Apologies for the late reply. I have been very busy.

I think you should read my entry more carefully. I never said the government SHOULD NOT invest the money of CPF members. I only gave reasons why I think the government is not doing it. And, I never said anything about whether the reasons are good or bad. So stop jumping to conclusions and saying that my entry is poorly researched. Your last comment and my entry are apples and oranges. We are talking about different things.

Now to deal with your subject, I totally agree with you that professional fund managers will be able to give good returns. If we are to adopt this model, every CPF member will have to ask themselves whether they are prepared to take risk of loss. Can they stomach seeing their investment increase 24% in one year and then -15% in another year? I know that in theory the long term figure should be positive if the money was wisely invested but the problem is, not everyone is like you who can see long term.

Sure, the government might have been borrowing cheaply from citizens. I don’t deny that. However, the verdict is not out on whether CPF members are willing to tie their returns to GIC’s performance. I may have the stomach, but I can’t say so for my mum or dad.

List a number of highly diversified index linked products, such as global equities indexes, Asian equities, N. American Equites, etc. these are index-linked products so can be run with low fees & administrative charges. Along with these offer Singaporeans risk free 2.5% something like Fixed Deposit.

The simply let the CPF account hold choose his mixed. He can go risk free or 60-40. No reasonable human being will blame the govt if he loses money on an index fund especially if he can also choose a risk free option which can be a default choice.

By restricting the account holder to 2.5%, the govt guarantees the person will have insufficient to retire at a decent age and is doomed to a prolonged work life.

This has been suggested many many times. The PAP govt refuse to do it because it wants to have access to lots of money at 2.5% for its GIC. …GIC money we will never see until the day we die.

Anyone who believes the PAP govt explanation about how they are reasonable in giving 2.5% risk free is a fool. Aaron Ng if you read my comment and still think the way you wrote in blog posting, I don’t mean to be rude but your posting is poorly researched….

To add to this the Chilean govt put the pension funds in the hands of professionals for management and returned an average of 11.8% for a period of 18 years since it started.

To be cynical, you can say that it squeezes citizens of better long term returns, so that when they ask for help, it can do so with ample funds and thus appear to be generous.

From another point of view, you can say that the Government operates much like a bank. It guarantees a small fixed return on your ‘savings account’ or ‘fixed deposit’ (CPF funds fall somewhere in between those two types), and uses the funds thus raised to make profits by investing in projects and stocks. It has to be ‘compensated’ for taking on the additional risk, just like a bank does. Or does it????

One should realised there is risks associated with “Risk free returns”. Without the power of compounded interest, we could well see another generation of Singaporeans with higher retirement age and insufficient retirement funds.

aaron,
i think the money is invested. The problem is that the government does not want to share the profit.

Why cant they just set up a global index fund for CPF account holders so that they can invest a portion of their CPF in a portfolio of stock, reits and bonds indexes all over the world as pre-selected by the CPF board and the $ cannot be taken out until 65 just like special account.

Of course the risk must be spelled out clearly to all those involved.

Well said. That’s the crux of the problem.