Bargain Hen pecks again (At the strawman)

Many keen to put more money in CPF, says Dr Ng

Singaporeans are asking how to make top-ups, a development the minister views as positive feedback

By Lynn Lee

ACROSS Singapore, many people want to put more money into their Central Provident Fund (CPF) accounts to get the higher interest rates to be given from January.

They have been asking the CPF Board how they or their family members can make such top-ups, said Manpower Minister Ng Eng Hen in an interview with The Straits Times.

Dr Ng sees their query as positive feedback from the ground on last month's announcement in Parliament of changes to the CPF system.

'They would not ask this, if they could get better interest elsewhere,' he said.

The CPF Board will follow up on their query and give them customised advice and help, added the minister.

A major change in the CPF system is the one percentage point rise in interest rate for the first $60,000 in all accounts.

But only $20,000, at most, can be from the Ordinary Account, which now pays 2.5 per cent in interest a year.

For the Special, Medisave and Retirement accounts, the current interest is a fixed 4 per cent. This too will change.

It will be replaced with the return on 10-year Singapore Government Securities plus one percentage point.

However, for the next two years, the Government has assured CPF members that these accounts will get at least 4 per cent.

The other changes are: CPF members will, over time, get the monthly Minimum Sum payouts only at age 65, not the current 62; and they must buy a longevity insurance that will give them a monthly sum at age 85 until they die.

The changes are to bolster Singaporeans' retirement savings and ensure they have enough for their old age.

But the last two measures - the delay in the Minimum Sum payout and the compulsory longevity insurance - have caused concern.

Dr Ng acknowledged that most people are not sure if they would live that long.

They also worry about the cost of the longevity insurance or annuity, despite Government assurance it will be a small part of their Retirement Account.

To allay their fears, he has asked the committee looking at how best to introduce annuities to 'seriously consider' giving people the option to decide whether to get their insurance payout earlier or later.

It is almost three weeks since Dr Ng announced the CPF changes on Sept 19.

While he feels there is 'general acceptance' of them among Singaporeans - whom he says are 'very sensible people' - there is one thing he would have done differently.

He would put in 'bold print' the link between the extra one percentage point interest and annuities, and that the extra CPF people get will be more than enough to pay for the longevity insurance.

This approach would have satisfied nine out of 10 Singaporeans, who 'trust the Government to take care of them, and prefer more reassurance than explanation'.

This message was in Dr Ng's speech, but it came after he had painstakingly laid out the rationale, details and consequences of the changes.

Said Dr Ng: 'We were trying to be pure and we were trying to explain to them that we were changing the interest rate system and how it was being done.'

This explanatory approach is preferred by the other 10 per cent who want to be 'involved in the process'.

Both approaches are necessary, he said, adding that the exercise was a learning experience. 'Government must be patient and take the time and effort to explain to different groups with varying needs and circumstances.'
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Singapore's Bargain Hen sure likes to peck at strawmen. I thought he should have at least tired to peck at a mannequin. At least a mannequin looks more like a real person.

According to the above report

"They have been asking the CPF Board how they or their family members can make such top-ups, said Manpower Minister Ng Eng Hen in an interview with The Straits Times.

Dr Ng sees their query as positive feedback from the ground on last month's announcement in Parliament of changes to the CPF system.

'They would not ask this, if they could get better interest elsewhere,' he said. "

I would have reckoned that this former multimillion dollar surgeon would have at least half a functional cerebral cortex. You can't even use the phrase "bird brain" to describe him. Bargain Hen can't even figure out why the peasants were asking those question. Instead he interpreted them as "positive feedback". Classic case of confirmation bias.

Here's why those peasants gave "positive feedback" to him.

THOSE PEASANTS SIMPLY HAVE GOT NO IDEA HOW MONEY WORKS.

And not because the interest given is so wonderful as bargain hen has suggested. As previously mentioned here, investing in a fund tracking a stock index gives vastly superior returns compared to CPF. Besides, those peasants who actually bothered to give bargain hen "positive feedback" and listen to his bullshit were probably already inclined to fully embrace CPF. It is in no way representative of the general public's view.

Think of it this way. If the CPF interest rates were really so wonderful, that would be akin to the government giving us a "free lunch". Doesn't sound very consistent with their anti clutch mentality stand does it? There is no such thing as a free lunch (sounds really familiar but i can't remember where i heard it from).

Next, the report says

"While he (bargain hen) feels there is 'general acceptance' of them among Singaporeans - whom he says are 'very sensible people' "

Geez, i wonder how did he get this feel of general acceptance. I seem to be getting the opposite feel. And so is the rest of the blogosphere.

And finally bargain hen says

'We were trying to be pure and we were trying to explain to them that we were changing the interest rate system and how it was being done.'

HUH?! Trying to be pure? Does it make one any purer to explain something? Doesn't make you much purer trying to explain to some poor old peasants before robbing them right?

Anyway, fixing the interest rate of CPF can only guarantee insufficiency at retirement. Explaining how a lousy retirement policy works is of absolutely no use if it cannot serve it's purpose in the first place.

CPF + HDB = Poverty

Despite having one of the highest saving rates in the world, 45% of Singaporean who turned 62 last year were unable to meet the minimum sum amount of $60,000. This sum of $60,000 is by no means a large amount. It can only provide you with $500 a month for 10 years. One of the major reasons why Singapore Peasants cannot retire after slogging away for half a life-time is this: The CPF + HDB combo

At the very heart of the CPF + HDB combo is this little known effect: Living in a home that you own is exactly the same as paying rent for one.

The more expensive your home is, the more rent you pay.

To illustrate this point, let's consider person X, who has $1 million to buy a home. X can buy a $1 million dollar home and live in it. This will leave X will $1 million less in his bank account with a cash flow position of $0.

Alternatively, X can buy a $1 million home and lease it out for a yield of 5% per annum, which is $50,000. Then with that $50,000, he can rent a $1 million home and live in it this time, paying $50,000 a year. In this scenario, X will also have $1 million less in his bank account, with a cash flow position of $0 again.

I know still sounds rather counter-intuitive or strange even. But think of it this way. If X had acted like a cheapskate and decided to sponge on his parents by staying in his parent's home without paying rent, purchased a $1 million home and leased it out, he would have a positive cash flow of $50,000 a year instead.

By virtue of purchasing a house and living in it, you are missing out on the chance to collect rent. The more expensive your home, the greater the opportunity cost. Therefore, it would be beneficial to your finances if you had purchased 2 $500,000 houses instead of $1 million one, live in one of them and lease the other out. Doing so will give you a positive cash flow of $25,000 a year (assuming a rental return of 5% pa). Over a period of say 3 decades, the effects can make a difference of a life-time. Assuming rental yield and property prices keep pace with the rate of inflation, staying in a $500,000 house will earn/save you $750,000 in real terms. The cheaper your home, the better it is for you financially.

So how does CPF comes into the picture? By locking peasants' sweat blood money for what seems to be an eternity, CPF systematically skews a person's decision towards buying a home. Most peasants will rather buy a home with their CPF money than let it rot in the ordinary account that used to give 2.5% interest, resulting in artificially inflated prices of property. This means that you are in effect paying more rent, and the effect of this over half a life-time is poverty.

Why a PhD in economics is not required to see the flaws of CPF

One of Singapore's greatest mystery is : The existence of people who actually believe that CPF is a good tool to provide for the retirement needs of Singaporeans.

If I'm not wrong, Bart must be the blogosphere's greatest proponent of the CPF scheme. Doing a PhD in economics sure clouds one's clarity of thought. He claimed that

1) CPF returns are not low

2) Pegging CPF returns to that of GIC will precipitate a motivational problem on GIC's part

On his first point that CPF returns are not low, let's examine the 100 year Dow Jones Industrial Average chart here.

From 1900 to 2007, the index has risen from 51.6 to 14,000. That is to say over a period of 107 years, the index has given a return of 270 times.

Compare this to the return of a sum of money invested in CPF at a return rate of 4%. Over the same period of 107 years, the return is only a misery 66.5 times. That's almost excatly 4 times less that what DJI has yielded. We are not talking about a 10% , 20% or even 50% difference. DJI has out performed this CPF fund by 400%. So much for "CPF returns are not low".

And we haven't even take into account that the 4% "bonus" rate is only applicable to the first $60,000 of each CPF member's account if i'm not wrong. This totally wipes out whatever compounding effect there is, which is the most important thing in a long-term investment.

Of course one could argue (a popular argument) that the stock market is risky and cannot guarantee that profits will always be made. What happens when an event like the Great Depression occurs? Doesn't that mean that one's retirement funds would be wiped out?

Far from it. From 1900 to 1929 (market low during Great Depression), the DJI fell from 51.6 to 41.2, a plunge of 20%. If CPF funds had been used to invest in an index fund tracking the DJI, an event like the Great Depression wouldn't be a big deal. Each year, assuming the working life-span of the average Singaporean was 40 years and that there's an equal number of people in each age group, only 2.5% of the workforce will retire in that 1 year.

Assuming the retiring batch of the CPF members had the most money in that fund, that the newest members had contributed nothing and that the variation in monetary contribution varies linearly between those 2 groups, the retiring batch has approximately a 5% stake of the total fund. Hardly enough to bankrupt the fund. All will be fine when the market recovers (as has always been the case). Perhaps in order to hedge such a risk, adjustments to the monthly payout can be made based on market conditions. Whatever the case, an index fund will surely outperform a CPF 4% fix rate fund.

As for Bart's second point that pegging CPF returns to that of GIC will precipitate a motivational problem on GIC's part, i quote him

" A Principal-Agent Problem

The difficulty here lies in the principal-agent problem. Consider a simple example. The boss (principal) pays the worker a fixed wage for the worker (agent) to put in effort to maximise profits for the company, but the boss does not observe the amount of effort which the worker puts in. The optimal response of the worker is always to shirk since the boss cannot tell. Because of the asymmetry of information, this contractual arrangement results in suboptimal outcomes. The worker will never put in effort for the company.

The only way to overcome this is to make the worker the residual claimant or the profit owner. That is, the boss collects a fixed rent and leaves the rest of the profits to the worker. Since the worker now gains the benefits, he puts in effort and this arrangement results in optimal outcomes. The economic principle is simple: whoever controls the amount of unobservable effort must be made the final claimant of the rewards that come from this effort. "

In his blog entry, he claims that "the only way to overcome this is to make the worker the residual claimant or the profit owner". His argument is fallacious right to the very core. What he said was either GIC get to keep the profits or they will not be motivated to act in the best interest of CPF members. GIC can be considered as a fund manager for CPF monies.There are plenty other methods to motivate the management of the CPF funds. Pegging remuneration to a small cut of the profits or something similar will suffice. Allowing the management to keep all the profits of the CPF fund would surely be an overkill. It has been frequently said that if GIC were not allowed to keep all the profits that were made, they would adopt a riskier investment approach which is detrimental to CPF members. However, by allowing GIC to keep all the profits, CPF members stand to lose even more. The main point is that allowing GIC to keep all the profits is not the only way to motivate them.

And if you are still unconvinced that CPF is an inferior tool to provide for the needs of the retiring citizens, consider this:

"Fifty-five percent of the 7,100 active CPF members who turned 62 last year managed to meet the Minimum Sum amount of S$60,000. "

This means that 45% of CPF members who turned 62 last year did not manage to meet the minimum sum of S$60,000. If after 4 decades of saving 34.5% of your effective salary still fails to enable you to retire comfortably, CPF must therefore be as lousy a retirement plan as can be.

Increase in petrol prices

Petrol, diesel price up 3-5 cents

PUBLIC transport commuters were not the only ones having to fork out more for their commute on Monday, when the annual fare revision exercise kicked in and upped bus fares by 1-2 cents per trip.

Those using private transport too were greeted with higher fuel prices, when oil companies raised pump rates.

At 10am, Caltex increased its petrol and diesel prices by 3 cents a litre, while Shell upped its rates by 5 cents a litre. By 3pm, Singapore Petroleum Co followed suit by raising its pump rates by 5 cents a litre.

The increase is the fifth upward revision since July, as crude oil prices hover at record levels above US$80 a barrel.

The latest revision brings the price of top-grade petrol across the $2-per-litre level - even after station discount. Shell's V-Power, the priciest petrol here, is now retailing at $2.147 a litre before discount, and $2.04 a litre after discount. Before discount, Shell 98 is $1.91, Shell 95 is $1.836, Shell 92 is $1.803 and Shell Diesel is $1.353 a litre.

Before discount, Caltex 98 Premium is $2.056, Caltex 98 regular is $1.89, Caltex 95 is $1.816 and Caltex Diesel is $1.333 a litre. Caltex does not offer 92-octane.

Pump prices have been on an upward spiral since July 1, when oil companies raised rates in response to the rise in goods and services tax (GST). Since then, the cost of filling up has gone up by 12 cents a litre, or 6.8 per cent, in four months - one of the sharpest continuous hikes in recent memory.

Oil industry consultant Ong Eng Tong said the increase is unjustified, as wholesale prices of petrol have not gone up despite the climb in crude oil prices.

'The US driving season is almost over,' Mr Ong said. 'And petrol is not short in the region.'

source: http://motoring.asiaone.com/Motoring/News/Story/A1Story20071001-27925.html

The increase in the cost of living in Singapore is relentless. We have a recorded record inflation for Jul and Aug and now we have the news that petrol prices are increasing as and when the big boys like it. I would have expected SPC to step in and do something about the situation but i am so wrong. They seem to have adopted the "profit is king" mentality of Singapore Inc and it looks like peasants are getting owned yet again. The longer this boom cycle runs, the poorer peasants are going to get as the big corporations have more reasons to increase the prices of everyday items.

More On CPF

Singapore News
CPF reforms carefully considered, govt can deliver: PM Lee
By S Ramesh, Channel NewsAsia | Posted: 23 September 2007 1818 hrs

SINGAPORE: The latest CPF reforms were finalised after carefully calculating that the government can deliver on what it has promised, said Prime Minister Lee Hsien Loong on Sunday.

Chairing a dialogue with five other ministers for some 500 grassroots leaders, Mr Lee said any scheme devised has to be fair to everyone.

The prime minister said a British pensions expert he met recently had said there were only three ways to solve the problem of living longer and providing for old age.

The first is to work longer and enjoy a shorter period of retirement, the second option is to save more while working, and the third is to choose to have less money when one grows old.

For Singapore, the CPF reform is the right thing to do as it will benefit many, especially the low-income ones.

He said: "It's not something that is going to make a difference overnight because we are talking about something when we grow old, and you are talking about 10, 15, 20 years from now.

"This is something if we didn't do, it will not disturb us now, it will not affect the next election, nobody will blame us until we are 35 years from now, when the problem is here, then people will say what kind of government did we have 35 years ago, (they) never took care of us. I think it is our responsibility to do that now."

Mr Lee said the CPF interest rate is better than that given by the banks, and he had a tip for wives.

"All the women should tell their husbands that the government's CPF interest rate is now very high, better than the POSBank anytime so better take your money from your POSB (account) and put into my CPF account," he quipped.

The extra one percentage point given by the CPF Board is something Singaporeans will find hard to get anywhere else.

Mr Lee said: "The government is taking care of it – 100-percent risk free. The money is there, it will never disappear. People say go with GIC, Temasek; GIC makes so much money, you should give me the same like GIC. But GIC invests long-term – they buy shares, the stock market goes up, the stock market goes down.

"(In the) last few months, the stock market has gone down. I am sure GIC's portfolio would have gone down. And not just your interest is less – that means your capital gets less. I was persuaded by MOM (Ministry of Manpower) and MOF (Ministry of Finance), against my preference, that it's better for the government to take on this responsibility for the first S$60,000 because it's a big burden."

Measures to ensure that Singaporeans have a secure retirement go beyond just improving the CPF system.

PM Lee explained that the various measures taken by the government to improve the housing programmes, education system and even Workfare all contribute to achieving that objective.

On the Longevity Insurance or annuities, Mr Lee said he is prepared to consider various options.

"You put the money, you buy the annuity, they pay you, you die, (but) they will continue paying your spouse until she dies. That is something we should consider and can be an option in the scheme which will address the needs of quite a number of old folks," he said.

Mr Lee said the CPF changes are major and hopes the dialogue will help community leaders better understand what the government is doing for the country's long-term good.

- CNA/so

Note the highlighted statement.
I find it amusing that we are suppose to take out money from our POSB account to put it in the CPF account to earn the supposedly higher interest. And what's up with married female peasants telling married male peasants to put their money into the CPF accounts. I simply cannot understand the rationale behind the statement made.

Why would anyone put their money into an account that does not allow you to withdraw the money? And with the withdrawal age being push behind as and when the Govt thinks that the CPF savings of the peasants are not enough to sustain them for the rest of their life, what makes you think that you can see that sum of money again in your lifetime. We talk about the CPF savings staying in the family as it passes on to your next of kin upon your death, so when that happens, the CPF savings will be locked again and the story goes on.

The interest rate which is undergoing changes, will be pegged to the 10 year Singapore Government Bonds + 1%. If i am not wrong, i believe the Govt Bonds have triple AAA ratings and the interest rate would therefore be low. I would assume that the range would be between 1% to 4% and won't the long term interest rate be lower than the current 4%. If that happens, it would be a case of the Govt giving a raw deal to the peasants and saying, "This is what you wanted and this is what you are getting, so why are you still complaining? This shall teach you a lesson for telling us what to do." followed by " I told you so, 4% is a much better deal. Now you have gotten your just desserts. Hahaha"

With the CPF issue coming up again and again, i have started to change my perspective on it. To me, CPF monies is not cash but credit points, similar to the reward points that you receive when you use your credit card or pay your bills. To use it, you have to redeem it from the items that is available in the catalog. Due to my limited knowledge, i only know that i can use it for housing which i intend to do so.

Is religion inordinately protected to the extent that it unfair?

Every now and then, some minister of something from some government of Singapore will say something like

• "We must maintain religious/racial harmony otherwise we will have riots..................."

or something to that effect.

Which is why we have the Sedition Act that says

3. —(1) A seditious tendency is a tendency —

(a) to bring into hatred or contempt or to excite disaffection against the Government;

(b) to excite the citizens of Singapore or the residents in Singapore to attempt to procure in Singapore, the alteration, otherwise than by lawful means, of any matter as by law established;

(c) to bring into hatred or contempt or to excite disaffection against the administration of justice in Singapore;

(d) to raise discontent or disaffection amongst the citizens of Singapore or the residents in Singapore;

(e) to promote feelings of ill-will and hostility between different races or classes of the population of Singapore.

(2) Notwithstanding subsection (1), any act, speech, words, publication or other thing shall not be deemed to be seditious by reason only that it has a tendency —

(a) to show that the Government has been misled or mistaken in any of its measures;

(b) to point out errors or defects in the Government or the Constitution as by law established or in legislation or in the administration of justice with a view to the remedying of such errors or defects;

(c) to persuade the citizens of Singapore or the residents in Singapore to attempt to procure by lawful means the alteration of any matter in Singapore; or

(d) to point out, with a view to their removal, any matters producing or having a tendency to produce feelings of ill-will and enmity between different races or classes of the population of Singapore, if such act, speech, words, publication or other thing has not otherwise in fact a seditious tendency.

(3) For the purpose of proving the commission of any offence under this Act, the intention of the person charged at the time he did or attempted to do or made any preparation to do or conspired with any person to do any act or uttered any seditious words or printed, published, sold, offered for sale, distributed, reproduced or imported any publication or did any other thing shall be deemed to be irrelevant if in fact such act had, or would, if done, have had, or such words, publication or thing had a seditious tendency.

Notice that 3-1e says that "A seditious tendency is a tendency to promote feelings of ill-will and hostility between different races or classes of the population of Singapore".

I suppose it would be fair to state that people with different beliefs would constitute different "classes" of the population. Therefore, this brings about the question

• "Is religion inordinately protected to the extent that it unfair?"

By unfair, i mean that the act is not applied equally to all different "classes" of the population.

Let us consider these 2 statements.

1) Religion "ABC" is (insert whatever insulting/degrading/blasphemous word)

2) The sky is blue

If statement 1 were to be written on a blog or disseminated by any other method, I am sure the person behind that statement would be hauled up to court and charged.

But statement 2 is uttered so many times each day by so many people all over Singapore. They are insulting/degrading/blaspheming a "class" of the population out there in Singapore. In fact I am one of the members of that class who believe that saying the phrase "The sky is blue" is the most heinous act one can do to members of my "class" (Opps i uttered that bad phrase unwittingly). By saying "The sky is blue" (Opps i did it again), these people "promote feelings of ill-will and hostility between different races or classes of the population of Singapore." We members of the "class" that holds such strange beliefs are indeed very upset with those remarks and definately felt the "ill-will" and "hostility" behind those words.

So why aren't the police arresting those evil, riot inciting people? Is it because my "class" of the population is simply too small to waste taxpayer's money on? That's wouldn't be very fair would it? Is it because it would be contravening the freedom of speech act? Then why is statement 1 forbidden? That is not very fair either. Is it because my beliefs are unfalsifiable coupled with the total lack of evidence behind it? Nah. That's pot calling kettle black and not very fair once again. So why am I suffering from such injustice? Sob sob :(

According the the Constitution of Singapore,

12. —(1) All persons are equal before the law and entitled to the equal protection of the law.

Yikes! What a strange place i live in!

A joke: Science and Religion

Quite a funny joke i found on the net. To grasp the joke fully, a knowledge of the "Combined gas law" (Physics) is necessary. According to Wikipedia,

The combined gas law is a gas law which combines Charles's law, Boyle's
law, and Gay-Lussac's law. These laws each relate one thermodynamic
variable to another mathematically while holding everything else constant.
Charles's law states that volume and temperature are directly proportional to
each other while pressure is held constant. Boyle's law asserts that pressure
and volume are inversely proportional to each other at fixed temperature.
Finally Gay-Lussac's law introduces a direct proportionality between temperature and pressure at constant volume. The inter-dependence of these variables is
shown in the combined gas law, which states that:

“The ratio between the Pressure-volume constant and Temperature of a
system remains constant”

Here it goes........

The following is an actual question given on a University of Washington
chemistry mid-term. The answer was so "profound" that the professor shared it
with colleagues, which is why we have the pleasure of enjoying it as well.

Bonus Question:Is Hell exothermic (gives of heat) or endothermic (absorbs heat)?

Most of the students wrote proofs of their beliefs using Boyle's Law, (gas cools off
when it expands and heats up when it is compressed) or some variant.

One student however, wrote the following:

First, we need to know how the mass of Hell is changing in time. So we need to know the rate that souls are moving into Hell and the rate they are leaving. I think we can safely assume that once a soul gets to Hell it will not leave. Therefore, no souls are leaving.

As for how many souls are entering Hell, lets look at the different religions that exist in the world today. Some of these religions state that if you are not a member of their religion, you will go to hell. Since there are more than one of these religions and since people do not belong to more than one religion, we can project that all souls go to hell. With birth and death rates as they are we can expect the
number of souls in Hell to increase exponentially.

Now, we look at the rate of change of the volume of Hell because Boyle's Law states that in order for the temperature and pressure in Hell to stay the same, the volume of Hell has to expand as souls are added.

This gives two possibilities:

1. If Hell is expanding at a slower rate than the rate at which souls enter Hell, then the temperature and pressure in Hell will increase until all Hell breaks loose.

2. If Hell is expanding at a rate faster than the increase of souls in Hell, then the
temperature and pressure will drop until Hell freezes over.

So which is it? If we accept the postulate given to me by Ms.Banyan during my freshman year that, "It will be a cold day in Hell before I sleep with you" and we take into account the fact that I still have not succeeded in having sexual relations with her, then #2 cannot be true.Thus I am sure that Hell is exothermic and will not freeze.

The student received the only "A" given.