings are guaranteed, bonds are guaranteed, hiding my cash under my bed is guaranteed. Having someone else decide when and where I can have my money is NOT guaranteed. If Temasek or GIC gets hit with another Barclays debacle again, there’s no stopping them from declaring that they want to hold on to your money for an indefinite period. Maybe they should change the CPF scheme to the “Pay Your Great-Great-Great Grandchildren Scheme”. Of course, with inflation, my 200 grand should be worth a grand total of approximately $1.93 by then.

The bottom line? I can’t change the law. I can’t do anything about it if they want to take our money and screw us over. What I can do is tell you not to depend on our Dear Leaders to take care of you when you’re thinking of retirement. Invest if you can handle the risk, buy bonds if you’re risk-averse. Perhaps those choices aren’t completely risk-free, but they’re sure as hell safer than putting your money with these dudes.

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