By Singapore Singaporeans and Roy Ngerng

(Please note that this is a two-page article.)

Page 1, 2

Page 1: How You Are Made To Pay More Than Two Times The Price Of Your HDB Flat

Page 2: How Your CPF Savings Gets Cut Down By Half

There is something very insidious about the CPF – something that they have never told you. Today, let’s uncover the truth about the CPF and find out its true colours for ourselves.

Let’s jump straight in.

Do you know that if you had started work at the age of 21 in 2001 and earn a median wage, by the time you are 55, you should have accumulated almost $700,000 in your Ordinary and Special Account (OSA) (Chart 1)?

Chart 1

But why is this not happening to many Singaporeans?

According to Leong Sze Hian, he estimated that only 1 in 8 Singaporeans are able to meet the CPF Minimum Sum and are able to retire.

It has also been shown by 3 studies that Singaporeans have the least adequate pension funds.

Chart 2: Developing Asia’s Pension Systems and Old-Age Income Support

Chart 3: Melbourne Mercer Global Pension Index

Chart 4: Pensions at a Glance Asia/Pacific 2011

But, why do Singaporeans have the least adequate pension funds compared to anywhere else in the world, when Singaporeans actually contribute the highest proportion of our wages into CPF? The maths simply doesn’t square.

Manulife had also shown that as compared to the other Asian tigers, Singaporeans are made to set aside the largest proportion of our wages to CPF, leaving us with the smallest purchasing power.

Chart 5: Manulife Asset Management Asset rich, income poor? Key components of retirement income security for aging Asia

Let’s break down the reasons why for you.

Singaporeans Are Forced To Pay The Highest CPF Contribution Rates But The PAP Gives The Lowest Returns In The World

First, you need to know that the most basic reason why Singaporeans have such inadequate pension funds in our CPF is because of the low interest rates.

Singaporeans might pay the highest CPF contribution rates in the world (Chart 6).

Chart 6: Social Security Programs Throughout the World, Social Security Programs Throughout the World: Asia and the Pacific, 2012, Social Security Programs Throughout the World: Europe, 2012, Social Security Programs Throughout the World: The Americas, 2011, Social Security Programs Throughout the World: Africa, 2013, Coordinating Healthcare and Pension Policies: An Exploratory Study

But as I had written about before, Singaporeans also most likely earn the lowest interest in the world.

Chart 7: Mandatory Provident Fund Schemes Authority A 10-year Investment Performance Review of the MPF System (1 December 2000 – 31 December 2010), Interest Rate Declared on Provident Fund Accumulations Since 1952, Mandatory Provident Fund Schemes Authority A 10-year Investment Performance Review of the MPF System (1 December 2000 – 31 December 2010), Employees Provident Fund Dividend Rate

This would explain why even though we had to set aside such a large chunk of our wages into the CPF – 37% to be exact – our pension funds is actually one of the least adequate in the world!

This is what it actually means – the CPF contribution is from our wages and the CPF interest rates is from the government. So, what is really happening is that Singaporeans are made to part with the largest chunk of our wages in the world to CPF while the government gives the lowest interest rates anywhere in the world. Singaporeans are made to give the most and the PAP allows themselves to give the least (Chart 7).

Chart 7

And as explained, the PAP has taken our CPF to invest in Temasek Holdings and GIC – they have earned an interest of 16% and 6.5% respectively. Since they are using our CPF and earning such high interest but we are only getting back 2.5% to 4%, this means that what we are receiving is very low – we are not getting back the returns on our CPF that we should from these investments. This means that the interest that is not returned to us is actually an implicit tax that the PAP is making Singaporeans pay, on top of our CPF (Chart 8).

Chart 8

So, here’s the first reason why Singaporeans have the least adequate pension funds – the PAP takes out too much of our wages into CPF but gives us too little back in return. Why do they need to take so much of our money away for themselves for?

But the next reason is what is more important and would shock you.

How Using Your CPF To Buy A HDB Flat Entraps Singaporeans

Singaporeans are also able to use the CPF to purchase their homes.

I will go quickly through the maths but you don’t have to get too engrossed with the technicalities. Just try to see the whole picture.

So, assuming that we want to buy a new HDB flat at $300,000, we would put down a 20% downpayment of $60,000. 15% or $45,000 can be paid using the CPF (Chart 9).

Chart 9

Take note of the CPF amounts.

For the rest of the 80% or $240,000, if we were to also use the CPF to pay for it, we would need to pay a monthly mortgage of $961 for the next 30 years.

After fully paying for this mortgage for 30 years, we would have paid out $345,960 in mortgage (Chart 10).

Chart 10

In total, this means that we would have paid $405,960 for the flat (downpayment of $60,000 and total mortgage of $345,960).

At first glance, we might think we need to pay only $405,960, or about $100,000 more than the actual “value” of the $300,000 flat (Chart 11).

Chart 11

But actually, you are paying a lot more than that – read further. Now, this is where things get even scarier.

The PAP Tricks Singaporeans Into Paying Additional Interest Rates For Nothing

What do you mean I have to pay more than the downpayment and mortgage that I have already finished paying off? How can there be any more money that I need to pay?

This is because there are some things that the PAP has not told you upfront (or you might have missed amidst all the confusion that they have intentionally created).

When you take money out from your CPF to pay for the mortgage, when this money is taken out, you wouldn’t be able to earn interest on this money since the money is taken out, right? – which is understandable. What this means is that the government won’t need to pay you this interest and you won’t be able to earn interest.

So, that’s the easy part. Here is what you have not been told.

Now, what the PAP has then said is this – since you have taken this money out and are not able to earn the interest, you will now have to pay the interest back into your CPF. You will have to pay the 2.5% interest that is “lost” back into the CPF.

The PAP calls this the CPF accrued interest. This is what the PAP says: “If you sell your HDB flat, you need to refund the principal amount you had earlier withdrawn for the purchase of the flat, including the accrued interest, to your CPF account. This interest is the amount you would have earned, had the savings not been taken out.” Wait, no one ever told me about this! I thought it’s only the mortgage!

So, see if you get this – if you had left your money inside the CPF, the government will pay the interest. But when you take the money out, the government wants you to pay the interest back. In the first place, since you have taken the money out, the interest can no longer be earned and even if the government wants you to earn the interest, they should be the one paying the interest, right?

Well, you are right. The basic principle works like this – if you decide to put your money into a bank, it is the bank that would pay you interest. And if you take your money out, the bank doesn’t pay anymore interest to you. Obviously, you don’t have to pay interest to the bank on money that is no longer there.

So, similarly, if we had taken our money out from CPF, the government stops paying interest to you.

But why is the PAP then making you pay “back” the 2.5% interest that they should be paying? Now, note this – what this means is that you are paying an interest of 2.5% on money that is no longer in the CPF. You are paying an interest into the CPF on nothing (Chart 12).

You have to fork out money from your own pockets to put into the CPF for the government.

Chart 12

Do you see it? The government makes you think that if you want to grow your retirement fund, you should put the money back.

First, if you should put any money back, it should be because you have additional savings which you want to save and decide to put into the “bank”. It should not be to put interest back on money you don’t have or even own inside. Second, you should be the one who decides whether to put the money into the “bank” or not. It shouldn’t be a forced entrapment plan. Third, why did the government tie in the CPF interest rates to the HDB mortgage, when they are two separate things?

Remember this – (1) the government is making you pay “back” a redundant interest rate which in fact, they should be the ones paying you and (2) the government has concocted a plan to make you pay them what they term as “CPF interest that you have lost” when it’s simply a plan to make you pay them so that they can earn.

This is nothing but trickery.

The PAP Turns Your CPF Into Their Bank To Lend Money To You On Interest

But here’s another way to look at it.

By asking you to “return” the 2.5% interest, the government is effectively saying that the money inside the CPF is money they are lending to you to pay for your mortgage, which is why they had then made you pay an interest on it. What this means is that they had taken over your CPF and made themselves the moneylenders of your CPF. Effectively, they have taken over your CPF, act as if they own it and decide that if you want to take your CPF money to use, they get to decide on the terms they want to lend the money to you – but money which is yours in the first place (Chart 13).

Chart 13

But why do you have to “borrow” money from yourself and pay “interest” to yourself on money that is yours in the first place? If I have a dollar in my piggy bank, when I take the dollar out to use, do I need to keep paying an interest for everyday I do not put the dollar back? I get to decide what I want to do with the piggy bank, don’t I? I get to decide when I want to put the dollar back, interest or no interest.

Thus who gave the PAP the mandate turn our CPF into their bank and act as if the money inside is theirs, which they can set an interest on and earn from us? Let’s be very clear – we are using our own money to pay for the HDB flat, not some non-existent money.

And if indeed an interest needs to be charged, isn’t there already a 2.6% interest that we are already paying on the mortgage? Why are we made to pay an additional 2.5%? What the PAP is doing is this – they are making us pay a 2.6% interest to their HDB bank and then make us pay another 2.5% interest to their CPF bank! What this means is that we are actually paying at least a 5.1% interest, which is a very high interest rate (Chart 14)!

Chart 14

Where on earth do you get a bank(s) that is so corrupted beyond its means that it doesn’t even tell you the truth of where your money is going but keeps you in the dark until the truth hits you when it is too late, and you’ve lost much of your money?

Do you see what is happening here?

When it is convenient, the PAP will tell you that the CPF is your money and you own it. But when they feel like it, the PAP says that the CPF is their money – they get to invest it anyway they like it, and they get to turn your CPF into their bank and decide to lend you on added interest, as and how they like it. The CPF then double-charges interest on the CPF you withdraw for the mortgage, by first charging an interest on the mortgage and then charging an interest on the CPF withdrawn for the mortgage (Chart 15).

Chart 15

Meanwhile, who keeps losing money and who keeps earning money for free? Do they need to do anything to earn you money? They don’t – all these money that they extract from you is now automatic.

But do you know why the PAP does this? They have already made you pay such a massive chunk of your wages into the CPF – all this money is precious money that they want to use for their own investments. If you are allowed to take it out, it means money that they have to lose, which they cannot use. So they have to find ways to extract more out from your CPF, to give to themselves, rather than to you.

You Are Actually Paying More Than 2 Times The Value Of Your Flat

Then, you might think – fine, no choice what. The government wants to do what, we also cannot speak out, so let them do lor.

It’s only a 2.5% accrued interest right? Suck thumb lor.

Here’s how much 2.5% is.

First, do you remember the 15% downpayment of $45,000 that you had used your CPF to pay? Yes, you have to pay a 2.5% accrued interest on this as well. Do you know how much the 2.5% CPF accrued interest that you have to pay back is? By the end of 30 years, it is $47,812.

Yes, no kidding. The CPF accrued interest that you have to pay back is more than the downpayment that you had paid (Chart 16).

Chart 16

Getting scared?

Next, you had taken a mortgage of $345,960 from CPF for 30 years to pay for your flat right? Here’s how much CPF accrued interest you have to pay back – a whooping $172,983 in CPF accrued interest, or half the mortgage (Chart 17)!

Chart 17

In total, you would need to pay a total CPF accrued interest of $220,795 (CPF accrued interest on downpayment of $47,812 and accrued interest on mortgage of $172,983) (Chart 18)!

Chart 18

Now, note that the CPF accrued interest I’ve shown you so far is only at the 30-years mark. But do you know that as long as you do not pay this CPF accrued interest back to the CPF, this accrued interest just keeps growing

So it doesn’t stop there.

Most people never know about this CPF accrued interest, so they wouldn’t have paid “back” this accrued interest and so, this CPF accrued interest would keep growing. In fact, you most likely would only see any mention of this “accrued interest” on the CPF website which informs you of what you need to pay back when you sell your house.

If the accrued interest keeps growing until the 40 year mark, it would have grown to $396,339, or more than the stated value of the flat of $300,000!

And after 50 years, it would have grown to $621,051, or more than twice the stated value of the flat (Chart 19)! Now do you know why most Singaporeans would never be able to retire?

Chart 19

Let me give you a bit of perspective. Initially, you had thought that together with the mortgage, you are only paying $405,960 for the flat right? But when you add in the CPF accrued interest of $220,795 at the 30 year point, the total amount that you are actually paying for your $300,000 flat would be $626,755.

So, after the 30 year point, your mortgage would have ended but you still have to continue to pay because the CPF accrued interest keeps increasing and increasing non-stop! After 50 years, your $300,000 flat would cost $1,027,011 (Chart 20)!

The “mortgage” never ends! The PAP has devised an insidious scheme to make you keep paying (without you knowing) so that your CPF keeps dwindling (for their use).

Chart 20

Get this – this is a $300,000 flat and how much are you paying? You are actually paying more than twice that amount – or $626,755 for that flat (Chart 21).

Chart 21

And if you never pay this interest back since you wouldn’t know about it anyway, at 40 years, you flat would have cost you $802,299 and at 50 years, the flat would have cost you more than $1 million – or more than 3 times how much the flat is said to cost (Chart 22).

Chart 22

By now, there should be a lot of question marks above your head now. Most people do not know about this CPF accrued interest that they have to “pay back” until they have to sell their flat. Only then will they be informed about this and only then will they get the shock of their lives.

I bought a flat for $300,000 and I have to pay more than $600,000 for it after 30 years?? And a million after 50 years??? I could have bought a high-end condominium!

Mind-blowing? Not even there yet.

Paying $600,000 For A Flat For Nothing, Literally

Now, when we buy a flat, what we would think is that after I finish paying for my mortgage after 30 years, I would be debt free and I would be able to start saving for my retirement, right?

In fact, that’s what a mortgage should mean, shouldn’t it? You finish paying and then, that’s it. In fact, you own your home now! That’s what the PAP has been selling to us all this while. This is our home!

So, as if it’s not bad enough that you are actually double-paying for your home, it was recently revealed via a question by the Worker’s Party Gerald Giam that your flat will have zero value at the end of its lease.

Can someone please explain to me why we have to pay $600,000 (after 30 years) on a $300,000 for a flat that has absolutely no value at the end of its lease? Then what the hell are we even paying for? So, your flat is supposed to increase in value but after the end of the lease, this value suddenly disappears (Chart 23)?

Chart 23

What kind of home are we buying to stay for the rest of our lives, and for our children, if it has absolutely no worth? Then why are we even buying the flat??

Why are we dumping all that money into something which is worthless? Why are we spending $1 million for literally nothing?

The PAP Tricks Singaporeans Into Paying Interest For Their Own Use

By now, if this hasn’t shocked you or infuriated you, I don’t know what will.

First, now you know that you have to pay this mysterious 2.5% accrued interest on the mortgage you take out from the CPF.

Then next, you find out that this mysterious 2.5% will actually amount to more than $200,000 after 30 years and more than $600,000 after 50 years – no small amount! $600,000 would have allowed you to retire very comfortably! $600,000 that you are dumping because no one told you anything about this!

Third, you then find out that this mysterious 2.5% will actually make your flat cost more than $600,000, or more than twice the stated value of $300,000 (Chart 24).

Chart 24

And as we have explained, there is absolutely no need for you to pay this 2.5% “accrued” interest at all because you would be paying this interest on nothing – there’s no money to pay this interest on. In fact, it’s only a trickery that the PAP has concocted to make you give them money for free.

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