Hostname: page-component-8448b6f56d-m8qmq Total loading time: 0 Render date: 2024-04-19T00:41:38.843Z Has data issue: false hasContentIssue false
  • English
  • Français

Investment patterns in Singapore's Central Provident Fund System

Published online by Cambridge University Press:  16 November 2007

BENEDICT S. K. KOH ,
OLIVIA S. MITCHELL ,
TOTO TANUWIDJAJA  and
JOELLE FONG
BENEDICT S. K. KOH
Affiliation:
Singapore Management University
OLIVIA S. MITCHELL
Affiliation:
Singapore Management University
TOTO TANUWIDJAJA
Affiliation:
Singapore Management University
Get access Rights & Permissions [Opens in a new window]

Abstract

Rising elderly life expectancies imply the need to accumulate sufficient savings for retirement. This paper investigates the role of recent changes in the investment menu of the Singaporean Central Provident Fund (CPF) system. Our research explores the investment patterns of CPF participants and articulates their implications for policymakers. We find that most investors use their money for housing purchase and default the remainder to the CPF investment pool. The bulk of non-housing saving sits in bank accounts paying a low return. A fraction of workers does elect outside investment products, with high-income earners and males taking more risk than low-income earners and females. Since workers who default their money to the CPF fund receive a guaranteed 2.5% return on the Ordinary Account and 4% on the Special Account, hurdle rates for money market and equity funds are substantial. These high hurdle rates help explain why few CPF account holders invest outside the default government investment pool, though inertia probably explains why many employees let their funds sit in bank accounts earning low interest rates. More attention could be devoted to lowering fund expenses and commissions, including the myriad of fees, expenses, loads, and wrap charges; it might also be beneficial to streamline and rationalize the investment menu offered to participants.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 7 , Issue 1 , March 2008 , pp. 37 - 65
Copyright
Copyright © Cambridge University Press 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Arenas de Mesa, Alberto, Bravo, David, Behrman, Jere R., Mitchell, Olivia S., and Todd, Petra E. (Forthcoming) The Chilean pension reform turns 25: lessons from the Social Protection Survey. In Stephen, Kay and Tapen, Sinha (eds) Lessons from Pension Reform in the Americas. Oxford University Press.Google Scholar
Asher, Mukul (2004) Retirement financing dilemmas: experience of Singapore. Economic and Political Weekly, 39(21): 2114–2120.Google Scholar
Asher, Mukul and Nandy, A. (2006) Mandatory savings for asset enhancement: the case of Singapore. Social Development Issues, 23(2): 57–70.Google Scholar
Brown, Jeffrey, Mitchell, Olivia S., and James, Poterba (2000) The role of real annuities and indexed bonds in an individual accounts retirement program. In Campbell, J. Y. and Feldstein, M. (eds) Risk Aspects of Investment-Based Social Security Reform. Chicago: University of Chicago Press, pp. 321–360.Google Scholar
Central Provident Fund (CPF) (2005a) About Us: 4th Quarter 2005. mycpf.cpf.gov.sg/CPF/About-Us/CPF-Stats/CPF_Stats2005q4.htmGoogle Scholar
CPF (2005b) Handbook: CPF Investment Scheme. Singapore: CPF Board, March.Google Scholar
CPF (2005c) CPF Investment Scheme (CPFIS): Profits/Losses for the Financial Year Ended 30 September 2005. www.cpf.gov.sg/cpf_info/ie/IE_reportpl.pdf.Google Scholar
CPF (2005d) News Release: CPF Board Tightens CPF Investment Scheme (CPFIS) Admission Criteria for Funds. 29 December. mycpf.cpf.gov.sg/CPF/News/News-Release/N_29Dec2005.htm.Google Scholar
CPF (2005e) Saving for Our Retirement: 50 Years of CPF. Singapore: CPF Board.Google Scholar
CPF (2006) Quantitative Performance Analysis UT Q2 2006. Standard & Poor's Fund Services, Asia, August. www.imas.org.sg/downloads/imas/Quantitative_Performance_Analysis_UT_Q2_06.pdfGoogle Scholar
Chen, Renbao, Ann, Wong Kie, and Yee, Chiang Mei (1997) Singaporean's knowledge and attitudes toward the Central Provident Fund. Singapore Management Review, 19(2): 1–16.Google Scholar
Chen, Renbao and Ann, Wong Kie (1998) The adequacy of the CPF account for retirement benefits in Singapore. Singapore International Insurance and Actuarial Journal (2): 121–138.Google Scholar
Choi, James J., Laibson, David, and Madrian, Brigitte C. (2005) Why does the law of one price fail? An experiment on index mutual funds. National Bureau of Economic Research Working Paper.CrossRefGoogle Scholar
Clark, Robert L. (1999) Ageing policies in East Asia. Paper presented at a Conference on Perspectives on Public Policy in the 21st Century. National University of Singapore, Singapore. September.Google Scholar
Doyle, Suzanne, Mitchell, Olivia S., and Piggott, John (2004) Annuity values in defined contribution retirement systems: Australia and Singapore compared. Australian Economic Review, 37(4): 402–416.CrossRefGoogle Scholar
Fong, Wai-Mun (2002) On the cost of adverse selection in individual annuity markets: evidence from Singapore. Journal of Risk and Insurance, 69(2): 193–207.Google Scholar
Investment Company Institute (ICI) (2006) Investment Company Factbook 2006. http://www.icifactbook.org/06_fb_sec5.html#trends.Google Scholar
Investment Management Authority of Singapore (IMAS) (2005) Guidelines for the disclosure of expense ratios. www.imas.org.sg/downloads/imas/IMAS_Revised_Guidelines_on_Expense_Ratio.pdf.pdf.Google Scholar
Lee, Hsien Loong, Minister (2005) Speech looking at the CPF Board. 25 September. mycpf.cpf.gov.sg/CPF/News/News-Release/NR_25Sept2005.htm.Google Scholar
Low, Linda and Aw, T. C. (1997) Housing a Healthy, Educated, and Wealthy Nation through the CPF. The Institute of Policy Studies. Singapore: Times Academic Press.Google Scholar
Low, Linda and Aw, T. C. (2004) Social Insecurity in the New Millenium: The Central Provident Fund. Singapore: Times Academic Press.Google Scholar
Lusardi, Annamaria and Mitchell, Olivia S. (2006) Financial literacy and retirement planning: implications for retirement wellbeing. Pension Research Council Working Paper. www.pensionresearchcouncil.org/publications/document.php?file=296Google Scholar
McCarthy, David, Mitchell, Olivia S., and Piggott, John (2002) Asset rich and cash poor in Singapore? Retirement provision in a national defined contribution pension fund. Journal of Pension Finance and Economics, 1(3):197–222.CrossRefGoogle Scholar
Mitchell, Olivia S. (1998) Administrative costs of public and private pension plans. In Feldstein, M. (ed.) Privatizing Social Security, NBER. Chicago: University of Chicago Press, pp. 403–456.Google Scholar
Mitchell, Olivia S., Gary, Mottola, Steve, Utkus, and Takeshi, Yamaguchi (2005) The inattentive participant: trading behavior in 401(k) plans. PRC Working Paper. The Wharton School.CrossRefGoogle Scholar
Mitchell, Olivia S., Gary, Mottola, Steve, Utkus, and Takeshi, Yamaguchi (2006) Winners andl: 401(k) trading and portfolio performance. PRC Working Paper. The Wharton School.Google Scholar
Singapore Department of Statistics (2006) Key demographic indicators, 1970–2005. http://www.singstat.gov.sg/keystats/surveys/popnindicators.pdfGoogle Scholar