Wednesday, July 9, 2014

Appendix to DPM Tharman's Description of CPF

To be read with the Straits Times article:

CPF is:
  1. SUSTAINABLE - for the government that is, because a defined contribution scheme is by definition self-funded and hence the government bears no risk for you not being able to afford your retirement. Whether or not CPF is sustainable for *you* is a different story altogether. 

  2. FLEXIBLE - to the extent that you can spend your *own* money only on the things that the government allows you to spend on, subject of course to the alphabet soup of gotcha limits, e.g. MSS, VL and WL, MMS, which incidentally, are moving goalposts.

  3. SECURE - to the extent that debt issued by a sovereign government in its own currency can always be repaid in full in nominal terms. Don't ask Tharman about security relative to purchasing power or the continued strength of the Singdollar. He'll think you're being rude.

  4. FAIR - in that the rates of interest paid are appropriate given the zero rate interest environment brought on by the Federal Reserve's ZIRP policy. No mention of how the ZIRP environment has been in effect for only a handful of years, while the CPF interest rate has remained unchanged for decades.

    Don't ask Tharman about how fair the interest rate is relative to the inflation rate, or how the concept of "illiquidity premium" applies in the case of CPF. He'll think you're an ungrateful git for not realizing how generous the government is compared to the interest accruing on your bank account.

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