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Retirement options get boost from Singapore Savings Bonds

Investors can use Supplementary Retirement Scheme; maximum amount an individual can hold will be raised to S$200,000 from current S$100,000

MAS says it worked with banks to enable SRS funds to be invested in SSB. This will help SRS members save and plan for retirement.


DOUBLING the individual cap for Singapore Savings Bonds (SSB) and allowing investors to buy the instruments using their Supplementary Retirement Scheme (SRS) will help people with their retirement funds given the desperate demand for safe investments.

The Monetary Authority of Singapore (MAS) said on Monday that it will double the individual limit for holding SSB and allow investors to buy the instruments using their SRS funds.

The maximum amount of SSB an individual can hold will be raised to S$200,000 from the current S$100,000, MAS said. Both changes will take effect from Feb 1, 2019.

During the SSB monthly auctions, other than October, demand has outstripped supply despite the MAS raising the amount of SSB for sale three times since April. The current monthly issue is S$300 million, double April's S$150 million.

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The 10-year SSB pays an average 2.45 per cent if held to maturity.

The SSB programme has garnered about S$3.7 billion of investments from close to 100,000 individual investors since its launch in October 2015, the MAS said.

During this time, the MAS has received requests from the public to allow purchases of the bonds using SRS funds, which are voluntary retirement savings contributed by Singapore workers above the national CPF scheme.

"Taking into account public feedback, MAS has worked with the banks to enable SRS funds to be invested in SSB. This will expand the range of products available to SRS members and help them save and plan for retirement," MAS said.

There is a SRS contribution cap of S$15,300 per year for Singaporeans and permanent residents (PR), and S$35,700 for foreigners.

As at end-2017, almost 141,000 SRS account holders have stashed away a total of S$8.15 billion. Singaporeans make up 83 per cent, followed by PRs (12 per cent) and foreigners (5 per cent).

About one-third or 33 per cent of SRS funds is held in cash, followed by 26 per cent in shares, real estate investment trusts (Reits) and ETFs or exchange traded funds. Insurance products account for 24 per cent, unit trusts (9 per cent), fixed deposits (1 per cent) and others (7 per cent).

"The SSB is a flexible risk-free investment option suitable for investors with a long-term investment horizon," said Jacquelyn Tan, United Overseas Bank head of personal financial services Singapore.

The two changes announced today will benefit those who want to build up their SSB holdings as part of their diversified portfolio for retirement, said Ms Tan.

Selena Ling, OCBC Bank head of treasury research & strategy said the move to increase the SSB cap will definitely be welcomed by individual Singaporean investors and likely lift overall demand for SSB.

"The rationale for investing idle funds remains intact even amid the ongoing financial market and interest rate gyrations. The inclusion of SSB as one of the investment options for SRS funds will be beneficial given that the objective of SRS funds is targeted at retirement, and investment products should ideally be more medium-term rather than short-term in nature and tenor," said Ms Ling.

Raising the cap for SSB could eat into banks' fees from sale of wealth management products, and also compete with their deposits drive.

"Incrementally, it will be a competition for bank deposits and/or investment/insurance/retirement products for which banks act as distribution platforms," said Krishna Guha, Jefferies Singapore equity analyst.

"That said, in my view, banks have increased their fixed deposit rates to about 1.8-1.9 per cent which is marginally lower than recent SSB first- year rate of 2 per cent," he said.

Ms Ling notes that the S$3.7 billion of SSB investments is still only a small fraction of the S$623.5 billion deposit base of non-bank customers, so there is room for growth.

Ang Chung Yuh, iFAST senior fixed income analyst expects the new rules to boost SSB subscription rates significantly given that one-third of SRS funds reside in cash, which earn negligible return.

"But we see it as enlarging the market as a whole rather than eating into the sales of other retirement/investment products," he said.

"We think the immediate impact from the new rules would be to move these "idle" assets to more productive uses of the portion of portfolio that is allocated to risk-free product and from almost 141,000 SRS accounts."

DBS Bank said more than half of its SRS account customers use their SRS to invest, and the balances invested comprise 30 per cent equities, 20 per cent in insurance and the rest in unit trusts, ETFs, and fixed deposits.

On DBS' deposit campaigns, they continue to gain traction, especially among longstanding customers, said Diane Chang, DBS Bank senior vice-president, consumer banking.

"We have been availing SSB as an additional investment option for DBS customers who are seeking higher yields, while advising them closely on their investment options to correspond to their risk profiles. In the case of our SRS customers who are already investing with their SRS funds, adding the SSB would diversify their investment portfolio," said Ms Chang.

Tan Siew Lee, OCBC Bank head of wealth management Singapore, said the SSB complements the different market offerings including short-tenor fixed deposits, endowment plans and unit trusts.

"Each has their own unique value proposition. SSB's long tenure and step-up interest rates make it a suitable vehicle for long-term savings," said Ms Tan.

"Ideally, customers should look to hold the bond for 10 years to fully maximise the interest earned. In our view, we would not advise customers to park all their available funds into any one particular product. Customers are better served by assembling a well-diversified mix of financial solutions that serves a variety of needs."

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