By: Chris Kuan
When I posted that the AGO report revealed that SAF officers are allowed investment choices that CPF members do not, a friend said “CPFIS is not a choice meh?”
Admittedly yours truly has forgotten about CPFIS but the scheme on the whole should be forgotten about. In my view, given the restrictions that one must have at least 20k in the OA and 40k in the SA to participate and even so only 35% of any amount over 20k in the OA can be invested. That means your CPFIS investments has to perform extraordinarily well to make a difference to the overall returns from your CPF retirement savings. That’s not even considering that most CPF members would have drained their OA to pay for housing, leaving even less for CPFIS.
There are 164 approved Unit Trusts and Investment Linked Products and their average 3 year annualized returns is 5%. Outwardly it looks good in comparison to the OA and SMRA rates but in reality poor on a risk adjusted basis given the predominantly equity risks. Do remember that the 5% is achieved on a small proportion of your CPF savings. But here is the thing, to achieve that 5%, a CPF member needs to invest in all 164 choices in the list which is out of reach for most CPF members. Making asset selection can outperform that 5% but equally can underperform. The record of CPFIS asset selection has been very poor.
CPFIS is not much of a choice. Asset selection ought to be taken off the hands of CPF members like the SAF officers who on the whole are not investment savvy enough and as individual investors pay high costs. The real choice should be between remaining safe with the present OA and SMRA rates or to take risks to earn higher returns by participating or being linked to the asset pool managed by GIC where asset selection and foreign exchange are aggregated at the cheapest bulk costs by the fund managers. That is to say put GIC at the service of CPF members who wish to take risk to earn a higher return.