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Tham Yuen-C
Wednesday, Jul 30, 2014

Singapore

How to improve CPF: Experts' take

The Straits Times | Tham Yuen-C | Wednesday, Jul 30, 2014

Singapore's social security savings plan, the Central Provident Fund, is in the spotlight as people worry it will not meet their retirement needs.

Ways to reform it were discussed at a forum organised by the Institute of Policy Studies on Tuesday. Insight looks at some of the proposals.

"IMPROVE the returns on people's CPF savings" is a common refrain these days, one that was picked up by experts speaking at a forum on CPF and Retirement Adequacy on Tuesday, but they varied over how to achieve this.

Some proposed making the system more flexible, so CPF members could try and earn higher returns themselves. The lively discussion also threw up views by others who felt that the CPF Board could tweak how much it gives back to members.

Indeed, Deputy Prime Minister Tharman Shanmugaratnam surprised participants by raising an idea last considered by the Government in 2007 - he said that allowing people to invest their CPF savings in private pension plans remains an option for the future.

His comment comes amid concerns that CPF retirement savings are not growing fast enough. Fifteen years ago this month, CPF interest rates hit the Government's guaranteed minimum, and have stayed there ever since - at least 2.5 per cent for the Ordinary Account (OA) and at least 4 per cent for the Special Account (SA).

Private pension plans got the thumbs up from National University of Singapore Business School professor Joseph Cherian but even then, a portion of the CPF savings - the part that will go into annuity payments - should be "left untouched".

For funds above and beyond, he said, the CPF Board should offer a risk-adjusted programme of three choices for those with conservative, moderate and aggressive risk appetites to choose from.

The plethora of investment options in the current CPF Investment Scheme makes things too complicated for the average CPF member, he tells Insight.

Under this scheme, CPF members can invest in approved products. But only funds in excess of $20,000 in the OA, and $40,000 in the SA, can be used.

As a result, there is not much diversification, Ms Wong Su-Yen, chairman of financial services firm Marsh & McLennan Companies, told the forum. Already, the CPF Board invests a large portion in government bonds, while individual CPF members often opt for deposits.

"The strength is that there is very little investment risk. But it doesn't allow members to increase capital as much as you would expect," she said.

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