In an insightful and authoritative article on IPS Commons, Christopher Gee contended that the Central Provident Fund (CPF) scheme in Singapore is as good as it gets. Previously with JP Morgan Chase, he is currently a research fellow at the Institute of Policy Studies, an autonomous think-tank at the Lee Kuan Yew School of Public Policy, National University of Singapore.
Excerpts:
Christopher Gee: Previously JP Morgan Chase's head of research, Asia-Pacific real estate and Singapore.In a working paper published in December 2014 (which I co-authored with Peter Ryan-Kane, Mark Whatley and Will Rainey of Towers Watson, a global investment advisory firm), we concluded that the returns available from the CPF Board are broadly equivalent to a portfolio invested 60:40 in global equities and bonds, but with considerably less downside risk.
We noted that the returns from the CPF are more financially efficient, and that these returns therefore represent an attractive benefit to CPF members compared to other available investment opportunities.
I would go further and argue here that the default return-risk balance provided by the CPF Board is good enough for most members. Adding more choice and flexibility may add complexity and lead to poorer outcomes for retirees’ financial adequacy.
Providing more flexibility without ensuring adequate levels of financial literacy amongst CPF members and potential retirees may result in sub-optimal decision-making which causes such underperformance.
The array of investment options in the CPF Investment Scheme – already a relatively small sub-set of the wider universe of investment alternatives for one’s funds outside of the CPF – creates what American psychologist Barry Schwartz calls the Paradox of Choice.
He says that whilst having some choice may be good, that does not necessarily mean that more choice is always better, as there are psychological and decision-making costs resulting from an overload of choice that may reduce one’s well-being.
For the full article, read it at: IPS Commons
