Replace CPF with private annuity

I believe that Singapore government should abolish the CPF (Central Provident Fund), and let the private sector or social enterprises perform all its functions. This is because:

  • It is a financial liability for the Singapore government to have to return above-market returns due to the relatively high interest rates promised
  • The people whom this fund is meant to help do not want this kind of help. In fact, many people turn up at the CPF Board to demand their money back. It is therefore a political liability too.
  • If there is a major change of political power in Singapore, and the new financially less savvy future leaders fail to manage our reserves well, it could lead to severe losses on our CPF funds. It is thus better to divest the funds to the private sector while they are still in good hands.

Rather than the bankrupt social security scheme by the Western nations, the government can provide annuity schemes with private insurance companies, subject to the following safeguards:

  • The annuity should pay a cash payout for life.
  • The annuity cannot be seized by any creditors, even if the person is declared bankrupt.
  • It is compulsory to buy an annuity, and to contribute to it when one is employed. This will be similar to the existing CPF contribution scheme.
  • Employers will likewise have to make contributions to it for their employees.
  • It is not possible to close down an annuity policy and get a refund on its cash value, unless another one of equal value is opened
  • The annuity funds are insured by the Policy Owners Protection Scheme
  • The annuity funds are allowed to charge a management and administrative fee, which must be transparently declared to the public. The public can choose which company and which fund to invest in.
  • The funds must be audited by two independent entities to ensure that there is no misconduct or abuse.

The government can then sidestep the liabilities and yet accomplish the objectives of the CPF board. The CPF Life scheme is a step in the right direction, but it is still insufficient to address these matters.

Alternatively, we can also consider a simple, self-adapting social welfare system like the one in the migov proposal. Despite the legacy currency system in use today, it is still possible to provide an automated payout using bank accounts taken from a part of the tax revenues. This can be used in conjunction with or as a substitute for the private annuity system.