How Is Your CPF Money Being Used And Taken Away?

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An honorable member of the Coffee Shop Has Just Posted the Following:

Posted on May 22, 2013 by My Right to Love



The Straits Times had done up a graphic to illustrate the “alleged sham bond investments” and “round-tripping” conducted by City Harvest Church and the companies linked to the church.





It got me thinking again about how our CPF monies is rerouted for investments.


In Chart 1, you can see a simplified chart of how our CPF monies is being used. I will take you through the chart step-by-step.

Chart 1

1. Our CPF monies is invested in the Singapore Government Securities (SGS) and Special Singapore Government Securities (SSGS). (link)
2. “Under the Protection of Reserves Framework in the Singapore Constitution of the Republic of Singapore, the Singapore Government cannot spend any monies raised from Government borrowings. All the proceeds from the Government’s borrowing must therefore be invested in reserves.” (link)
3. “Our reserves are managed by three agencies – the Government of Singapore Investment Corporation (GIC), Temasek Holdings (Temasek) and the Monetary Authority of Singapore (MAS).” (link)
4. GIC has assets of S$309 billion and earns returns of 6.8%. (link & link)
5. Temasek has assets of S$198 billion and earns returns of 15%. (link)
6. MAS has assets of S$322 billion. I couldn’t locate the rates of return. (link)
7. In total, the overall funds managed amount to S$829 billion.
8. Can we thus assume that there are about S$800 billion in our reserves?
9. Here is the first question – since our reserves are borrowed to be invested, how much is the rate of return to our reserves?
10. This is important because this will help why the “average yield” of the SGS (securities) is only 2.44%. This is peculiar because if GIC and Temasek are earning 6.8% and 15% respectively, then why are the securities earning only 2.44%? (link)
11. According to the CPF Board, “the SMA currently earn either 4% or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is the higher.” Thus “CPF members will continue to enjoy a risk-free interest rate of 4% on their Special and Medisave Accounts (SMA) from 1 April 2013 to 30 June 2013.” (link)
12. However, for the interest rate for our Ordinary Account (OA), this interest rate is “derived from the major local banks’ interest rates” which is 0.21%. The “legislated minimum” interest rate for the OA is 2.5% so the OA interest will “remain unchanged at 2.50%”. However, this is peculiar because if our CPF monies are invested in the securities and not with the banks, then why is our OA’s interest rate pegged to the banks’ interest rates and not to the securities? Are we being shortchanged? And also if our CPF monies are invested in two types of securities – SGS and SSGS – then why are our SMA’s interest rate pegged only to one – SGS? What is the interest rate for the other securities – SSGS? (link)
13. Apparently, even though our CPF monies do not seemed to be receiving the full interest rates for their investments, “Singaporeans benefit from the investments of GIC and Temasek … through the Net Investment Returns Contribution (NIRC). This amounted to S$7.7 billion in FY2012. (link & link)
14. According to the government, the NIRC “has allowed the Government to make further investments for the long term, such as in education, R&D, healthcare and improving our physical environment.” However, my question is – who really benefits? (link) You can also read an article by Mr Leong Sze Hian (link) and the Citizenship-Ownership Democracy (link) for their further analysis on the NIRC. On a side note, you can also read an article by Singapore Notes on why the government’s borrowing of our CPF is risky.
15. But even though the government returns the benefits of the investments through NIRC, “Temasek will occasionally receive capital injections from the Singapore Government for specific projects, usually ones that are commercially less viable but are politically significant for the government. Most recently, Temasek’s projects with Khazanah Nasional in M-S Pte Ltd and Malaysian Wellness township were given money from the government.” So, this puts to the question – how much does the government inject into Temasek Holding (and perhaps GIC?)? Is this amount higher than the NIRC? (link)

There are some other interesting points which came up:

1. Interestingly, the government claims that “revealing the exact size of assets that GIC manages will, taken together with the published assets of MAS and Temasek, amount to publishing the full size of Singapore’s financial reserves. It is not in our national interest to publish the full size of our reserves. If we do so, it will make it easier for markets to mount speculative attacks on the Singapore dollar during periods of vulnerability.” However, the exact size of assets can be found on the Sovereign Wealth Fund Institute’s ranking of sovereign wealth funds. This thus cast the government’s explanation of their intention of not revealing GIC’s assets into doubt. If anyone overseas could readily obtain information on GIC’s assets, then they would be able to know what the full size of Singapore’s reserves is, isn’t it? If so, is the intention to not reveal GIC’s assets to prevent other markets to know the full size of our reserves, or is it to prevent Singaporeans themselves from knowing?
2. I also find it strange that when asked if GIC invest CPF monies, GIC had said that, “The short answer is that GIC manages the Government’s reserves, but as to how the funds from CPF monies flow into reserves which could then be managed by either MAS, GIC or Temasek, this is not made explicit to us.” This is a non-answer.

Ultimately, the question are a few:

1. Why are GIC and Temasek earning 6.8% and 15% when the Singapore Government Securities is earning only 2.44%?
2. Why are GIC and Temasek earning 6.8% and 15% when our CPF OA and SMA are only earning 2.5% and 4%?
3. Why is our CPF OA’s interest rate pegged to the bank’s interest rate of only 0.21% when our CPF monies are invested in the Singapore Government Securities is earning only 2.44%?
4. Why is our CPF’s SMA’s interest rate based on only the Singapore Government Securities (SGS) when the CPF is also invested in the Special Singapore Government Securities (SSGS)?

Perhaps the next few charts will help put things into further perspective.
Do you know that GIC’s returns have been increasing? (Chart 2)

Chart 2: GIC Report on the Management of the Government’s Portfolio for the Year 2011/2012

Do you know that Temasek’s market value has been increasing? (Chart 3)

Chart 3: Temasek Review 2012

Do you know that the foreign reserves managed by MAS has been increasing? (Chart 4)



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