Singapore says no plan to manage pension money separately

18 July 2014   Category: News, Asia, Global, Singapore   By Maya Ando

Singapore’s government has clarified that there are no imminent plans for contributions to its Central Provident Fund (CPF) retirement scheme to be managed as a separate investment entity within the city state’s sovereign wealth fund (SWF).

As things currently stand, pensions money contributed to the CPF is invested in Special Singapore Government Securities (SSGS); debt instruments whose proceeds are managed by the Government Investment Corporation (GIC) and Monetary Authority of Singapore (MAS). As a result, retirement contributions are pooled with other government surpluses and managed collectively by the GIC, rather than as a separate pension fund.

In a parliamentary session this month, however, Workers’ Party secretary general and lawmaker Low Thia Khiang quizzed the deputy prime minister and finance minister on why the CPF’s S$300 billion (US$242 billion) or so in assets could not be ring-fenced into a new fund within the GIC’s portfolio.

“[Deputy prime minister Tharman Shanmugaratnam says] that if the CPF money was managed and invested as an independent pool, it will not be able to enjoy the same investment returns as GIC. I would like to know why is it so?” Mr. Low asked.

Responding, Mr. Shanmugaratnam said that the CPF would not be able to achieve returns comparable to that of the GIC if its assets were invested separately, and would be obliged to pursue a much more conservative strategy.

“Meaning not much equities, certainly no real estate, no alternative assets. It will basically be a simple bond portfolio and it is not going to earn very much. It will aim to just minimise the chance of failure to meet obligations. Not maximise long-term returns. That is what would happen,” Mr. Shanmugaratnam claimed.

“There is no private sector fund manager that will take up on that task [of managing CPF funds] because it is very difficult. The GIC, because it is a large diversified portfolio, its aim is to invest in the long term and it aims to do better than the SSGS obligations,” he continued.

The CPF was formed in 1955 as Singapore’s compulsory comprehensive savings plan for employees, with 3.5 million members as of the end of 2013. CPF interest rates are pegged to risk-free market instruments of comparable duration, and have a current floor of 2.5% for ordinary accounts and 4% for special, medical and retirement accounts.