PRESS RELEASE
Reform Party believes that the current CPF system needs radical change. Its original purpose was to create a pool of forced savings needed to finance investment in industrialisation during the early stages of economic growth.
Today Singapore has one of the highest GDPs per capita in the world (though its performance is much less impressive when measured in GDP per hour worked). According to the PAP government’s figures, it has huge external assets of over $800 billion and net assets (after CPF liabilities) of roughly $360 billion. This represents accumulated net assets of over $110,000 per citizen over and above what every Singaporean has in his or her CPF account.
CPF is inequitable for the following reasons:
• It is regressive because of the upper income limit of $85,000 on CPF contributions
• It represents a form of taxation because Singaporeans’ savings are locked up till at least 55. Even then we cannot withdraw any money unless we have the minimum sum in our accounts or have a terminal illness. The interest rates paid are well below what we would be able to earn on AAA investments with similar restrictions on withdrawal.
• Allowing us to use CPF funds to purchase housing has just boosted the price of housing. The supply of which is controlled by the government through its ownership of land and the position of HDB as the supplier of housing to 90% of the population. The rise in property prices has more than negated the value of the rise in our savings.
• Expats and foreigners are not required to pay CPF.
In addition It is incorrect of the PAP government to claim that there is no risk to our CPF savings because they are all invested in Singapore Government Securities. The money received from issuing these securities is then invested in GIC (and indirectly in Temasek). These sovereign wealth funds use the money to make riskier investments in foreign assets. If they lose money on these investments then there will come a point at which the Singapore taxpayer is at risk. The cushion may be large at the moment but a decline in value of 50% such as occurred during 2008 would mean that the government would have less assets than the value of its liabilities to CPF.
There is also a huge conflict of interest between the government’s role as manager of our savings and its control of the economy. It would be in the government’s interest to reduce the value of our CPF debt through inflation and indeed the rates the PAP government have paid on CPF deposits have been below the inflation rate for long periods. Depreciation of the Singapore $ would also erode the value of our savings.
Reform Party would abolish the current CPF system and return control to the people over how much they wish to save for retirement. As a preliminary are some of the changes we propose to make:
1. A certain percentage of employees’ income to be deducted to fund a basic pension and comprehensive universal health insurance.
2. Those on low incomes to have premiums subsidised or at the limit fully paid by the government.
3. After these deductions, individuals to be free to choose what proportion of their income, up to the earnings limit and capped at the current 20%, to save for retirement.
4. These savings to continue to be tax-exempt.
5. Individuals can elect to buy a private pension scheme or one provided by CPF.
6. Employers to make contributions of 16% of final salary up to current earnings limit into a pension scheme of the employee’s choice. These contributions to be tax-exempt.
7. Private sector pension providers (regulated by MAS) to be allowed to compete with CPF on equal terms.
8. CPF no longer to be required to invest solely in Singapore Government Securities but to be allowed to invest in approved investments above a certain rating level.
9. Individuals to continue to be allowed to use both employee and employer CPF to fund property purchases
10. At 55 individuals to be allowed to withdraw their full accumulated savings as a lump sum or to buy an annuity. Possible use of taxation policy to encourage individuals to buy an annuity and not to withdraw all their savings at once.
Source: http://thereformparty.net/about/press-releases/reform-party-white-paper-...