SINGAPORE: The Singapore Government will be reviewing the CPF Investment Scheme (CPFIS), said Deputy Prime Minister and Coordinating Minister for Economic and Social Policies Tharman Shanmugaratnam on Tuesday (Sep 13), adding that the scheme was "not fit for purpose".
Mr Tharman was speaking at the Economic Society of Singapore's dinner on Tuesday.
He said that over the last 10 years, more than 80 per cent of those who invested through the scheme would have been better off leaving their money in the CPF Ordinary Account.
The Ordinary Account provides returns of 2.5 per cent for amounts above S$20,000.
Forty-five per cent of investors made losses through the scheme, and Mr Tharman said the main reasons for underperformance were behavioural biases in investment as well as higher fees.
In August, the CPF Advisory Panel recommended introducing the Lifetime Retirement Investment Scheme, aimed at providing CPF members with a simple, low-cost, aggregated investment option, and also suggested reviewing the existing CPFIS.
Said Mr Tharman: "The MOM (Ministry of Manpower) in fact will be reviewing the CPFIS system. The two have to go together. Tighten up on the CPFIS, which is not fit for purpose - I don't mean eliminating it completely, but tighten up on it - and at the same time, work towards introducing a simple, aggregated, low-cost investment option, which is something that the Government is going to study very carefully, to see how best we can do this.
"There has to be pooling of investments, and the fund manager has to invest passively rather than through active management, keep the cost down. And importantly, we mustn't allow the individual to feel that they're an expert in market timing.
"You've got to lock your money in for some defined period, and there has to be (an) incentive to not switch from one investment to another. There has to be that incentive to keep your money locked up in one account for the long term, because that is how superior long-term returns are earned."
"GOVERNANCE IS CRITICAL"
Mr Tharman said the Government is able to sustain the CPF system as it is backed by a triple-A rated Government balance sheet. He said ensuring reserves are well-managed for the long term depends on sound governance, and that proposals of the Constitutional Commission on the Elected Presidency play an important role in sustaining this.
Mr Tharman elaborated: "Whether it's the CPF system, providing the fiscal space on our budget for very important social initiatives, particularly our healthcare initiatives, governance is critical.
"And that's why the proposals of the Constitutional Commission on the Elected Presidency are very important. They're important for many reasons, but I'm here talking today about how we sustain our whole social security system, and why these proposals are extremely important.
"Underlying principles behind the recommendations of the Constitutional Commission are clear enough; what we have to do is to protect Singapore's long-term interests, and protect the interests of future generations of Singaporeans through an enhanced system of checks and balances between the Government, the Elected President with custodial powers, the Council of Presidential Advisers, and Parliament - an enhanced system that involves checks and balances between those four main actors."
Enhancing checks and balances in the system is just one of four main priorities Mr Tharman highlighted to improve the retirement system in Singapore.
IMPROVING ON SINGAPORE'S "STRONG FOUNDATION"
Mr Tharman noted: "We have a progressive system, we have a safe system, safer than anything I know of, and we have a sustainable system. We've avoided the big mistakes seen elsewhere. We don't have all the strengths of each individual system, but when you take it together, I think we have a strong foundation.
"We've got to improve on it, by helping the elderly unlock value from their homes, by helping those who have enough savings in their CPF to take some controlled risk to earn higher returns over the long term. You've got to help Singaporeans to work for as long as they wish. And make it congenial for themselves and for our whole society for them to do so."
Mr Tharman said Singapore has to enhance and preserve the system of governance to keep it going generation after generation.