Comparison between Rates of Return for CPF Members' Self-directed Investments and for Pension Funds Invested by Professionals
Ministry of ManpowerSpeakers
Summary
This question concerns a comparison of returns from self-directed investments under the CPF Investment Scheme (CPFIS) against professional pension funds in Australia and the US, as raised by Ms Foo Mee Har. Minister for Manpower Mrs Josephine Teo stated that CPFIS performance varies based on individual decisions and market conditions, advising those without investment expertise to rely on risk-free CPF interest rates. She noted that CPFIS-OA performance is benchmarked against the 2.5% Ordinary Account interest rate, with 38% of investors exceeding this rate in FY2018 compared to 74% the previous year. The Minister explained that international comparisons with professional pension funds are not meaningful due to differing investment objectives and strategies between the CPF and overseas systems. Ultimately, CPFIS targets members prepared to manage investment risk, while others are encouraged to benefit from the guaranteed returns provided by the CPF Board.
Transcript
53 Ms Foo Mee Har asked the Minister for Manpower (a) how do rates of return from CPF members' self-directed investments made via the CPF Investment Scheme compare with those from pension funds invested by professionals such as that in Australia and the US; and (b) what is the average return over three years, five years and 10 years and how do these compare with industry benchmarks.
Mrs Josephine Teo: The CPF Investment Scheme (CPFIS) provides CPF members with the option to invest their CPF savings in a diverse range of investment products to enhance their retirement savings. CPFIS is targeted at CPF members who have the knowledge and time to invest, and are prepared to take investment risk. CPF members who are not prepared to take risk, or have neither the knowledge nor time to invest, should consider growing their CPF savings through the risk-free CPF interest rates.
The investment performance for each CPFIS investor varies depending on the investment decisions they make. For example, the asset type and basket of investment products purchased, market conditions at which the investments were purchased and sold, as well as the investment duration. For similar reasons, the performance of any investment fund may not reflect the returns of its individual investors.
Hence, to assess the investment performance of CPFIS-OA investors, we compare their returns against the CPF Ordinary Account (OA) interest rates. 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.
The investment performance of CPFIS-OA investors fluctuate year on year in line with market conditions. In FY2018, only 38% of CPFIS-OA members registered in their accounts total profits above the OA interest rate of 2.5% per annum, whereas in the year before that, 74% of CPFIS-OA members registered total profits above 2.5% per annum. Their realised returns may however differ from what was registered depending on the timing of specific investments.
It is not meaningful to compare the investment performance of CPFIS investors to pension funds in other countries as these funds may have different objectives and investment strategies from our CPF system.