Saturday, August 1, 2015

For some CPF members, a case of too many investment choices

Siau Ming En

July 30, 2015

SINGAPORE – When it comes to investing their Central Provident Fund (CPF) monies, some feel that there are too many options to choose from, some are not confident enough to invest or have no time to actively monitor their portfolios, while others feel the charges are too high, reducing their returns.

These were some of the key concerns that Dr Tan Chorh Chuan, chairman of the CPF Advisory Panel, picked up during yesterday’s CPF Advisory Panel focus group discussions on alternative investment choices.

Providing flexibility for members to get higher returns while balancing higher investment risks through private investment plans is one of the issues that the panel, which was set up last September, has been assigned to tackle.

The 13-member panel hopes to come up with its recommendations by the end of the year, as Prof Tan noted that this is a “more technical piece” that requires more work, including commissioning a study to model the effects of the different options to be offered.

“What we are hearing also is that there are some who actually don’t invest, although they might want to because they don’t feel confident or do not have the time. Or, they actually invest some, but if there were some simpler, lower cost options, they may invest more. I think that area is something we may have to look at to see whether we can provide more flexibility for individuals there,” said Prof Tan.

Some 40 participants, whose ages ranged from their 20s to 60s, shared their views on how to provide more flexibility for members who want to earn higher returns from their CPF savings.

The discussions were centred around four areas: The factors that determined whether or how an individual chooses to invest their CPF savings; which of the key features adopted by other retirement systems appeals to them; whether they would invest their CPF savings with these features in place; and how long they would be prepared to stay invested.

Some of the key features adopted by other retirement systems include fewer investment options but yet offer a good mix of risk-return characteristics; an investment option that reduces the risks involved as the individual approaches retirement; investment options that are well-diversified and managed passively; and options to stay invested over a longer time.

Participants cited factors such as the level of financial literacy, the need to diversify their portfolio, among reasons for them to invest their CPF monies. Some also found that the charges, or the total expense ratio of between 0.65 and 1.95 per cent, were too high and reduced their returns.

Others felt that the feature that reduces portfolio risk as the individual approaches retirement will be ideal for the young who are not as savvy with investments and would like to start investment early to reap better returns.

The amount of time they would stay invested would depend on market conditions and if they have the flexibility to cut their losses if the investment is not performing, noted some participants at the forum.

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