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Is the Government Going Bust?

I was quite shaken by my trip  to Parliament yesterday to watch the CPF “debate” .  There wasn’t really any debate at all. Our Finance Minister, Tharman made a speech that was full of  irrelevancies and gaffes and what he did admit to worried me considerably.  I sat in the spectators gallery where it was noticeable that the MIW were MIA . Thank goodness that Eugene Tan is there to remind the Speaker and Deputy Speaker how parliament works. Even some WP MPs  were missing and came in an hour after the debate had started.  No one picked up on anything that Tharman said and he was  given an easy ride for his monologues. This is why I have put “debate” in quotation marks.

Plenty of questions were asked about CPF such as.

  • Whether members could be given an early warning as they approached 55 that their money would be locked up and could no longer be used for housing?
  • Could special consideration be given to allowing those with balances below the Minimum Sum to use part of it to service their housing loans?
  • What is the average amount used for housing as a percentage of CPF Ordinary Accounts of members aged 55 and above?
  • How many Singaporeans who turn 55 are inactive members?

But these were all questions about the mechanism of the  system and accepting it as PAP presented it.  No one asked the questions uppermost in our minds at the moment: Why does the Government need to hang on to our money at 55 if it is making such colossal surpluses amounting to some $30-35 billion a year?

Why does it keep increasing the Minimum Sum?

Is GIC losing money?

And all of this leads the people to wonder, “is GIC is even possibly insolvent?”

The closest that any  questions came to  touching on the issues we all want answered were asked by Gerald Giam and Low Thia Kiang and I congratulate them for asking. Gerald Giam asked how many years in the last 20 years GIC had been unable to pay the interest on the Special Singapore Government Secutities (SSGS), what were the returns on GIC’s portfolio after accounting for interest in each of the last 20 years and what extraordinary measures were taken if that was the case.  All good questions.

When Low Thia Kiang’s turn came he said that as CPF members’ balances were substantial at $300 billion why were CPF members’ balances not separated and managed separately from GIC. An eminently sensible question.

I will restate here  what Tharman said yesterday as a reminder of the convoluted and opaque route by which our CPF monies are invested.  All CPF members’ balances are deposited with the MAS. They are then used to buy SSGS that are matched to the interest rates that CPF pays on Ordinary and Special Accounts. The money from the SSGS is then managed by GIC together with the Government’s other assets.

I found Tharman’s answers to Low’s and Giam’s questions to be evasive and even nonsensical but with the advantage of observing from the gallery I could spot that he also made some revealing and worrying admissions.

These are some of the assertions and answers that Tharman made that set off alarm bells in the minds of anyone who knows anything about how the investment process should work and about transparency. For example,  If I was an investor doing due diligence I would run a million miles rather than invest my funds in GIC.

Tharman said :CPF is an absolutely safe investment since it invests in securities issued by the Singapore Government, one of the few countries left in the world that is still rated AAA

AAA rated! That is an interesting admission.  You may remember that after I visited his CPF forum Hri Kumar went to his  Facebook page and denied that he had ever said that CPF was a AAA investment.   Let’s ignore Kumar as an ignoramus because, according to Tharman,  CPF is safe because it lends to the Government. which is AAA rated.

However the Government then takes our CPF money and pools it with the Government’s net assets. The total is then managed by GIC. GIC is able to take a lot more risk than CPF would be able to as a stand-alone entity because it has the government’s net assets to act as a buffer.

The level of security would depend on the size of the buffer and the riskiness of the assets. In the financial crisis of 2007-2008, having a large buffer of subprime mortgages which had to default before they lost money, did not help the holders of AAA rated Collateralized Mortgage Obligations. The downtown in the housing market was so severe that even the AAA rated securities ended up worthless.

In the same way if we lend our money to the Government and it then uses it to invest or speculate in risky assets then this could happen to our CPF.   It is  like depositing your money with what you thought was a very conservative, low risk financial institution and then discovering that the conservative low risk institution you chose was in fact giving your money to a high risk player to gamble with.

But it is not even  like that for us Singaporeans is it.? As a private investor  you would have  a choice at least over where you put your money and  how much risk you wanted.  You could move it around if you were not happy with where it was invested. Most importantly you could demand absolute transparency, a full explanation of the risk profile and investment rationale and methodology of the fund managers. if you even suspected smoke and mirrors or just did not like the manager’s face you would be free to go somewhere else with your pension fund.

Some might say that you can diversify your risk through the CPF Investment Scheme. You have the option of investing up to $60,000 of your CPF money in a number of options including unit trusts and shares.  However, as the investment is made through CPF,  your money is  still at risk if CPF becomes insolvent.

In 2008 highly rated banks and institutions almost went bust and had to be rescued by governments worldwide because they had used their depositors’ money to invest in highly risky assets. Citibank, UBS, Bank of America, RBS, Lloyds, and AIG are just some of the institutions that had to be rescued by their countries’ taxpayers.

Please note that AIG used to be rated AAA while the others were either AA or AA+.  These institutions were investing in or guaranteeing supposedly AAA financial instruments (like sub-prime collaterized mortgage obligations) that ended up worthless. Temasek and/or GIC had significant stakes in some of these institutions.

Can you see why I am worried?

Tharman said that our CPF assets can be put into a larger porfolio that takes more risk because the Government’s net assets act as a buffer. How big a buffer do the Government’s net assets represent before we are at risk of losing our CPF money if GIC squanders the funds it is given through poor investments?  I will not go into detail here and will publish my calculations as a separate note.  However if the Statement of the Government’s Assets and Liabilities issued every year as part of the Budget is accurate and includes Temasek as well,  then there may not be any buffer left.

Can you see why I am worried?

In fact the Government will already need to dig into the cash reserves it holds with MAS or force Temasek to sell assets in order to pay back CPF holders.  If GIC loses money then the Government will have to raise taxes or print money.

Can you see why I am worried?

If Temasek’s assets are not included  in the Statement (which would surely be a breach of the Constitution since both Temasek and MAS are Government-owned corporations just like GIC) then there may be a buffer of up to 30% of total assets within GIC before the Government has to make up the shortfall from other sources. This is still not reassuring as a downturn in global markets of the severity of 2008 could easily cause equity, bond and real estate values to decline by 30%.  The Government has a large net cash reserve of some $140 billion but it would need to keep a large part of this with the MAS to fund their operations. MAS is not allowed under the Constitution to lend money to the Government which would amount to printing money.

Can you see why I am worried?

Tharman made some comment about GIC’s higher returns benefiting all of us. Really? What benefit do Singaporeans get if GIC is able to achieve higher returns than the Government pays on CPF by taking more risk? We have yet to receive any benefit from enduring years of austerity and low rates of return on our forced savings. The so-called Net Investment Returns Contribution is a scam since it does not represent actual spending but only a shuffling of money from one account to another. This is the question that Hari Kumar dodged at his forum and condescendingly said “we’re dealing with the real world here”. What real world is that, Mr. Kumar? One in which the PAP government continually pulls the wool over the eyes of its citizens.

So despite Tharman’s reassurances we can say that our CPF is only AAA because the Government (which means Singaporean taxpayers) are guaranteeing it.  This explains why the Government keeps on harping on the need for taxes to rise.

Can you see why I am worried?




  1. Inconvenient truth of the matter is that most of the people who have less than the minimum sum are the ones demanding for the money to be released to them. These people are also the least equiped to make investments with better returns than what the CPF is giving out. To ride on this wave of ignorant capriciousness for the sake of support is unethical and irresponsible.


    • So that is your definition of “unethical and irresponsible”. Here is mine – deeming that you know better than someone else how they should handle their life savings and unilaterally varying their right to access them. Unless someone is declared incompetent by order of a court or a medical practitioner, on what grounds should they be deemed unable to handle their own affairs? If you want to start controlling peoples’ lives, then why stop at how they handle their money? Why not start telling them who they should marry, what they can read, where they can gather…oh wait! I forgot!


  2. Dear Kenneth,

    I can truly see why you are worried!

    You’ve read well between the lines of the Finance Manager based on your vast knowledge and experience as a ex-hedge fund manager. Many, like me, wouldn’t have caught on to such inconsistent points even if we had scrutinized that “debate” with a fine-toothed comb.

    An excellent analysis!

    Believe you me, when I say I’m now extremely worried for the future of Singaporeans and my three children. What does the future really hold for us? Is there even a remote sign of salvation?

    Only time will tell if we continue to allow ourselves to being constantly hoodwinked.

    God help us all!


  3. Pappies are very worried that under the law governing management of trust fund of which CPF is one such trust fund, all interests earned are to be fully returned to the CPF holders otherwise they cannot guilty of a breach of the trust law. So do not forget to keep demanding return of all interests earned to be given back to us as well as to honour return of CPF at 55. If pappies want to change law, at least do not affect such basic principle – cpf is people’s own monies.


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