One of the most heartening developments in Singapore civil society is the willingness and ability of people to give details, professional and sometimes expert analysis into issues of the day. This is especially true in difficult and specialized topics such as health and personal finance.I have no financial training and I am not good with numbers, so my rule for money is: trust the expert.So when I was sent an email by a friend, written by a financial expert with the name Roy Ngerng, I thought, hey, this guy is making a strong point! Maybe there is something wrong with our CPF!But then, reading the article closely, I realized this guy is only shamming. Instead of someone who analyzes and shares ideas, he has a fixed idea and is massaging facts and figures around thisI don't know much the facts that he points to – I don't know whether it is true that Singapore’s pensions returns are lower than Pakistan and Philippines. Or how we rank in terms of contribution. But I do know simple logic – and I have my own experience.So, leaving alone whether the facts he uses are accurate, let’s look at his arguments on their logical merits.1. Red HerringsMany of us who take out loans know that we have to pay interest. I live in a private property (condo) and I know two things – my home will cost me a lot more than the listed price because I took out a loan on it, and it will be worth nothing in 99 years.But the way Rog Ngerng writes it’s like something the government invented to cheat us out of money, and that it is some big surprise that HDB flat is worth nothing at the end of 99 years.“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?”Hello! This is what “99 years lease” means! In China it is 70 years only! In London, most of its flats are leasehold, sometimes to 125 years. This is the fact of property life, all over the world.In Singapore, even Sentosa Cove is worth nothing after 99 years. Are the private developers also cheating us?He did the same thing with the interests on mortgage – people know that they will have to pay far more than the price of their property if they count in the interest. This is unpleasant but not surely hidden.Why is this guy making it out to be some dark conspiracy here? This made me suspicious about his real motives. Then I did the maths he did – and came up with very different conclusions.
2. Semantic Sleight of Hand: 2.5 per cent interest for the highest social pension contributions.He says that at 37%, our contribution to social pensions is the highest in the world. Of course it is, if it were true.But I know that I only pay 20% and my employer pays 16%. So on his chart, we are much lower than other countries such as Italy, China, Malaysia, Netherlands, Switzerland, Finland and so on.So he is telling us a lot of numbers, but mixing them up – and using them wrongly.The same for the 2.5%.The interest that CPF gives us is 2.5% - he says this is low compared to what Temasek earns. (I don’t know the exact link between Temasek and CPF.)But with 2.5%, our money will double in 29 years. This is the normal rule of thumb with compound interest! I think double in 29 years is good returns.True, this is not as high as in other countries – in New Zealand – at 14 % the money will double in 5 years! How do people there do it? Well, in a high-interest regime, interest is generally higher. If you take out a mortgage at 14% your payment will double in 5 years!But 2.5% is the interest we pay on our mortage too. RN goes on quite a bit about how at 2.5%, you have to pay so much more on your flat. Well, you either have a low interest rate regime or a high one, you cannot talk out of both side of your mouth!I know that the mortage rates and the interest paid to us are not the same thing. But interests are returns on the use of money – it makes sense to think of them as being in the same regime. So, the 2.5% number has to be seen from both sides.In the end, his numbers lead us to the wrong place. This is the same thing I saw when he talks about us paying interest twice - on the money that belongs to us.
3. Apples, Pears and Durians altogther.The problem he wrote about was the CPF accrued interest.This is the policy as he wrote it: “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.”His explanation: You are paying interest for money that is no there anymore. And the PAP is asking you to do this. If they want the money, they should pay for it!He says it like this “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?”My initial reaction was “Right!” Once I take the money out, the interest can no longer be earned.But the money is earning something else – it is “feeding” my flat. I stay in the flat – if I didn’t use the money, I would have to rent a house. So the money was used to provide me with shelter.The alternative was to leave the money in – and get the 2.5% interest. I would then have to use the 2.5% to pay my rent. But I would prefer to buy a house – because there is a chance that the housing prices would go up!So after I sell my house, I would have to make good the opportunity cost – that is I would have to pay into my CPF (which still remains my money) the interest it would have earned because I used the money for something else – shelter. The value I got is the “rental” I would have otherwise paid. Also the capital appreciation of the flat.To say 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”, is, as he would say, “nothing but trickery.”He is mixing up CPF downpayments, with mortgages with interest foregone, and wild allegations about CPF accounts with “nothing” that we are still paying interests on.Getting scared? You should be. There are lots of psuedo intellectuals like RN around. You don’t have to be an expert or a maths genius, just simple logic and common sense.