IPS forum on CPF: The CPF-IS and its alternatives.

The afternoon's third speaker was Mr. Alfred Chia whose job was to talk about the CPF-IS. 

He had to walk carefully through his presentation because people could feel that he had vested interests to protect if he was not objective enough. 

To his credit, I think he did quite well in toeing the line.

Mr. Chia said that whenever the CPF Board liberalised rules to allow members to use their CPF funds for investments, it would be the insurance companies and banks who got very excited. Their motivation is to make money from fees, after all. 

Plenty of products would be pushed out then to entice CPF members. Unfortunately, these have happened more often than not during market peaks.

Click to enlarge.

Anyway, very unfortunately, 85% of CPF members have lost money under the CPF-IS. 

This is due to a cocktail of factors but such a high percentage could be reduced if CPF members are better educated on things investment.

Mr. Chia also talked about Dollar Cost Averaging and how, for the average guy, this could be the best way to go. Of course, this should not be a new concept for regular readers.

I believe that sales people will always be sales people. They have to sell things to make money for themselves. 

We have to take on the responsibility of deciding for ourselves if a financial product makes sense at all. So, increasing our financial literacy, like it or not, is important in our society.

Personally, I have always said that the CPF pays risk free rates of 2.5% to 5% per annum. Unless a certain investment product is able to do better, it is better to leave our CPF money where it is. 

Indeed, I find the risk free rates in the CPF-SA so attractive that I would encourage anyone to do Minimum Sum Top Ups if they are allowed to. Of course, they would enjoy income tax relief at the same time.




"We can never be too sure about our investments and how they will do. However, the CPF gives us a measure of certainty which we need in our golden years. So, it is a good tool in retirement planning and we should make good use of it." AK, 24 March 2014 in Securing risk free returns early for retirement.

See slides: here.

Related posts:
1. AK attended forum on CPF.
2. Dollar Cost Averaging and expected returns.
3. Nobody cares more about our money than we do.
4. Double your income, not your income tax.

IPS forum on CPF: Balancing returns, risks, facts and fallacies.

The second speaker in the afternoon session was Professor Joseph Cherian who is the Practice Professor of Finance and Director at the Centre for Asset Management Research and Investments in NUS.

Prof Cherian listed three fundamental concerns about retirement funding:

1. That retirees receive a reasonable level of payout every month.

2. That the payouts should last for as long as one lives.

3. That the payouts should be indexed to inflation.

This is where the CPF Life comes in and although it promises to give a monthly payout for life, the payout is not indexed to inflation. So, for the same person, $1,000 at age 65 is probably very different from $1,000 at age 75, for example. This is a very good point.

He went on to share some myths surrounding the CPF and inflation in Singapore. His slides are very good and I will share them here:



Click to enlarge.

Prof Cherian also raised the point about how the private sector should not be allowed into the reverse mortgage business of HDB flats because they are only interested in charging exhorbitant rates like what happened in the USA. This should be the government's responsibility.

Lastly, some might remember that in my open letter to the Prime Minister, I said that not enough has been done to communicate issues regarding the CPF clearly to Singaporeans. Prof Cherian said that we have to keep the messages simple and that we should conduct communication programs on retirement and the importance of the CPF. I agree wholeheartedly.

See slides: here.
(I highly recommend that you go through Prof Cherian's slides which are very detailed and also entertaining.)

Related posts:
1. AK attended forum on CPF.
2. An(other) open letter to the PM.
3. We do better managing our savings than the CPF does.