The argument between CPF supporters and detractors has remained very much active till this very day; it is hard to find two people who completely agree on being with or against the system simultaneously.

I stand in neither camps. CPF has its benefits and flaws to go alongside it.

Instead of finding out which camp is the right one to be on, I present you with a more intriguing question that affects every single Singaporean regardless of where you stand on this: Can we trust the CPF with our money?

Or more importantly, can we trust the CPF system with our retirements?

Policy risk

People who are very against the CPF are either

1. Want access to more liquidity
2. Are worried about the safety of their funds

The second group of people have every right to be worried. The CPF has not made it very clear about how the funds are managed and this group of people are afraid of policy risk.

Our CPF monies are protected under the CPF Act. This legislation basically ensures that money only goes in, and not out. Even if money goes out, you are expected to pay it back with accrued interest most of the time.

However, in the Act, there is no mention of any protection of the funds from government spending or any other forms of use by the government.

Thankfully, it is mentioned under the Government Securities Act that CPF funds, which are invested in something called SSGS bonds (more on that later) cannot be used by the government to fund expenditures.

On paper, it is set in stone that CPF funds are protected from misusage, but I somehow still cannot trust everything the law says.

Laws can be changed, whether we like it or not sometimes.

So, even if there are legislations set in place to protect our funds, it will be wise not to turn a blind eye to the unexpected future.

A symbiotic relationship with the government

One good thing about our CPF system is that our country’s success as an efficiently-run nation is partly due to the symbiotic relationship us citizens have with CPF.

Essentially all of us are forced into contributing to CPF whether we like it or not. A good chunk of us might be complaining now, but stop after getting the taste of being able to make withdrawals and monthly payouts after 55 and 65 respectively.

Effectively, the government is guaranteeing us some form of protection for our retirement by forcing us to save for it.

This is also extremely beneficial for the government as they do not have to set aside and prepare for future social spending for those who cannot provide for themselves in a Singapore without CPF.

The CPF system also seems to try to coax its contributors by offering high interest rates up to 5% on their accounts. Compared to the retirement plans like the 401K and IRA in the US which performance depend on the investments chosen, our CPF accounts here earn fixed interest rates that are much better than many financial instruments out there.

Additionally, the accounts are backed by the government as well, making the interest earned virtually risk-free.

So we can easily see that it’s actually a win-win situation for both us and the government. We get the opportunity to ‘invest’ and grow our retirement monies virtually risk-free while the government gives its best to keep interest rates up and not have to worry about spending more on social programs to support the elderly in the future.

In 2020, 15.2% of the population here are considered elderly (above age of 65) and by 2030, it is projected that this percentage will go up to 25% according to an article by CNA.

It’s actually mind boggling to see how fast the aging population is growing here. This is what the government will want protection against. Imagine the government having to support 25% of the population in the future; social spending and taxes on younger citizens will go through the roof.

This protection for them has only been made possible through using CPF.

We can see that the CPF is acting as some form of financial protection for the government itself as well. With this symbiotic relationship with its citizens, it’s hard to see that the government will do something that will make us lose our trust in the system.

Furthermore, choices made over will impact how we vote during the next General Election to a certain extent.

So to remain in power, the current government basically must keep us happy. Checkmate!

Like how we remain a safe country to stay because of the relationships forged with other nations, it looks like the government has employed CPF in a similar way to financially protect us and themselves.

SSGS bonds

In this section exclusive to my personal blog, you can find out how the performance SSGS bonds have an impact of the trustworthiness and integrity of the CPF system.

I will be sharing some data-driven insights that show the fragility of the CPF system in the long run that puts up some red flags against contributing too much to it.

This will give you a more holistic view on the trust issue over CPF.

Head on down and I’ll see you there!

Summing up,

In the end, there are good reasons to trust or distrust the CPF system.

You can stand in either camps to trust or distrust the system fully. But it is imperative to be aware that there are reasons against your stand.

If you wholeheartedly trust the system, don’t go all in with every cent of additional funds you have. Be wary of the consequences should the system fail.

On the other hand, if you completely distrust the system, remember that you might be losing out on benefits if you were to voluntarily contribute above the mandatory amount deducted from your salary.