SINGAPORE - Central Provident Fund (CPF) members will face lower costs when investing retirement funds under the CPF Investment Scheme (CPFIS) soon.

There will be a reduction in the sales charge for new purchases of CPFIS products from 3 per cent to 1.5 per cent from Oct 1. The sales charge will be removed entirely from Oct 1 next year.

The aim is to remove the incentive for financial advisers to sell products under CPFIS merely to earn more commissions..

Since 2007, financial advisers have been allowed to levy a sales charge of up to 3 per cent for investment-linked insurance policies and unit trusts offered under the CPFIS.

"This sales charge is undesirable for CPF members because it incentivises financial advisers to sell products to earn more commissions," said a Manpower Ministry spokesman.

"CPFIS investors can already buy unit trusts on online platforms without incurring any sales charge. To better align the investment behaviour to the target investors and to reduce the cost of investing for CPF members, we will remove the sales charge under CPFIS."

CPF members have two ways to grow their savings. Those prepared to accept higher risk for higher expected returns, and who have the financial knowledge and time, can invest via CPFIS. Those who do not want to take investment risk can leave their savings in their CPF accounts to earn the risk-free interest rates.

Besides the sale charge reduction, wrap fees under CPFIS will be reduced in two phases. Since 2012, financial advisers can charge a wrap fee of up to 1 per cent of assets under management (AUM) a year for CPFIS members with wrap accounts. This fee covers both advisory services and the costs to maintain the wrap account.

The cap on annual wrap fees will be lowered to 0.7 per cent on Oct 1, and to 0.4 per cent on Oct 1 next year.

"The targeted CPFIS investors generally would not need to rely heavily on financial advisers... The cap on annual wrap fees to 0.4 per cent of AUM per annum is similar to the fees that are charged by online investment platforms in the cash market," said the MOM spokesman.

Besides lowering the costs of investing, a new self-awareness questionnaire will be introduced as part of the process of opening a CPFIS account from Oct 1. CPF members with a CPFIS account are strongly encouraged to take the questionnaire as it will help them decide if the CPFIS is suitable for them by providing feedback on their level of basic financial knowledge. It will also remind them of the other options to grow their CPF savings, such as the CPF interest rates or the future Lifetime Retirement Investment Scheme.

Not all CPF members who participate in the CPFIS know how to invest. A poll for the CPF Advisory Panel found that more than half of the respondents who were investing their CPF savings indicated that they had limited investment knowledge.