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Just putting down my irks with the current CPF scheme, they may have already been talked about in previous posts, so I am just saying my thoughts aloud. Below are my personal views only
1) Returns are not sufficient.
Basically MOF has spoken out that CPF proceeds are invested in SGSS and subsequently channeled to GIC to manage, given that they are not allowed for govt spending. If so, why not simply proceed to put it straight into GIC's management; bypassing the need to put it in SGSS? It is worth noting GIC has produced 6.5% returns over the past 20 years, I believe this figure is good enough to smooth out volatility in returns from good and bad years.
Perhaps MA and SA returns can be pegged close to GIC 20 yr returns, while OA's rate are increased from 2.5% to 3.0%. OA rates should not be pegged to GIC's return as they will affect the housing loan rates which will make borrowing for housing difficult.
2) Lack of investment products available as alternatives for SA and OA.
Many of these accounts/ unit trusts are terrible in performance where they are unable to match mkt averages in my view. My recommendation is to introduce more ETFs into the scheme. Vanguard is a perfect example where they have ETFs to not just Singapore but global exposure and are of one of the lowest fees (this is their moat). Alternatively, is to ask GIC to open a fund which can be invested by members. It will be nice to ask aggregate value fund to participate in the CPF-IS scheme, their fee structure is almost perfect, just that perhaps they have to lower their 250k threshold, perhaps make it 50k for CPF board members?
SA account only allows bond funds. I will like to recommend for account members to be allowed the option of purchasing ETFs. This deliver better market returns, with compounding helps us to reach the min sum and medisave min sum at a quicker rate. The SA should not be allowed for bond funds only.
Lastly in the current CPF system, it is unlikely we will be able to withdraw most of our SA/MA proceeds at 55. The govt has to take the perspective that the SA/MA will be lock in from the age of 25 to the time of death. Since we are unable to withdraw most of the fund, the govt should consider to manage it in the view of a portfoilo of VC/equities/bonds (similar to GIC), instead of the myopic view of bond like products only. This is because the former portfolio outperforms bond like products. Thus, my strategy will result in SA/MA being able to fund the min sum by itself enabling OA to still be used for housing purchases/installments.
Lets use an example here, we have a 25 year old grad who enters and is employed throughout his life till 55. Lets say he is able to put in 5k each yr into his SA and MA account. Assuming a 5% returns (CPF SGSS rates), at 55, he will have 348k. but at 6.5% returns (GIC returns), it is 459k. This means putting funds into GIC like funds will enable an individual to use his CPF MA/SA amount to sufficiently fund his min sum (155k) and medisave min sum (40K) figures for retirement as of 2014 figures.
Note: If the govt decides to make CPF's return close to GIC's returns, then point 2 can be considered to be scrapped.
Note 2: For an individual to be able to contribute 5k into his MA/SA yearly, he is only needed to earn 3.4K a month. It is worth noting my calculations excluded the very high possibility of getting AWC and performance bonus. It also excludes yearly wage inflation, pay hikes and promotions. Therefore a 5k annual contribution to CPF SA/MA is highly probable if one is employed.
1) Returns are not sufficient.
Basically MOF has spoken out that CPF proceeds are invested in SGSS and subsequently channeled to GIC to manage, given that they are not allowed for govt spending. If so, why not simply proceed to put it straight into GIC's management; bypassing the need to put it in SGSS? It is worth noting GIC has produced 6.5% returns over the past 20 years, I believe this figure is good enough to smooth out volatility in returns from good and bad years.
Perhaps MA and SA returns can be pegged close to GIC 20 yr returns, while OA's rate are increased from 2.5% to 3.0%. OA rates should not be pegged to GIC's return as they will affect the housing loan rates which will make borrowing for housing difficult.
2) Lack of investment products available as alternatives for SA and OA.
Many of these accounts/ unit trusts are terrible in performance where they are unable to match mkt averages in my view. My recommendation is to introduce more ETFs into the scheme. Vanguard is a perfect example where they have ETFs to not just Singapore but global exposure and are of one of the lowest fees (this is their moat). Alternatively, is to ask GIC to open a fund which can be invested by members. It will be nice to ask aggregate value fund to participate in the CPF-IS scheme, their fee structure is almost perfect, just that perhaps they have to lower their 250k threshold, perhaps make it 50k for CPF board members?
SA account only allows bond funds. I will like to recommend for account members to be allowed the option of purchasing ETFs. This deliver better market returns, with compounding helps us to reach the min sum and medisave min sum at a quicker rate. The SA should not be allowed for bond funds only.
Lastly in the current CPF system, it is unlikely we will be able to withdraw most of our SA/MA proceeds at 55. The govt has to take the perspective that the SA/MA will be lock in from the age of 25 to the time of death. Since we are unable to withdraw most of the fund, the govt should consider to manage it in the view of a portfoilo of VC/equities/bonds (similar to GIC), instead of the myopic view of bond like products only. This is because the former portfolio outperforms bond like products. Thus, my strategy will result in SA/MA being able to fund the min sum by itself enabling OA to still be used for housing purchases/installments.
Lets use an example here, we have a 25 year old grad who enters and is employed throughout his life till 55. Lets say he is able to put in 5k each yr into his SA and MA account. Assuming a 5% returns (CPF SGSS rates), at 55, he will have 348k. but at 6.5% returns (GIC returns), it is 459k. This means putting funds into GIC like funds will enable an individual to use his CPF MA/SA amount to sufficiently fund his min sum (155k) and medisave min sum (40K) figures for retirement as of 2014 figures.
Note: If the govt decides to make CPF's return close to GIC's returns, then point 2 can be considered to be scrapped.
Note 2: For an individual to be able to contribute 5k into his MA/SA yearly, he is only needed to earn 3.4K a month. It is worth noting my calculations excluded the very high possibility of getting AWC and performance bonus. It also excludes yearly wage inflation, pay hikes and promotions. Therefore a 5k annual contribution to CPF SA/MA is highly probable if one is employed.