wbln0018.worldbank.org/html/FinancialSectorWeb.nsf/(attachmentweb)/spdp009919/$FILE/spdp009919.pdf

A comparison of the CPF’s Annual Report and the data available in its website with those
of Malaysia’s Employees’ Provident Fund (EPF), Hong Kong’s Mandatory Provident
Fund Schemes Authority, and information provided by the Chilean pension system
demonstrates the paucity of relevant and timely data provided by the CPF. This reflects
the strong tendency in Singapore to regard even basic socio-economic information as a
strategic resource to be employed by the policy makers for tactical purposes rather than
regarding such information as a public good. The purpose is to prevent rigorous research,
analysis and development of expertise, with a view to controlling public debate on social
security. The governance shortcomings of the CPF concerning investment policies and
design of various schemes will become clearer when these aspects will be discussed
shortly.




It is now acknowledged by the policy makers that the design of housing and property
schemes of the CPF has led to over investment in these areas. Maintaining property
prices, especially of residential housing has become a vital political necessity, but this
substantially constraints restructuring of the CPF system (Lee 2004).


While the government issues non-marketable bonds, in actuality, as the government has
been consistently enjoying budget surpluses (Asher 2003), proceeds from the bonds are
turned over to Singapore Government Investment Corporation (SGIC) for investments.
The operations of the SGIC (and other government investment holding companies such
as Temasek Holdings) do not have to be revealed, even to the Parliament or the President
of the country, because of statutory provisions. The CPF balances ultimately however are
widely believed to have been almost wholly invested abroad.
There is thus a disconnect between the administered interest rate paid on CPF balances
and the actual investments and returns obtained. This is not consistent with transparency
requirements, and the fiduciary responsibilities of internationally benchmarked provident
or pension funds. The political risk inherent in this arrangement is also very high.
Predominant role of the government in Singapore in the savings – investment
intermediation process (result of large structural budget surpluses, substantial public
sector, and mandatory CPF savings), has raised efficiency concerns (Asher 2003).
This arrangement has not resulted in realizing the potential of the power of compound
interest for members as shown in Figure 1.

To the extent the government holding companies earn higher than what is paid to the CPF
members, implicit tax on CPF wealth occurs. IMF has estimated that the Singapore
Government Investment Corporation (SGIC) earned about 10.0 percent per annum during
the 1990s, substantially higher than the average nominal return of 3.4 percent credited by
the CPF. The implicit tax for 2000 is (10.0-3.4=6.6) times $90.3 billion, or $5.96 billion,
equivalent to 42 percent of contributions or 3.75 percent of GDP. The implicit tax is
recurrent, and it is regressive as low-income individuals hold proportionally greater
wealth in the form of CPF balances. At the minimum, the implicit tax is the difference
between what is earned on insurance funds and the returns to members on their balance
as shown in Figure 1.