SOMETIMES, the more you know, the more you realise you don't know.

After three days of debate on changes to the Central Provident Fund (CPF) system, one would have thought clarity would be the order of the day.

The changes will raise the CPF rate of return and delay the age at which Singaporeans can access their retirement funds so that these can last longer - which, from a public policy point of view, is eminently the right thing to do.

But a question from opposition MP Low Thia Khiang (Hougang) revealed the extent to which, despite all the clarifications, the finances behind the CPF remain a source of speculation to Singaporeans.

Mr Low zoomed in on an issue that has surfaced tangentially in this and previous debates: What does the Government do with Singaporeans' CPF monies?

The standard reply to this question is that the CPF Board invests CPF funds in deposits and Singapore government bonds, and earns modest risk-free interest.

This means the CPF Board lends the money to the Singapore Government for 2.5 per cent a year. This will be raised to 3.5 per cent from next year for some part of the funds.

This raises the next question: So what does the Singapore Government do with the billions it borrows from the CPF Board?

Some people think the Government hands over part or all of the CPF funds to the investment agencies Government Investment Corporation (GIC) or Temasek Holdings.

Some academics think so too. A 2002 publication by K.J. Ngiam and L. Loh, Developing A Viable Corporate Bond Market: The Singapore Experience, says: "Most of the proceeds from such (CPF-purchased) bonds are probably channelled to the Government of Singapore Investment Corporation for investment in foreign assets."

Both GIC and Temasek have managed healthy returns: GIC with 9.5 per cent a year in US dollar terms and Temasek with 18 per cent total shareholder returns a year for the last 30 years.

The gap between the return on what the Singapore Government gets for its investments and what Singaporeans get from their retirement savings has fuelled speculation that the CPF provides a cheap source of funds for the Government's investment.

Mr Low asked yesterday: "Does GIC use money derived from CPF to invest?"

From his seat in the front bench, Dr Ng said: "The answer is no."

Later, when he rose to respond to other MPs, Dr Ng added:

"The relationship is not so simple. Let me give an example. You put money in a bank and you agree that you put it there and you get 2 per cent. The bank publishes  a report and says of all its earnings, it earned 8 per cent. You go to the bank and say, "Iwant 8 per cent". It doesn't work."

As Dr Ng made clear, the Government bears the risk of the investment in the same way a bank bears the risk of investing members' deposits.

Rather than view the CPF Board as "lending" the money to the Government, Dr Ng said that, in fact, the Ministry of Finance (MOF) has "taken our liabilities", meaning that MOF bears the risk of losing the money if investments fail.

"What MOF does with its money is MOF's consideration but the Government takes over the liabilities of the CPF Board which promises a risk-free rate to members. And that is how it works.

"The market test is, if anybody else thinks he can take on that liability, please line up. But no one will take on that liability because they can't deliver."

For Mr Low, Dr Ng's reply was ambiguous, and so he went on to say: "I'm not sure now whether the GIC does use money derived from CPF to invest, given the latest answer by the minister.

"If that is the case...does the Government short-change Singaporeans by giving CPF members 3.5 per cent of the interest rate while the GIC makes 9 per cent (and) pockets the balance of 5.5 per cent?"

So, was the CPF providing a cheap source of funds for GIC, asked Mr Low.

Dr Ng's terse reply: "If it was that cheap, we would have a line of suitors waiting for that money. There are none."

His answer, in essence, says that the Government is taking on a risk no commercial institution wants to bear.

While this may be true, it does not address the question of whether the Government's spread on investment (the difference between borrowing cost and its rate of return) is at CPF members' expense.

Even People's Action Party MPs link CPF returns to the returns of GIC and Temasek.

MP Sin Boon Ann noted yesterday that "CPF balances are indirectly invested by Government through the GIC and other channels in external and real assets".

Has the time come to "wean the Government off cheap funds", he asked.

MP Ong Kian Min said that the CPF Board lends CPF funds to the Government, which in turn invests the money. He pressed for the Government to 'share' a portion of its investment gains with CPF members.

Last year, Minister Mentor Lee Kuan Yew stated that the returns of GIC and the CPF are not linked, but are two separate matters.

However, there remains confusion about whether CPF funds are used for GIC investments. Nor is it clear what use CPF funds are put to.

But one point to bear in mind is that any monies are 'fungible': that is, interchangeable, and thus hard to compartmentalise.

If the Ministry of Finance borrows $10 billion from the CPF Board, puts it into an account for, say, building infrastructure, and then hands over $10 billion from Budget surpluses to the GIC for investment, it can say with perfect justification that CPF monies are not used for GIC investments.

But no matter what account you earmark it for, people will say that CPF funds form part of the pool of money at the Government's disposal.

And if the Government gets high returns for its investment while CPF members don't, the sentiment will persist that the Government's spread is at people's expense.

More sophisticated Singaporeans understand that high returns come with high risk. The Government bears the risk of investing the funds and so earns higher returns. But it is not all upside - the returns can also be low and possibly negative too. But this does not stop Singaporeans from wanting a share of the higher returns.

Singaporeans understandably want to know what use their retirement funds are put to.

Maybe this is not even the right question to ask, since it is hard to compartmentalise what funds are used for.

But the cloud of confusion will continue until the Government gives clear replies on this question.

Is this article useful to you?