CPF monies are invested by the CPF Board (CPFB) in Special Singapore Government Securities (SSGS) that are issued and guaranteed by the Singapore Government. This arrangement assures that CPFB will be able to pay its members all their monies when due, and the interest that it commits to pay on CPF accounts.

This is a solid guarantee. The Singapore Government is one of the few remaining triple-A credit-rated governments in the world. To elaborate:

• The Government is in a strong net asset position, i.e. its assets far exceed its liabilities (CPF liabilities in the form of SSGS are a part of these liabilities). The strong net asset position can be seen from the NIRC that is available for spending on the Government Budget. Over the past five years, the NIRC has provided an average revenue stream of about 3.5% of GDP per annum.

• What this means is that even after deducting all the Government's liabilities, the remaining net assets produce significant returns. The NIRC is drawn from returns on assets in excess of the liabilities, and is not the returns on gross assets. Further, as stipulated in the Constitution, the NIRC recorded in the Government Budget only comprises up to 50% of the expected returns on the reserves. The NIRC figures are submitted to the President's Office and audited by the Auditor-General's Office.

• If the Government's assets had not been adequate to meet its liabilities, there would have been no contribution from the investment returns on reserves in the Government Budget.

No CPF monies go towards government spending. Government borrowings from Singapore Government Securities (SGS) and SSGS cannot be used to fund expenditures. Under the Government Securities Act (enacted in 1992), the monies raised from SGS and SSGS cannot be spent.

These funds are comingled together with other sources of government funds (e.g., unencumbered assets[5] such as government surpluses and land sales receipts) and deposited with MAS as government deposits.

In the process of conducting monetary policy, MAS may convert these funds into foreign assets through the foreign exchange market, accumulating foreign assets in the form of official foreign reserves (OFR), in order to moderate the appreciation of the Singapore dollar exchange rate. Excess OFR above what MAS requires to conduct monetary policy and ensure financial stability are ultimately transferred to GIC to be managed over a longer investment horizon, providing backing for longer-term Government liabilities like SSGS.

Find out more: https://www.mof.gov.sg/policies/reserves/what-are-the-reserves-used-for#cpfinterestrates

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[5] Unencumbered assets refer to assets which are not matched to any liabilities. The Government has large, unencumbered assets, which are not matched to liabilities. These assets were accumulated through past government surpluses, land sales receipts and the investment income earned on those assets over the years.