SO YOU THINK THE CENTRAL PROVIDENT FUND IS BAD

Singaporeans have much to gripe about the Central Provident Fund. In the early years, some were angry it prevented them from making their own investment decisions. Rules were relaxed to allow contributors to allocate part of their savings for investing in the local stock market. Some griped the savings rate were so high they are left with no discretionary funds to invest in housing. Rules were changed to allow the savings be drawn for housing mortgage payment. The current gripe is paying for housing has wiped off their retirement nest egg. The rising cost of government built HDB apartments has left many with very little savings in their CPF account for retirement, exacerbated by the diminishing value of the lease. A perennial gripe is the rate of return on the mandatory savings is measly.

Retirement funds are basically of two types - provident funds and pension plans.

A provident fund is where employees and employers make contributions into their account and the money is invested in two ways - it either goes into a pool that the fund manager invests, or the contributor has a choice of how he wants it invested. Revenue from the investment is used to pay off fund management cost, and net earnings accrue to the contributors. In other words, all money received are invested, thus funds are available to pay members when they retire and start getting a regular monthly payout from their own account. In the case of CPF, the contributions go into a pool. What is unique with CPF is the funds are primarily invested in SSGS which is a non-marketable Special Singapore Government Securities paying a minimum rate of return of 2.5 % p.a. This means the retirement fund is guaranteed by the government. It is risk-free. By law, the government cannot spend the proceeds of the SSGS. The funds are pooled with the sovereign wealth fund GIC for investment.

A pension fund is where employees and employers contributions are collected by the fund manager who has full discretion on what to do with the contributions. The employers or the government comingle the contributions they receive with all other revenue and use it accordingly. They may or may not invest some of the revenue to support the pension funds. There is a liability to pay retired members, but no specific assets for this purpose. Upon retirement members are paid a fixed monthly sum according to a payment plan and the money that is used for these payouts come from current paying members. This is called unfunded liability. Most of the Western countries government pension plans are on this basis. There is a factor called 'dependence ratio'. This measures how many people are there in the working age group compared to the numbers in retirement. Most of the Western countries have a high ratio of about 67%. This means 4 working citizens are supporting 1 retired person.

In comparison, CPF is a fully-funded retirement fund while most of the Western government pension plans are unfunded. For these Western countries, negative population growth rate is a demographic time bomb as it will drag the dependency ratio down. The contributions from those currently working will soon not be sufficient to meet the regular payouts for those retired. This could perhaps be one reason for the mad open border policies of the Western countries in a crazy last ditch effort to increase their numbers.

Many decades ago I tried my hand at selling some investment products. Like all investment sales person, I pitched my product as one of the best, highest ROI and so forth. My referrals led me to a supposedly high-net worth guy in his 70s. After going through the charts and brochures, the senior gentleman thanked me for the presentation and taught me something. As a retiree, he had no interest in high returns if that means taking a teeny weeny bit more risk. He was happy with his low return low risk portfolio that provides some regular cashflow. That's exactly what CPF is all about. For a Singapore investor, our government issued securities are considered risk-free. Low-risk, low-returns for a retirees' fund.

Some may well say the CPF money goes to GIC that takes on a higher risk profile portfolio. Surely that's putting retiree funds at higher risk whilst guaranteeing a measly return on the SSGS. The government is ripping members off! Actually, it is strategically smart policy to pool CPF funds with reserves to be managed by GIC. There are many tangible and non-tangible advantages for a larger fund. Advantages include economies of scale which reduces transaction costs and unit cost of operation; better capitalised operation has better access to leverage and liquidity thus more opportunities; a bigger name has better access to markets and more direct and better deals; a bigger brand name has more influence and can negotiate better and impact prices; has better access to research resources, better risk management tools, and presence in markets; more leeway for diversification of investment portfolio; and lastly a huge fund can withstand the occasional ugly disastrous investment decisions that would cause a smaller fund to collapse.

There are no other retirement funds that operate like CPF. All of them make independent investment decisions. Pension funds face tremendous challenges in managing large pools of capital. Millions of retirees and their beneficiaries are at high risk from mismanagement, fraud, and risky investments. Regulatory agencies have failed time and again to prevent fund manager abuse especially in the matter of their arrangement with investment houses. Excessive fees paid to investment houses is common. Another issue against investment houses is the increasing allocation of exposure out of equities and bonds into high risk hedge funds and mutual funds. Here are some examples:

California Public Employees' Retirement System

This largest fund in US has faced multiple issues with investment fraud and mismanagement over the years, though it continues to be a prominent and significant pension fund. It has faced many corruption claims. The fund practices 'shareholder activism' (it tries to influence investee corporations) which is fertile ground for many insider trading activities. It is currently having unfunded liability issues.

New York State Common Retirement Fund

It was involved in a major scandal known as the "Pay-to-Play" scheme, where investment firms paid kickbacks to secure investments from the pension fund.

San Diego County Employees Retirement Association:

SDCERA outsourced their investment to a firm named Salient Partners to invest 50% of their funds. Heavy losses resulted from mismanaging funds by Salient.

Illinois Municipal Retirement Fund

It has faced issues with investment losses and has been criticized for the high fees paid to hedge fund managers and private equity firms.

Kentucky Retirement Systems

It has experienced severe underfunding and investment losses, and there have been allegations of mismanagement and poor investment decisions.

Public Employees' Retirement System of Nevada

It has faced criticism and legal challenges over investment losses and the fees paid to external managers.

Dutch Pension Funds

They faced substantial losses in the past, particularly during the global financial crisis of 2008, which led to a decrease in funding ratios and forced the fund to reduce pension payments.

Ontario Teachers' Pension Plan

The OTPP has experienced significant losses from time to time, particularly in the early 2000s when the dot-com bubble burst, affecting its technology investments. 

Japan Pension Investment Fund

This is the world's largest pension fund. It has reported substantial losses in many fiscal years marked by global market downturns. For instance, in 2018, it reported a loss of $136 billion due to market volatility.

South Korea’s National Pension Service

NPS has experienced major losses due to investment in underperforming assets, including a controversial investment in Daewoo Shipbuilding & Marine Engineering, which led to significant write-downs.

Once in a while a huge financial scam or scandal comes along. Each time, Pension Funds are amongst its victims. The path to chasing higher yields for investment money is littered with such victims. Here are some examples :

Bernie Madoff scam:

Massachusetts Pension Reserves Investment Management 

Los Angeles County Employees Retirement Association

New York State Common Retirement Fund

Royal Dutch Shell Pension Fund

Banco Santander Pension Fund

HSBC Pension Fund: HSBC,

Bre-X Minerals (gold mining scam):

Canadian Pension Funds:

Ontario Teachers' Pension Plan

Public Sector Pension Investment Board, Canada

Austrian Pension Funds

Firms that manage pension funds :-

- Caisse de depot et placement du Qubes

- Alberta Investment Management Corporation

- British Columbia Investment Management Corporation (BCI)

Barings Bank:

Norwich Union

Merseyside Pension Fund

British Coal Staff Superannuation Scheme: 

Tyco International scandal:

California Public Employees' Retirement System 

Florida State Board of Administration

Enron scandal:

Florida State Board of Administration

California Public Employees' Retirement System 

New York State Common Retirement Fund

Teachers Retirement System of Texas

Ohio Public Employees Retirement System

British Columbia Investment Management Corporation 

Ontario Teachers' Pension Plan 

Government Pension Fund of Norway: 

Worldcom scandal:

California Public Employees' Retirement System 

New York State Common Retirement Fund

Florida State Board of Administration

Ohio Public Employees Retirement System 

Teachers Retirement System of Texas

Minnesota State Board of Investmen

Dutch Pension Funds:including Algemeen Burgerlijk Pensioenfonds

The problems of unfunded liabilities of pension funds all over the world are massive and there is in reality, no solution in sight, and neither are authorities talking about it or working at it. For example, a study by Ted Dabrowski and John Kllinger in 2020 on pension funds in the state of Illinois, US, showed pension funds in the state has a total shortfall of US$500 billion. 

Back in 2017 I wrote a guest blog on another platform about Social Security System, Philippines (SSS): The SSS had 31 million members. A 2015 study determined the actuarial life of the fund was 14 years, meaning the unfunded liability is massive. The fund is in deficit and payments to retirees will run out by 2029 unless certain parameters are changed -- reduction in payout, increase in contribution rates, or increase in membership, etc.

No doubt Singaporeans will not see CPF any differently after reading this blog. They will most likely say the funds are placed with GIC for higher-returns higher-risk investments. GIC may well suffer the same experiences of above-mentioned pension funds chasing higher yields. And indeed, GIC has had numerous disastrous outcomes in their investment decisions. This is a fair concern. I have mentioned in blogs past that GIC is supposed to maintain a lower risk profile than Temasek.  It is not possible to look through the opaque wall of GIC to assess their risk exposures. But looking at reported transactions from investment intel, it is clear there is increasingly no difference between GIC and Temasek in the way they invest. They have gone into very high risk venture funds backing various start-ups. I have mentioned in the past that considering GIC is investing pension money, the caution of that 70 year old prospect that I approached to sell investment products has a certain ring for attention.

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POLITICS IN SINGAPORE - WHAT NEEDS TO CHANGE?

Recently, Viswa Sadasivam, Chief Editor of Strategic Moves, interviewed Bertha Henson on 'Inconvenient Questions'. The topic covered was "Politics In Singapore - What Needs To Change?". Bertha of course used to be a journalist from Singapore Press Holdings for 26 years. Amongst other endeavours, she is currently a lecturer at NUS.

I am not professing Bertha a polymath but her decades pounding the grounds as a journalist gives her street credibility. That much can be said of her views being a closer representative of the general public then ministers' who are fed biased views from interest groups like grass roots organisations and who listen to the science of statistics from online surveys culled from professional online respondents who are people trying to make a buck or two answering some questions with disinterest.

Everyone should have an interest in current affairs. Our participation do make a difference. The best illustration is the SimplyGo fiasco, which surprisingly, and to the credit of the government, notwithstanding their mistakes in product specification, they heeded the public's call to address the system's weaknesses that were brought to light. 

It is heartening to see the 'Inconvenient Questions' podcast attracted 63,000 views and 300+ comments. The show of interest is healthy. What I am rather miffed is easily 40% of comments went ad hominem on either the interviewer or interviewee. They discussed people instead of issues. Actually, I think Viswa did remarkably well as interviewer to hem the discussion within topic, occasionally asserting his own views, but just not too much. Bertha, falling into colloquialism most of the time, was merely expressing her views, whether we agree with her opinions or not is besides the point. We are free to critique or support her. That's the whole purpose of a conversation and participation. As a community, we must share and try to add value to ideas.

The discussion covered political and social-economic grounds. The way she put it, Bertha has many issues with the government, but whilst she was blunt on the points raised, she did her best to observe political correctness. The dichotomy is not lost in her criticism of the way some things got done and her paying tribute to the excellent civil service corp, 

One point that was mentioned was Singapore's inability to produce world-beaters, or as Viswa put it, Singapore icons. As Viswa said, we only have SIA, and some time back, Creative Technology. I had hoped this line of thought would drive the discussion to a more philosophical level delving into a discussion on the downside of statism, which is the ideological statecraft of the PAP government. Statism is the doctrine of centralised control over economic planning and policy. A discussion on what has been good and what has been bad for Singapore, from the perspective of statism, would have been interesting. Bertha did mention Singapore business inc tend to cocoon itself in the safety of latching onto the leads of the government, such as in AI, the current poster boy of investments, rather than blazing their own trail. This is precisely one downside of statism. Unfortunately the discussion merely scratched on anecdotes instead of core principles which would have provided a better understanding of the status quo.

Viswa tempted Bertha to comment on whether there has been tectonic changes in government. The gist of Bertha's position is Lee Kuan Yew's government was anchored on incorruptibility, that Goh Chok Tong is intrinsically a good man from what she can perceive having covered him for many years as a journalist (implying morally upright), and then she trailed into the soap opera episodes of Minister Iswaran and Speaker Tan Chuan Jin. She lamented Lee Hsien Loong's government has skewed away from morality towards talent. Although not the kind of tectonic shift in terms of economic policies one expects to focus on, Bertha's choice of moral standards to me is interesting because I harbour the acute sense that progressive liberalism has uprooted the moral compass of governments of Western countries. Has this disease visited the shores of Singapore? More importantly, has the PAP internalised their deviation from the moral compass and bring the vessel to even keel? From their handling of the Ridoutgate scandal, it does seem the answer is negative.

This is a topic about 'change', and Bertha's view is LHL's government is predicated on continuity of Same-O-Same-O. It has no new bright spark ideas and coasts along on the coat-tail of continuity of policies of past governments. As a commenter asked, is continuity necessarily a bad thing? I think continuity has been one of Singapore's strongest point. It provides stability and no disruption to ongoing state projects. The business community has a high level of confidence in making their long term plans. Compare our experience to that of say the US and Philippines where a change of government causes massive social-economic upheavals. Biden has made 180 degree turns on most of the policies of the previous admin. In Philippines, Marcos' re-pivot back to the US has basically put a stop to the many infrastructure projects the previous Duterte admin had arranged with the Chinese government.

On the other hand, corporations do not hold dogmatically to the adage 'if it ain't broke, don't fix it'. Continuity begets staleness, change brings in fresh ideas and energises creativity. Change however, does not mean a tectonic change of products or services, although it does happen, such as in the case of Apple switching from personal computers to mobile phones and wearables. Change mostly takes the form of restructuring from centralised to martrix  organisations, or vice versa. It could be along functional lines, resources, markets or geographical.       

For the government, change does not necessarily mean drastic ideological and policy changes.  It could be some form of structural or procedural changes. Looking at the LHL government, who is to say such changes have not taken place. 

Bertha mentioned the government appointment holders are the same small group of people that plays musical chairs. This is a unique problem of a small population base. The challenge of this situation is to prevent the development of a siloed environment. Such an environment invariably develops tribal loyalties and territorial conflicts which discourages cross agency collaboration. People working in a siloed network lose track of the bigger mission. A structural change forces people in siloed networks to re-establish new networks across the bigger organisation. It is this change that brings in a breath of fresh air. It is very evident Singapore Inc is a much siloed network where the ruling party and government has become synonymous.

Tan See Leng, the Manpower Minister and Second Minister for Trade and Industry, was mentioned as the kind of official both Viswa and Bertha like to see in the government. Someone from the industry, a successful entrepreneur, rather than full-time politician who has never held a job in the market. I would add that Edwin Tong is similarly placed as Tan. Bertha recognises the difficulty of enticing successful entrepreneurs to join the government. 

I recall many years ago when I moved into a private condominium, I attended some management committee meetings. Except for committee members, not a single resident turned up. Noticing my interest, I was co-opted into the committee. There was no quorum as nobody bothered. We had a new maintenance project - the mandatory re-painting and some repair works. Nobody bothered. So the committee tried to show inclusiveness by notifying all residents of decisions to be made. Nobody was interested. It was left to us to decide on everything. Then on completion of project, complaints started pouring in. Why this colour, not that, and other petty issues. The point being made is let's not act like these residents, let's be more participative and recognise the value of officials.

The usual patsy or punching bag, the foreign workers, was also touched on. But Bertha paid cursory reference to merely suggesting a bad taste in the mouth to see so many foreign workers in our midst. This is an issue that is totally owned by the opposition, with the government on the defensive. Folks understand the necessity of having foreign workers for jobs that Singaporeans do not want. This is a commonality of all developed countries. Singaporeans also understand real talent is in demand in the world as well as those who can create jobs. All these are welcome. What is unacceptable is foreign worker policy has been a cover for the business class to take advantage of a cheaper labour source, gradually hollowing out local PMETs and depressed general wage levels. This is a point that Bertha failed to stress. For me, another important corollary point is the friendly foreign worker policy is a pathway to citizenship. While a country with a decreasing demographic must be creative in managing at least zero population growth, generously turning the faucet for new citizens but denying a generation that has built the reserves more access and benefits to savings built from years of denied gratification, is discriminatory. It is a policy that is forcing Singaporeans to view new comers as carpetbaggers who get to enjoy the benefits of wealth built by those before them.

Bertha was asked what is that fundamental piece of advice that she would like to send to the incoming Prime Minister Lawrence Wong. To her, she would have Wong shed the image of his being a last minute compromise. He should project the image the whole cabinet is solidly behind him. She would like to see Wong gain legitimacy in the coming general election. For me I think these comments are rather lacklustre.. There is a tectonic shift in the world geopolitics as well as the real existential threat of New World Order. I would frame my questions for Wong to share his thoughts in this context. Specifically, I want to know the influence of WEF on government policies, does having a President holding directorship in WEF Trustee signify certain servitude? Are we blindly signing the pandemic treaty and handing sovereignty to a Bill Gates-controlled WHO? Have we woken up from the deep hypnotic spell of novel mRNA vaccines pushed by Big Pharma elites who turned billionaires during the pandemic? Singapore will be isolated by the BRICS community. What are his options for Singapore to remain significant in a BRICS-dominated future where we are barred membership due to our knee-jerk foreign policy of unilateral sanction against Russia, one decision I would think was made in appeasement to, and show of solidarity with, Western countries rather than to the publicised noble policy of standing up for small nations.

I had no expectations of great insights that we are accustomed to from the likes of Kishore Mahbubani, George Yeo, Ngiam Tong Dow, or Phillip Yeo. Nevertheless, Bertha serves to illustrate that one can paint the government negatively without attracting any POFMA.

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