CPFIS review long overdue, say fund managers

Deputy Prime Minister Tharman Shanmugaratnam speaking at  the Economic Society of Singapore Annual Dinner 2016 event held at the Grand Mandarin Ballroom of the Mandarin Orchard Hotel.
Deputy Prime Minister Tharman Shanmugaratnam speaking at the Economic Society of Singapore Annual Dinner 2016 event held at the Grand Mandarin Ballroom of the Mandarin Orchard Hotel.ST PHOTO: KUA CHEE SIONG

Industry players welcomed the news that the Government will review the Central Provident Fund Investment Scheme (CPFIS).

Deputy Prime Minister Tharman Shanmugaratnam told the Economic Society of Singapore at its annual dinner yesterday that the Ministry of Manpower will conduct this review, which the CPF Advisory Panel recommended last month.

Fund managers who spoke to The Straits Times yesterday noted that a review is long overdue, especially given the fact that many of the investment funds offered via the CPFIS have failed to give investors higher returns than the 2.5 per cent guaranteed by the CPF Ordinary Account, they noted.

Also, the number of investment funds being offered via the CPFIS has dwindled over the years, narrowing the options for CPF members.

"If you look at the scheme, the CPFIS has been streamlined over the years to an extent where the number of eligible investment options for the scheme has shrunk," said senior portfolio manager Daryl Liew of wealth manager Reyl Singapore.

"The number of bond funds available, for instance, is quite small compared with 10 years ago. What this means is that there are fewer options, making it a less compelling platform for investors."

Lexico Capital partner Jack Wang agreed, adding that another reason why the current CPFIS is not ideal is the lack of financial literacy among average investors.

"As a result, they often make wrong decisions based on nothing more than the sales pitch. It's not easy for them to ensure a consistently high return, or at least a return that's higher than what they're already getting from the CPF Special Account yield," said Mr Wang.

Mr Tharman had also said in his speech that one issue has hobbled the CPFIS - the fact that it allows investors to put in or withdraw their funds from the investments as and when they like.

This leads them to fall prey to behavioural biases common among investors - buying into exuberant markets when prices are high and selling amid a market panic when prices fall.

Another contributing factor as to why the CPFIS has failed to provide investors with higher returns is that investors have to pay fees to investment managers, which eats into whatever returns they may have earned.

A version of this article appeared in the print edition of The Straits Times on September 14, 2016, with the headline 'CPFIS review long overdue, say fund managers'. Print Edition | Subscribe