THE government will review ways to tighten the Central Provident Fund Investment Scheme (CPFIS), Deputy Prime Minister Tharman Shanmugaratnam announced on Tuesday. This will enable people to take controlled risks with their Central Provident Fund (CPF) monies to earn higher expected returns over time, and without high fees.
This review, to be conducted by the Ministry of Manpower (MOM), is essential, said Mr Tharman, who believes the CPFIS "is not fit for purpose".
Official data on the scheme, which allows CPF members to invest excess savings in retail funds, has shown it to be under-used; it has also, by and large, failed to provide investors with superior returns.
In fact, Mr Tharman said, over the last 10 years, more than 80 per cent of those who used the CPFIS would have been better off leaving their money in their ordinary accounts. Compounding the issue is the fact that 45 per cent of CPFIS users actually incurred losses over the 10 years as a whole.
He identified two reasons the CPFIS has not worked out: behavioural biases, in which swings in sentiment get the better of individual investors, and high fees.
"We have tightened the caps on CPFIS fees, but fees are still an issue because the system is too fragmented."
Earlier this year, the CPF Advisory Panel had recommended that members be allowed to invest part of their retirement savings in a limited offering of passively managed funds, through a single administrator.
Dubbed the Lifetime Retirement Investment Scheme (LRIS), the proposed structure is aimed at providing convenience and simplicity for investors - at bare-bones costs, and through low-fuss products.
Mr Tharman said the government will look into how best to introduce a simple, aggregated, low-cost investment option. This should include incentives for individuals to keep their money in one account for the long-term - instead of switching from one investment to another - since this is how superior long-term returns are earned.
Mr Tharman, who is also Coordinating Minister for Economic and Social Policies, was speaking at the annual dinner of the Economic Society of Singapore (ESS), which is marking its 60th anniversary.
In his 45-minute speech, the minister also acknowledged that some retirees remain reluctant to embrace the government's lease-buyback scheme, the 71/2-year-old scheme which enables elderly flat owners to sell part of their lease back to the Housing and Development Board (HDB) for retirement income.
He said the government needs to be better at helping the elderly unlock value from their homes, as one way to ensure sufficient funds in retirement.
In fact, for some low-income retiree couples who are asset-rich and cash-poor, funds received from the government's lease-buyback scheme, together with Silver Support payouts (if they qualify), could add up to S$660 a month per person - providing a boost to retirement adequacy.
"The take-up for lease buyback is increasing, but I would say we've got some ways to go. We've got to make people comfortable with the idea of taking some value out of their home. It's still their home, but take some value out of it because it can improve your quality of life in retirement ...
"No compulsion, but we have to help make it a comfortable idea for them to take some money out of their home, and supplement the cash that they have."
He noted that the concept has higher levels of acceptance in some advanced countries, where reverse mortgages have been around for longer.
Mr Tharman added that the government has to "try every way" to help retirees unlock equity from their homes - whether through the lease-buyback scheme, subletting or moving to a smaller apartment.