Retirement News : Seniors : Singapore ponders new plans for retirement savings

Singapore ponders new plans for retirement savings

Date Added: 01-04-2005

SINGAPORE: Wealthy Singapore, where citizens have poured about a third of their income into the state-run savings fund for decades, is struggling to come up with a viable market for private retirement funds.

Happy to let their savings earn as little as 2.5 per cent in the mammoth Central Provident Fund (CPF) - more than half of which has been spent buying homes - Singaporeans have balked at a government scheme to improve returns by moving their savings into privately managed pension plans.

Banks and funds say the proposed private plans would be tough to sell to investors who are still wary after being burnt by CPF-approved funds when the tech bubble burst.

The government said this month it would redraw plans guiding as much as $S98 billion ($NZ85.04 billion) from CPF to private funds this year after a previous attempt to set up low-cost, private plans was shelved.

"The intention is still there, but they know the plan as it was announced initially doesn't work at all. And they have to find an alternative," said Lawrence Au, Asia-Pacific general manager at Chicago-based Northern Trust Co.

The original plan would have waived fees for distributing the funds and locked annual fees and expenses at money managers below the 2.5 per cent or more typically charged by mutual funds.

Distributors and global fund managers such as Vanguard Group, Fidelity Investments and ING Investment Management had expressed interest in helping develop Singapore's retirement fund industry, but said they saw little incentive to sell funds without fees and managers feared they could not compete with property's overwhelming position in CPF.

The state fund was worth $S179 billion as at the end of 2003.

"They wanted it to be the cheapest, the lowest-cost, which is of noble intent. But, on the other hand, there's no guarantee or legal means to enforce the amount of money that goes into the scheme to make it viable for the providers. Neither were there any tax incentives," said Au of global custodian Northern Trust.

Singapore is Asia's third-most prosperous society, with per capita income of over $US25,000 ($NZ35,674) in 2004.

CPF's 3 million members - the bulk of the working population of Singapore nationals - have put $S110 billion of savings into property but only $S29 billion into investments and insurance, just over a third of what they have in cash.

"There is clear evidence that Singaporeans are not planning for their retirement," Greg Seow, chairman of fund industry body Investment Management Association of Singapore (IMAS), told a recent industry gathering.

Perceived poor performance by mutual funds and entry fees as high as 5 per cent and annual fees 50 per cent more than in the United States, Britain and Australia, were key obstacles facing the industry in Singapore, Seow said.

Shifting to an annual advisory fee structure for funds from front-end fees would make them more acceptable, Seow said.

Jon Robinson, managing director of Vanguard's Asian arm, said he favoured a structure in which the CPF developed products and then outsourced their management to private firms, instead of private firms developing their own products.

"It's going to be far easier for them to market a concept of long-term savings rather than to have different providers marketing competing products," he said.

Industry officials felt the CPF would take on a greater role under a new structure, which would also address issues behind Singapore's comparatively high fund fees.

The retirement issue is gaining urgency. Singapore's birth rate hovers at record lows of around 1.25 babies per woman, below the 2.1 the government says it needs for a stable population.

The number of people above 65 is forecast to grow nearly four-fold to 800,000 by 2030, with no corresponding growth seen in the working-age population to support them.

Under the existing CPF scheme, employees contribute 20 per cent of their income to the pension plan while employers pay 13 per cent, and members can use their saved funds to buy property or invest into about 250 approved private, but high-cost, funds.

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