The National Day Rally this month heralded some significant changes to Singapore's much-discussed retirement fund system.
To provide more state support for lower- and middle-income groups, Prime Minister Lee Hsien Loong announced an annual bonus for the poorest old folk and extended the Lease Buyback scheme to owners of four-room Housing Board (HDB) flats.
He also said rules will be eased so CPF members can withdraw more funds in a lump sum upon retirement, in response to such requests.
But even more notable shifts may lie ahead. An advisory panel is being set up to study further updates to the CPF system.
One area it may look at is giving CPF members more flexibility to invest their savings, so they can take higher risks in the hope of higher returns on their funds.
Whether the current CPF set-up and returns can meet retirement needs is a matter of deep concern for Singaporeans.
A Manulife survey this month showed just a fifth are confident that their CPF funds will be enough for retirement.
Last year, only half of CPF members turning 55 met the Minimum Sum. That included 15 per cent of members who pledged their properties to meet part of it.
Some think higher returns on CPF savings will yield a nest egg better able to withstand inflation.
One proposal being resurrected is letting CPF members pool their money to invest in private pension plans. The funds would be put into a balanced portfolio of assets and managed by private-sector firms, with low fees.
The mix of assets would be chosen with the aim of capital preservation - in other words, low-risk, modest-return assets - to minimise the threat of large losses.
This option has been considered before, to much excitement, but ultimately rejected. In 2003, it was recommended by the Economic Review Committee (ERC) - chaired by Mr Lee, who was then deputy prime minister - as a way to raise returns on CPF savings.
The CPF Board followed up with a consultation paper on this idea in 2004.
It was raised again in Parliament in 2007, but rejected mainly because CPF balances were too low to take the higher risks necessary for higher returns.
Then Manpower Minister Ng Eng Hen said simulations showed most people would be better off with private pension plans. But one in 10 could end up with returns lower than CPF's rates - a risk that could not be stomached, given members' risk tolerance.
Not everyone was convinced. Financial adviser Leong Sze Hian questioned the Government's simulations, saying his own calculations showed a much lower chance of underperforming CPF's returns: less than one in 50.
More investment discipline
IN ANY case, times have changed. In the last decade, CPF balances have more than doubled, from $111.9 billion in 2004 to $253 billion last year, said Bank of America Merrill Lynch economist Chua Hak Bin in a recent report.
Older members have significantly more savings now than previously, which was a specific worry back then. The average CPF balance of a member aged above 55 to 60 was nearly $100,000 last year, up from $40,000 in 2004, Dr Chua said.
CPF members today also seem more vocal in seeking greater control over their retirement savings, which may signal a higher risk appetite from some segments.
At the same time, they are investing less of their CPF money because they have seen poor results with the CPF Investment Scheme (CPFIS).
As at March, only about 10 per cent of total CPF balances were invested in CPFIS - down from 20 per cent in 2009.
This is probably due to the fact that from 2004 to last year, only 18 per cent of those who invested their Ordinary Account (OA) funds under CPFIS managed to best the CPF's rates.
Between October 2011 and September last year, only about 15 per cent of these investors earned profits above CPF's rates. Over 40 per cent made losses.
This is despite CPFIS' unit trusts and investment-linked insurance products returning 10.4 per cent and 10.7 per cent in 2012 and last year respectively, Dr Chua noted.
The Straits Times Index of blue-chip stocks rose 19.7 per cent in 2012 and was flat last year.
Dr Chua suggested the discrepancy may be because CPF members invested directly in stocks - picking individual shares rather than investing in a managed fund like a unit trust - clearly with detrimental results.
Private pension plans "could potentially introduce more investment discipline and less speculative trading", Dr Chua concluded.
Advantages over individual investments
SUCH plans have some advantages over individual investments by members in CPFIS, as the ERC noted in its 2003 report.
It said many unit trusts are relatively small and cannot achieve economies of scale, so investment costs are high.
Many CPF members also have too little funds individually to achieve balanced and diversified investment portfolios that can allow for lower risks and higher returns over the long term.
Pooling their monies in a pension fund to be managed by private fund managers would address both these problems.
Fund managers have said that if private pension funds invest for the long term - at least a decade - they are likely to achieve higher rates than what the CPF offers.
Members now earn guaranteed interest of 2.5 per cent and 4 per cent on their Ordinary and Special Accounts respectively, with an extra one percentage point on the first $60,000 of their savings.
This is more generous than the yields on Singapore government bonds and the interest rates on most bank deposits, especially given that CPF returns are assured.
But these rates - unchanged since 1999 - have barely kept up with the higher rate of inflation over the last few years.
Inflation averaged 4 per cent between 2011 and last year and may stay high.
The experiences of other countries lend some credence to the call for private pension plans.
According to the Organisation for Economic Cooperation and Development's Pension Markets in Focus 2013 report, pension funds in over half of the 50 or so countries surveyed earned average annual returns of at least 2.5 per cent in the 10 years to 2012.
A third of them earned at least 4 per cent. Both figures are in real terms, that is, even after accounting for inflation.
Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, who chaired the CPF sub-committee of the ERC in the early 2000s, said last month the Government may relook private pension plans. But he warned such plans may not end up achieving better returns than those guaranteed by the CPF.
There are also dangers in any investment that is not a sure thing. In 2012, an investment firm in Japan lost US$1.3 billion (S$1.62 billion) in pension money after a series of risky bets.
Still, while private pension plans are not about to replace CPF, they may be a worthwhile addition. As overall CPF balances grow, there is scope for such plans to take some burden off the Government providing the bulk of the returns on retirement funds.
In Parliament last month, Manpower Minister Tan Chuan-Jin said 20 per cent of those who turned 55 last year had CPF balances above the Minimum Sum that were not withdrawn, suggesting a potentially large pool of funds that might be invested with private pension plans.
The Manulife survey cited earlier found that 20 per cent of respondents would buy an additional retirement or pension plan.
It may be time to look more at these voluntary savings plans for people who want more choices in investing their CPF funds, especially younger members with a longer horizon to retirement.