We should further strengthen the Central Provident Fund framework instead of abolishing it, as some people have suggested.
To fund retirement schemes, countries usually either tax their citizens heavily while they are economically productive, with the promise of a state pension at retirement, or enforce some form of national savings plan like the CPF.
If these measures are not taken, a significant number of people will not have sufficient retirement savings when they grow old and would expect the State to provide for them.
The CPF scheme allows members to use the funds for housing, medical, investment and education purposes. This is far better than paying taxes to receive a pension in future.
Also, under the taxation system, a person can only hope that when he retires, the State will be able to pay the promised pension.
The CPF scheme pays 2.5 per cent interest on Ordinary Account savings and 4 per cent for Special and Medisave accounts.
While it is understandable that members would like the rates to be raised, funds in the Ordinary Account can be withdrawn for other uses such as investments, housing and education. The money can also be transferred to the Special Account to earn higher interest.
So, on the whole, the interest paid on CPF funds does not seem unreasonable.
We have to start treating our CPF money like cash in our bank accounts, instead of thinking of it as "not our money". Only then can we plan holistically for our retirement.
This article was first published on May 29, 2014.
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