The Central Provider Fund (CPF) has recently released a new and simplified lifetime retirement investment scheme (LRIS) for Singaporean residents. One of two major initiatives released by the CPF, changes to the LRIS is seen as a game changer for Singapore residents who want more control, information, and understanding over their retirement options. It is marketed as providing increased returns, minimizing the buying and selling aspect, being lower cost, and having fewer options to worry about. The LRIS stands as a safer option than the CPDIS option.
The CPDIS is a higher-risk option typically reserved for investors who are more confident. More than 200 products are offered through the CPDIS for those who choose this investment option. LRIS on the other hand has only a few well-diversified products that while offering less choice and gains, does have the benefit of being easier to passively manage. When selecting LRIS investment plans, long-term investments are the key and individuals are pushed away from churning and re-investing their savings if they go with LRIS plans.
LRIS stands to rectify a problem that has become quite apparent through research conducted by the CPF. Simply put, the CPF found that when left to investing their money on their own, 85% of individuals underperformed when compared to the other option of leaving the 2.5% interest increase instead. As it stands, people gain significantly more investment by allowing passive management of their retirement fund.
Eligibility for the LRIS program is available to all CPF members who have more than $20,000 saved in their OA, or Ordinary Account. Passively managed by one fund manager, the annual fees are expected to be as low as 0.5% a year. This is compared to CPFIS where the annual fees can be as high as 1.75%.
As many Singaporeans consider their investment options and retirement, understanding the risk behind both investment options is critical. While many will acknowledge the investment risk of the CPDIS, it is important to know that the LRIS can also underperform. Simply because it is less risk adverse does not mean it is free from risk, and any investor should be aware of this when planning their retirement savings. However, it is estimated that the risk of your LRIS under performing decreases dramatically the longer you have it. Either way, CPF lifetime payments can be deferred up to their 70’s.
Adoption & Future Implications
At the moment, there is no role out date for the two new initiatives listed by the CPF Board. This has left many wondering if and when these retirement investment options will become available. In addition, there are many who are questioning whether or not there will be enough interest in these plans to expand investment options. For example, the 2015 CompareFIRST didn’t attract much attention, resulting in less interest and options for individual investors. In addition, the Singapore Savings Bonds were also released with little interest paid by Singaporean residents. In the end, it may take more than simply providing the options. Marketing campaigns, improving awareness, and illustrating the benefits may go a long way to make these two initiatives successful where previous investment options have fallen flat.
About the Author:
Morris Edwards is a content writer at Singapore Company Incorporation Consultants Pte Ltd, where he writes most content on the site, and also writes the articles for Company Registration in Singapore Blog.