Fundamentally the CPF is more a savings plan, not really an investment plan. It pays you a fixed interest which is no doubt generous in today's environment. But it's a savings plan and relatively simple. The government didn't want to impose investment risk on the broad spectrum of members.
The main investment feature was property and remains so. Can you imagine if property prices had not gone up, how desperate the situation would be?
The CPF needs to be looked at. It may well be that we go down the road of a private industry like in Chile or Sweden. Basically, you want to find a solution along the lines of a collective DC (defined contribution) system.
If you can pool the money together, it gives you economies of scale and helps to bring down the cost of investment. With interest rates so low and returns so low, a good part of returns will be eroded by costs.
So the challenge is to find a model which creates enough scale to lower costs, pool the risk and offer life cycle solutions for people of different demographic profiles.
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It's quite clear that given that future rates on investment products will be lower than in the past, if you look for the same amount of retirement benefits in the future, you will need to save more.
This is basic arithmetic and not rocket science. But it needs to be explained to people because the tendency is to look to the past and believe that it's representative of the future.
Interest rates are so low that the real rate of interest is negative. If you put your money in case, it's as good as saying you're not able to protect your savings against inflation. I'm not saying this will be a permanent state of affairs but it does indicate that we need to look into retirement security more carefully.
People should not be misled into thinking they have enough when they don't. The current debate in Singapore about retirement security is welcome because it heightens people's consciousness. Understanding the problem is the beginning of finding a solution.
