The proposed CPF changes raising interest payments on funds less than S$60,000 by 1% would be welcomed by most Singaporeans. But unfortunately the loser out of this is the stock market. While nominated MP Siew Kum Hong went into bat for the man in the street in parliament yesterday by saying it wasn't enough, calls for the cap on stock market investments to be raised were absent.
Currently, CPF members can draw 35% of their account balance to buy shares. This is already a small percentage, particularly for the young people the Singapore Exchange is trying to attract, who have to finance a house with it. If they will now receive higher interest on their CPF savings (at least, the first S$20,000 in their ordinary accounts), there is even less encouragement to withdraw some money and invest it in higher-yielding listed securities. Remisiers, who have been calling for the longest time for the 35% cap to be lifted, might as well give up now.
Clearly, there is a case for protecting CPF members from themselves. Previously, they could draw 85% of their savings before the dotcom bubble burst, a whole bunch of them got burnt and are now calling on their MPs for food vouchers to help them out. Further, the government probably has bigger fish to fry than to help out the stock market. It's concerned people won't have enough retirement savings.
However, a commensurate increase in the stock market investible treshold would have been useful, so that at least the playing field remains as it was before.

While it's become more difficult to buy shares using money you have, it's becoming even easier to buy shares using money you don't have. Case in point: Standard Chartered's share financing scheme. Great idea in theory: let people borrow up to 10 times their monthly salary at 12% a year to buy shares. Only trouble is, who in their right mind believes any stock investment is going to throw off a 12% p.a. return in this day and age, having watched the way the market has moved since March 2003? The big sub-prime inspired shakeout perhaps gives us cause for optimism that the market is going to move higher from here. But what's the bet there'll be foreclosures on people who make losses on their share investments. How is that different from gambling your CPF retirement savings away? The bank wins, as usual.

Mark Laudi

Labels: CPF, CPFIS, Standard Chartered, Stock Market