More CPF investors beat guranteed risk-free returns in fiscal 2016

MORE CPF members who invested their savings in their ordinary account (OA) under the Central Provident Fund Investment Scheme (CPFIS) outperformed the guaranteed annual 2.5 per cent interest rate per annum in fiscal year 2016.

Some 78 per cent of active CPF investment account holders or 441,000 members achieved profits larger than 2.5 per cent in the 12 months to Sept 30, 2016 as equity markets recovered from the 2015 rut. Some 12 per cent or 66,000 active CPF investors incurred losses on their investments.

This was a marked improvement from the preceding fiscal year, when only 27 per cent of active CPF investors made profits larger than 2.5 per cent or 159,000 members while some 58 per cent or 340,000 members made losses.

Under the scheme, CPF members can invest in CPFIS-included funds such as approved unit trusts and equity funds, as well as other investment products such as stocks and shares, after setting aside S$20,000 and S$40,000 in their OA and Special Account (SA) respectively.

The CPF Board has tweaked the way it measures the performance of investments made through OA savings under the CPFIS to be more aligned with the industry practice of fund managers.

It has excluded CPFIS account holders with no investments, and factored in unrealised gains or losses for investments held during the reporting period from Oct 1 to Sept 30.

Previously, the annual report on the performance of CPFIS-OA only captures realised profits or losses and includes all members with a CPF Investment Account even if they have no investments.

The change in the formula will hence better reflect members' total investment portfolio performance, rather than just realised performance. But it will also lead to more volatile changes in performance on a yearly basis.

To reflect longer-term performance, the CPF Board will also provide the cumulative profit or losses over time.

These changes are made in response to an observation by the CPF Advisory Panel in August 2016 that the investment performance under CPFIS could include unrealised returns where relevant.

But given the resource constraints for industry players to re-compute the data using the new methodology for past years, the CPF Board could only go as far back as fiscal 2015.

Applying the new methodology for fiscal 2015, the proportion of members with losses was revised to 58 per cent from 38 per cent under the old method.

The proportion of members who made profits larger than the guaranteed annual 2.5 per cent interest rate for OA savings was 27 per cent instead of 16 per cent.