I’m 99% confident that the actual interest accrual on my CPF money is either 2.5% or 4%, except the additiona 1% on the first $x portion. The return is predictible and guaranteed, without any time-variable element as in commercial annuity/endowment policies.

If we have doubts over banks and insurers long term rate of return and their guaranteed interest payout, then why is the CPF interest rate so much more /dependable/ and beyond-doubt?

— “backed by the government”
U.S. treasuries are backed by the full faith of the federal government, which can borrow from international investors (via new bond issues) to meet existing obligations. SG is different.

Your and my CPF money is actually invested (GIC as AMgr) in risky long-term assets. The capital and interest guarantee is backed by SG government, not due to bond issuance (a form of money-printing) but due to superior long-term investment returns achieved by GIC. About 6%+ annualized … see other blogposts.

If long-term return is below 4% but SG government relies on bond issuance, then we are borrowing from the future, and the system becomes unsustainable.

As an interesting comparison, U.S. municipal bonds are backed by local governments, which can and did default. Therefore, these issuers lack the credit rating of national governments.

Q: in a multi-year down turn, how confidently can the CPFB (cpf board) meet its obligation to its members? Answer below is based on MOF | Is our CPF money safe? Can the Government pay all its debt obligations? esp. Q28.

A: SG Government bears the risk of GIC’s investment returns over any particular period falling below the interest rates GIC is committed to pay on SSGS. Investment returns can fluctuate widely, depending on global market cycles and shocks. This is, for example, what happened during the Global Financial Crisis (GFC) and its aftermath. The GIC experienced losses in investment value during the GFC, and low average returns for five years, before recovering (see GIC’s annual report).

— Q: Why can’t the CPFB leave the cpf members’ aggregate balance in some passive account and pay out the annual interest amount?
That way, the CPFB would run a deficit every year. The interest paid to members must come from some productive asset, which must have income to sustain the payout. This is the sustainability argument.

The optimization argument .. The cpf balance is not going to be withdrawn any time soon, so it should be deployed for long-term growth assets, rather than sitting idle.

— in 2024, there was rumor that goverment has difficulty generating 4 ppa return on a huge balance of CPF SA/RA/MA, so they will close the cpfSA after you turn 55.