Roy Ngerng, CPF, and the Widow who Lost $1m

Current affairs currently in my head, in a nutshell:

• Roy Ngerng criticises Singapore’s CPF, likens it to schemes of questionable legality.
• Singapore Prime Minister Lee Hsien Loong sues him for defamation. Many citizens think this is a bad move. See also: Catherine Lim’s open letter
• Among criticisms, Ngerng says government should make it easier for citizens to withdraw their CPF, and/or more of it (e.g. by lowering  the “minimum sum”, which is what can’t be touched/withdrawn).
• Apparently quite a number of people agree: Citizens should be trusted with their money.

On this last point, as intuitive as it is, and as much as I wish that was true, it probably isn’t.

Last weekend, I read a story that provided a great example of how difficult it is to trust ourselves with money:

Two years ago, after her husband was killed in a freak accident while working at Changi Airport’s Budget Terminal, she received nearly $1 million in insurance payouts and donations from the public.

Today, that money is all gone.

Madam Pusparani Mohan, 34, is now looking for work in Singapore to support her four young children back in Johor Baru.

“I made a mistake. People knew I had so much money and they all came to me. I am so stupid. I never buy house and finished all the money meant for my children,” Madam Pusparani told The Sunday Times from her home in Skudai.

It is funny how the people who most need to withdraw CPF monies are the very same people who most need their CPF monies kept from them.

It is easy to say: give me my CPF, and let me invest it; I can do infinitely better than the infinitesimal 2.5% the government gives me.

But how many people in reality can do it? I know of people who jump through hoops just to get 3% interest on their savings. 2.5% really isn’t that bad.

But for the sake of argument, let’s say most people can get that 2.5% or more. In fact, let’s quantify that and say that 70%  of the population can (and how unlikely this is! Imagine that for every 10 people you walk past on the street who are old enough to possibly withdraw their CPF, seven are able to get a return 50 or more times the existing savings rate of 0.05%).

This leaves us with the 30% who can’t manage their money. Who’s responsibility is it to help them? Let’s say these people finish spending their CPF monies within 5 years (that’s 3 years longer than Madam Pusparani Mohan mentioned in the story above).

What then? Should the 70% who do earn more be taxed on their earnings to pay for 30%? Would the tax be enough to cover the loss?

Maybe. But probably not.

Though those of us who probably can manage our money pretty well would love to have our CPF in our hands and not the government’s, we’re probably the ones who least need our CPF in the first place.