‘Not meaningful’ to compare CPF Investment Scheme returns to pension funds elsewhere
CPF Investment Scheme is meant for investors with an appetite for risk.
It is “not meaningful” to compare the performance of CPF Investment Scheme (CPFIS) investors to pension funds in other countries like Australia and the United States.
Minister for Manpower Josephine Teo explained this is because those funds may have “different objectives and investment strategies” from Singapore’s CPF system.
Compare investment scheme to OA interest rate instead
Teo responded to a question in Parliament from Foo Mee Har, MP for West Coast GRC, who wanted to know how CPF investments stacked up to pension funds, and also their average rate of returns.
Instead of comparing with other countries, Teo instead assessed the performance of CPFIS-Ordinary Account (OA) investors by comparing it to the normal CPF Ordinary Account interest rate.
“This indicates whether CPFIS-OA investors make better returns than the alternative of leaving their CPF monies in the OA to earn the risk-free interest rates.”
However, it turns out that fluctuating market conditions made it difficult to come up with a clear observable pattern:
“The investment performance of CPFIS-OA investors fluctuate year on year in line with market conditions.
In FY2018, only 38 percent of CPFIS-OA members registered in their accounts total profits above the OA interest rate of 2.5 percent per annum, whereas in the year before that, 74 percent of CPFIS-OA members registered total profits above 2.5 percent p.a..”
Do you have the stomach for risk?
Teo added that the CPFIS was aimed at members with the time, knowledge and appetite for risk.
Such investors will find their returns varying according to the decisions they make, including:
- The asset type and basket of investment products purchased.
- Market conditions at which the investments were purchased and sold.
- The investment duration.
So, the performance of any investment fund may not reflect the returns of the individual investors.
Other members should consider growing their CPF savings through “risk-free” CPF interest rates instead.
Top image from Josephine Teo’s Facebook page.