CPF cannot behave like hedge fund

I visited Mr Roy Ngerng's blog after reading reports of his allegation that Central Provident Fund savings were misappropriated ("PM Lee demands apology and compensation from blogger"; last Tuesday).

Most of the points he raised were without merit and probably reflected a lack of understanding of how complex financial systems work. The CPF is a national savings programme and cannot be managed like an aggressive hedge fund, which takes on higher risks to secure better returns.

What would happen if the CPF scheme collapses due to losses incurred by investing in riskier instruments? It would be unfair to members who prefer a risk-free environment for their CPF funds.

Members with higher risk appetites have the option of investing their CPF funds in equities, unit trusts and other instruments.

It is also unwise to correlate CPF returns to the returns generated by the Government of Singapore Investment Corporation (GIC).

Some think that as GIC has achieved higher returns than the CPF over the last few decades, funds in the latter could be managed in the same way. Others feel that if GIC uses CPF funds either directly or indirectly to invest, then CPF members should be entitled to the returns. If the CPF Board places the money in a bank, and the bank lends to GIC, these are separate transactions. It is not a case of the originator of the funds deserving the returns just because it provided the liquidity.

We should stop trying to link GIC and the CPF as they are different entities with different objectives and levels of accountability.

Understandably, raising the CPF Minimum Sum is not a popular move among Singaporeans, including myself.

However, we have to recognise that in running a national savings programme, the Government has to ensure that it achieves its intended objective - to meet the members' basic living needs when they retire.

If the full CPF balance is returned to members at age 55, some may squander away the funds and fall into the poverty trap. Government welfare systems would be needed to take care of them and taxes will have to be raised to fund the schemes. Would the working population accept this? Is it sustainable?

Also, it is not feasible to have greater transparency for our sovereign wealth funds. Doing so could reveal areas of vulnerability that could open the country to the risk of speculative attacks on its currency and financial systems.

These funds already have robust internal or even external auditing systems to ensure functional integrity is being upheld.

I hope public bloggers can differentiate between "perceptions" and "truths", which have to be based on evidence.

Jason Soon Hun Khim

This article was first published on May 27, 2014.
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