How would the scheme fit in with current options?
Currently, members can choose to invest part of their CPF savings through the CPF Investment Scheme (CPFIS), which offers more than 700 investment products. There is generally a higher fee cap than the new investment scheme, the CPF Board noted.
The take-up rate for CPFIS has been relatively low. As of September last year, 28.1 per cent of CPFIS-eligible members had active investments in their CPFIS-Ordinary Account. The figure stood at 22.1 per cent for CPFIS-Special Account.
CPF members may also leave their savings in their ordinary account (OA) and special account (SA), which have a base interest rate of 2.5 per cent and 4 per cent per annum, respectively.
Analysts noted that CPF’s new investment scheme offers a middle ground between current options and provides more options for members.
“So if you are the conservative type that does not even want to see any market cycle, you still can keep (your funds) in the CPF OA and SA account … Then if you have a higher, aggressive risk profile, you can participate in the CPFIS,” said Mr Alfred Chia, CEO of financial advisory firm SingCapital.
Most CPF members are likely to be in between, he said, noting that the new scheme can help members improve their long-term retirement adequacy.
He added that while private fund managers will manage the funds, the larger scale of the scheme would allow them to lower expense ratios.
As such, investors would benefit from lower investment costs, he said.
Who will the scheme be most suitable for?
Ms Li Huijing, head of investment management at financial consultant firm MoneyOwl, said the simplified set of options under the new scheme will be useful for members who wish to take some market risk, but lack the time or expertise to actively construct and manage their own portfolios.
She added that they should also have longer investment time horizons – ideally 15 to 20 years or more before retirement.
“With time on their side, they are better positioned to ride through market cycles and benefit from compounding,” she said.
The CPF Board said there will be no age limit for joining the scheme, although members with a longer runway are more likely to benefit.
Members with a shorter investment runway, including older members, can continue to benefit from risk-free CPF interest rates of up to 6 per cent on CPF balances, it said.