Review does not go far enough to improve returns for CPF members

Review does not go far enough to improve returns for CPF members

By Chris Kuan

So much time taken, so many experts internal and external consulted, a damp squib is the result when it comes to better returns for our retirement savings.

I am talking about the long awaited CPF review. Me thinks the experts on the panel are too well paid and too connected to think outside the box or even fully explore all options within the box.

The centerpiece is the new fangled Lifetime Retirement Investment Scheme (LRIS), essentially a low cost set of passive funds that allowed members to invest the eligible amounts in risk assets without active management.

The range of funds is from a conservative lower return option of 70% bonds, 30% equities to a higher risk higher return option of 10% bonds, 90% equities. This is somewhat similar to the SAF Officers’ Premium Saver Fund concept I wrote about a couple of weeks ago. No new grounds were really broken here.

The LRIS is welcome but CPF members must be advised not to churn their LRIS investment like too many of them did with CPFIS with disastrous consequences. It should be used as a lifetime investment cycle not a 1-5 year bet on the markets. However without more flexibility in the amount of eligible funds, LRIS may not make much of a difference given with CPFIS, only 25% of total eligible funds of $105b has been invested.

Where I am most disappointed is that the review did not explore the big elephant in the room – the $800b plus asset pool actively managed by GIC, of which $280b plus are derived from debt proceeds from the Special Singapore Government Securities (SSGS) invested by the CPF Board.

Why create yet another set of assets in those proposed low cost passive funds to be invested from the LRIS when a similar set of assets already existed in the government’s balance sheet? Given the GIC is able to segregate its total overall returns into various asset classes, the ability to create the range of risk / reward proposition already exists. Why not put the enormous advantages of the massive, diversified asset and foreign exchange aggregation performed by GIC to invest globally in service of the retirement of Singaporeans?

This what I think. The panel probably has handcuffs – that is to keep away from the GIC managed government asset pool.

Creating the same options now recommended by the panel but linked to the GIC managed asset pool means a lot more transparency and hence scrutiny over that asset pool. I do not suggest that the lack of transparency has anything to do with hiding losses but do suggest that it is a political means to obscure the sources and the amount of government fiscal resources so that competing proposals for expenditures cannot be crafted and proved by alternative parties, This was made very clear during the Bukit Batok by-elections.

A small cheer for a damp squib. But it is timid and I doubt it will make much of a difference given the other elephant in the room – the drain of CPF savings though housing costs.

Consideration not given to those forced to retire early

The other improvement recommended by the Central Proficient Fund (CPF) review panel, other than LRIS, is to provide an option of an escalating payout from CPF LIFE with monthly payout increasing by 2% every year.

This is welcome but another damp squib.

The escalating payout protects the CPF member from increases in cost of living which had been running significant higher than the CPI in the last 15 years (but I expect the differences to be minor going forward). The trade-off is that the initial drawdown is going to be lower and this is due to simple mathematics – on the same annuity amount, higher future payouts come at the expense of current payout.

However, the panel did not recommend a flexible start date of the LIFE payout. Increasingly due to the government’s labour policies, technological changes and the global economic environment, many Singaporeans will be forced to retire or give looking for jobs well before the age of 65. This could also be due to illness.

Those forced out of work in their 50s have a very long time to wait for their LIFE payouts. This would not have mattered if there are social benefits but there are none.

This lack of flexibility is truly disappointing,

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