CPF monies are safe: DPM Tharman

SINGAPORE — Deputy Prime Minister Tharman Shanmugaratnam today (July 8), reiterated that CPF members’ investments are guaranteed, regardless of the returns on investments made by GIC, the Government’s investment arm.

He also clarified that Temasek Holdings does not manage any CPF monies.

“CPF members bear no investment risk at all in their CPF balances. Their monies are safe, and the returns they have been promised are guaranteed,” he said in Parliament in response to questions from Members of Parliament. “Neither does the CPF Board bear any risk, regardless of whether GIC’s investments earn or lose money in any particular year. The risk is wholly borne by the Government, on its own balance sheet.”

HOW CPF MONIES ARE INVESTED

Mr Tharman said that the CPF Board invests CPF members’ monies in Special Singapore Government Securities (SSGS), issued specially by the Government to the Board. The payout from the SSGS is pegged to the interest rates that the the Board is committed to pay its members.

“The Government guarantees these SSGS bonds, so that the CPF Board faces no risk of being unable to meet its obligations to its members. This is a solid guarantee, from a triple-A credit-rated government. The triple-A credit rating reflects Singapore’s very strong financial position, with the Government’s assets comfortably exceeding its liabilities,” said Mr Tharman, who is also Minister of Finance.

SSGS proceeds are then pooled them with the rest of the Government’s funds, such as proceeds from the tradable Singapore Government Securities (SGS), any government surpluses as well as the proceeds from land sales. These comingled funds are first deposited with Monetary Authority of Singapore as Government deposits, which the MAS then converts into foreign assets through the foreign exchange market.

A major portion of these assets - those of a longer term nature - are transferred over to be managed by GIC.

GIC ‘A FUND MANAGER’

“The GIC does not in fact manage SSGS monies on their own, separate from the Government’s other assets,” Mr Tharman said. “GIC is fund manager for the Government, not owner of the assets and liabilities. It seeks to achieve the Government’s mandate of achieving good long-term returns, without regard to the sources of the funds that the Government places with it – for example, whether they are proceeds from SGS, SSGS or government surpluses.”

Over the past 20 years, there were eight years in which GIC’s investment returns were below what the Government pays on SSGS. However, the Government has a “substantial buffer of net assets” which ensures it can meet its obligations, said Mr Tharman. As a result, “no extraordinary measures” have been necessary to enable the Government to meet its SSGS obligations in the years when GIC’s returns fall short.

“The Government has been absorbing that volatility, and protecting CPF members,” he added. “Our CPF system is hence sustainable, so long as the Government continues to run prudent budgets, and invest the reserves wisely.” CHANNEL NEWSASIA