The newly proposed Lifetime Retirement Investment Scheme (LRIS) should have a small number of well-diversified funds that focus on traditional asset classes such as stocks and bonds.
Meanwhile, the existing Central Provident Fund Investment Scheme (CPFIS) should allow for a broader range of investments to cater to the savvier investing community.
These were some of the suggestions made by consultants and fund managers after the Government made public on Wednesday a set of recommendations by an advisory panel to improve the Central Provident Fund (CPF) scheme.
One of the panel's recommendations was the introduction of the LRIS, envisioned as a low-cost private investment scheme for investors with an appetite for risk but little time or know-how to actively manage their portfolios.
The panel had engaged Mercer, a consultancy specialising in talent, health, retirement and investment issues, to study the feasibility of the LRIS. Mercer advised, among other things, that the scheme should offer only a few fund choices, and that these should all be well diversified.
The scheme should have only one administrator, Mercer added, to make CPF members' investment decisions even easier - they would need to choose only the fund they wish to invest in, without having to also choose a fund provider.
Mr Daryl Liew, head of portfolio management at wealth manager Reyl Singapore, agreed with these suggestions.
"The scheme should not have too many options. I would say three to five funds, based on different risk profiles, would be sufficient. The allocation of each fund would depend on the investor's objectives, whether it is to beat inflation, or something more aggressive," he said.
Raffles Investment partner Jack Wang said the focus of the LRIS should be on exchange-traded funds (ETFs) that are well diversified. An ETF is a fund that produces its returns by tracking the performance of a stock or commodity index.
Funds under the LRIS should invest only in ETFs that track stocks in a broad range of industries, Mr Wang noted. For example, a Straits Times Index ETF would track the STI component stocks, which come from sectors ranging from telecommunications to property.
Meanwhile, the CPFIS, if it is to be tweaked, could allow for more industry-focused or commodity ETFs, he said. These are more volatile and more suitable for savvier investors.
The CPF advisory panel had recommended that the Government review the CPFIS to better target it at knowledgeable investors who have the financial expertise and time to manage investments on their own.
Mr Liew noted that the CPFIS now has a number of limitations that savvier investors find restrictive.
"Savvy investors like direct investments like venture capital or private equity investments. If the Government could allow some form of that, that would be interesting," he said.
"Maybe there could be a fund under the CPFIS through which wealthier CPF members could help fund innovative Singapore start-ups."
Fundsupermart's assistant director of research and content, Mr Ho Song Hui, added that the Government could relax the criteria for corporate bond inclusions under the CPFIS.
"While respectable names such as CapitaMalls Asia Treasury and FCL Treasury - a subsidiary of Frasers Centrepoint - offer investors decent yields with the potential for capital gains, the fact that their bonds are non-rated by credit rating agencies precludes CPFIS investors from investing in them," he noted.