Sales charge to invest CPF money will be removed from Oct. 2019, but you’ll have to take a quiz

Coming soon at a CPF Investment Scheme account near you.

By Joshua Lee | March 5, 2018

The sales charge that is currently levied on the CPF Investment scheme (CPFIS) will be removed in Oct 2019, said Second Minister for Manpower Josephine Teo on Monday, Mar. 5.

This announcement was made as part of the ongoing Committee of Supply debates, as a measure to be implemented under the manpower ministry.

Currently, financial advisors are allowed to levy a sales charge of up to 3 per cent for investment-linked insurance policies and unit trusts offered under the CPFIS.

But hold your horses! What is the CPFIS?

The CPF Investment Scheme (CPFIS) allows CPF members to take their CPF savings and invest them into insurance products, unit trusts, fixed deposits, bonds and shares, in order to grow their retirement savings.

There are a number of reasons someone would choose to use the CPFIS — maybe you might want your CPF money to earn higher than the 2.5 per cent per annum interest you’re getting in your Ordinary Account, maybe you enjoy living life on the edge.

Whatever it is, investing your CPF savings via the CPFIS requires time and knowledge to help you navigate the various aforementioned financial instruments — all of which carry certain risks. If the term “bond” brings to mind cuffs and whips, maybe this isn’t for you.

CPF members can only invest CPF money once they have set aside S$20,000 in their Ordinary Account and S$40,000 in their Special Account.

The sales charge will first be reduced from 3 per cent to 1.5 per cent in October 2018.

Teo added:

“By removing sales charge, financial advisors no longer have an incentive to push products. This also reduces the cost of investing for CPFIS members and will better align the investment behaviour to members who have time and knowledge.”

In addition, wrap fees (fees for a bundle of investment services offered by a brokerage firm) will be lowered from 1 per cent to 0.7 per cent in October 2018, and finally to 0.4 per cent in October 2019.

Lowering wrap fees to 0.4% of assets under management per annum brings it in line with the fees charged by online investment platforms in the cash market.

New quiz to determine if you’re smart enough to invest your own CPF money

You’ll also soon be required to take a Self-Awareness Questionnaire (SAQ) when you’re opening a CPFIS account.

As you can imagine, not everyone who invest their CPF money via the CPFIS do so prudently.

In September last year, the Straits Times reported that from October 2014 to September 2016, about 172,000 CPFIS members made cumulative total losses, while 128,000 CPFIS members made profits that were equal to or less than the interest rate from the Ordinary Account (OA).

That’s 300,000 people who would have been better off if they had just left their CPF money in their OA.

In a poll conducted with CPFIS members on behalf of the CPF Advisory Panel, more than half of the respondents indicated that they had limited investment knowledge.

This is where the SAQ comes in handy. It will help CPF members determine if they are cut out for CPFIS. This will be rolled out in October 2018 for all new CPFIS applicants. Existing CPFIS members will be encouraged to do the SAQ.

However, while the SAQ is mandatory for new applicants, they can still choose to take part in the CPFIS even if they do not pass the SAQ.

If you realise that you’re not equipped with the right knowledge to take part in the CPFIS, the SAQ will point you towards other options to grow your CPF savings – mainly though CPF interest rates and the future Lifetime Retirement Investment Scheme.


Correction: The previous title of this article stated that the sales charge for CPFIS would be waived. It has been corrected to better reflect that the sales charge will be removed.  

Top image via Getty Images


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