'No' to GIC, Temasek taking risk to boost returns

GOVERNMENT spending will rise over time, but this does not mean Temasek Holdings and GIC will have to take on riskier investments to fund it, Senior Minister of State for Finance Josephine Teo said yesterday.

Instead, the solution lies in the Government's budgetary measures, rather than a change in these entities' investment strategies.

The Government can tap up to half of the long-term expected real return from the net assets managed by GIC and the Monetary Authority of Singapore for its budgetary spending, under the Net Investment Returns (NIR) framework.

Half of the expected real returns are hence kept in the reserves, Mrs Teo noted.

"If the Government is in need of more revenues besides that obtainable within the NIR framework, the solution is not for our investment entities to take more risk in the hope of higher returns," she said.

GIC and Temasek "must continue to invest with the aim of achieving good, risk-adjusted returns over the long term", which they have achieved this so far, she said.

She was responding to Mr Inderjit Singh (Ang Mo Kio GRC), who had raised concerns that the Government may be spending too much from its investment returns earlier in the debate on the Finance Ministry's budget.

Mr Singh had also asked whether giving higher Central Provident Fund (CPF) returns would be better than sharing benefits through government transfers.

Mrs Teo said many pension funds abroad may promise higher returns, but they also expose their members to market risk.

CPF funds are invested in risk-free Singapore Government securities. Coupled with the Government's fiscal transfers, it is a fair and equitable approach for citizens in the long run.

"In many pension funds abroad, there is the promise of higher returns, but depending on when you retire and the state of the financial markets at that time, your pension withdrawals can vary significantly," Mrs Teo said.

"In our system, with the CPF monies being invested in government securities, it is the Government that bears the investment risk."

Unlike most pay-as-you-go pension systems, the CPF system is designed to be sustainable and does not require intergenerational transfers.

"However, the Government systematically tops up the CPF savings of the lower-income. We do this through Workfare, housing grants and other schemes. These top-ups are all borne by the Budget as explicit fiscal transfers," Mrs Teo said.

Also, though the interest rates on other pension funds abroad may be higher, the returns on any financial instrument have to be viewed in the context of how their domestic currencies perform over time, she said.

"Interest rates are typically higher in countries whose currencies have tended to depreciate over time, because higher interest rates compensate for weaker currencies," she said.


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