Government to review CPF Investment Scheme: DPM Tharman

SINGAPORE - The Government will review the Central Provident Fund Investment Scheme (CPFIS), Deputy Prime Minister Tharman Shanmugaratnam said on Tuesday (Sept 13), taking up a recommendation proposed by an advisory panel early last month.

The CPFIS was set up to offer CPF members a way to earn higher returns on their savings but it is "not fit for purpose", Mr Tharman told an audience at the Economic Society of Singapore's annual dinner.

Over the past 10 years, more than 80 per cent of the CPF members who put their savings into an investment product via the CPFIS would have been better off just leaving their money in the Ordinary Account, which earns a guaranteed 2.5 per cent each year, Mr Tharman noted.

Some 45 per cent of those who made use of the CPFIS even made losses over the same period.

CPF: Knowing the problem is the start of finding a solution

  • Fundamentally the CPF is more a savings plan, not really an investment plan. It pays you a fixed interest which is no doubt generous in today's environment
  • The CPF needs to be looked at. It may well be that we go down the road of a private industry like in Chile or Sweden.
  • Basically, you want to find a solution along the lines of a collective DC (defined contribution) system.
  • If you can pool the money together, it gives you economies of scale and helps to bring down the cost of investment. With interest rates so low and returns so low, a good part of returns will be eroded by costs.
  • So the challenge is to find a model which creates enough scale to lower costs, pool the risk and offer life cycle solutions for people of different demographic profiles.
  • It's quite clear that given that future rates on investment products will be lower than in the past, if you look for the same amount of retirement benefits in the future, you will need to save more.
  • This is basic arithmetic and not rocket science. But it needs to be explained to people because the tendency is to look to the past and believe that it's representative of the future.
  • If you put your money in case, it's as good as saying you're not able to protect your savings against inflation.
  • The current debate in Singapore about retirement security is welcome because it heightens people's consciousness.
  • Understanding the problem is the beginning of finding a solution.

In its second and final set of proposals to the Government last month, the CPF Advisory Panel, which had been tasked to recommend ways to improve the CPF system, had mentioned a need for the CPFIS to be reviewed.

And indeed the Ministry of Manpower will do so, Mr Tharman said on Tuesday.

This is in line with one of the priorities the Government will have to focus on to take the CPF system into the future, he said - providing a convenient option for those with more than the basic CPF savings levels to earn higher returns.

CPF tips for your age group

  • You are more likely to enjoy coverage without exclusions due to a lower chance of health issues.
  • Buy a home you can afford. Try not to use more than 20 per cent to 25 per cent of your family’s gross income to service monthly repayments.
  • Top up your Ordinary Account (OA) with spare cash as returns from CPF savings currently exceed bank deposit rates.
  • Review your mortgage periodically to see if it is still competitive or if there are better options.
  • Enjoy tax relief by making annual CPF top-ups for your parents and grandparents.
  • Make sure you are well covered with health and mortgage insurance.
  • If you can take some risks but have no time to track stocks, financial advisers suggest considering unit trusts or exchange-traded funds.
  • It will determine the payout on the annuity scheme, CPF Lifelong Income For the Elderly (Life).
  • Determine the kind of lifestyle you want so you can figure out if your retirement income is enough.
  • Decide which of the two CPF Life plans, Life Standard Plan or Life Basic Plan, suits you better.


This article was first published on Sept 13, 2016.
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