Fresh grads may only be able to invest their CPF savings after 4 years in the workforce
FOUR years — that's how long the next batch of fresh entrants into the workforce may have to wait before starting to invest their Central Provident Fund (CPF) savings.
Under new rules from January, the first $20,000 in your CPF Ordinary Account (OA) will not be allowed for investment purposes.
And for a young graduate just starting work with a $2,000 monthly paycheque — the median gross starting wage of a professional last year — it would take about four years to amass such a sum, assuming his pay remains stable (see table).
Is this too long a wait for the young and gungho raring to grow their money trees? Not really, said 25-year-old Alvin Lee, who is into the eighth month at his first job as a commodity trader.
He has all along planned to wait for his CPF savings — currently between $6,000 and $7,000 — to hit a five-figure sum "before I do anything with it".
But in principle, he said, "it does sound a bit restrictive", referring to the Government's intention to bar CPF members from investing their first $60,000, which can include up to $20,000 from the OA. To grow the nest eggs of a fast-greying population, the amount locked up will earn 1 percentage point more than the CPF Board's existing interest rates.
But what if one could use that $60,000 to make a much bigger marginal gain, Mr Lee asked? Like-minded Singaporeans may rush to invest their CPF savings before Jan 1, said Mr Wong Sui Jau, general manager at Fundsupermart, an online unit-trust distributor.
Noting concerns, Manpower Minister Ng Eng Hen yesterday said at a media briefing: "We are not sending a signal to say, 'I don't want you to invest'. What we are saying is, for the amount below $60,000, it is safer (not to invest) and we will provide you higher interest. Our assessment is that it will be hard for the market to beat the new rates on the CPF accounts ... This is long-term money to keep in-house."
Since the CPF Investment Scheme (CPFIS) was introduced in 1986, members have been allowed to use all their savings in the OA and Special Account to buy financial products such as unit trusts and insurance. As at June 30, members had invested $32,102.7 million — about 28 per cent of CPF funds available for investing.
How those investments have fared is infamous. Only two in 10 enjoyed returns exceeding the OA's prevailing rate of 2.5 per cent in the year ended September 2006. There were 799,307 investing members.
The dismal record is partly why Mr Brian Goh, senior vice-president of ipac financial planning, agrees with the new restriction, which would enable a Singaporean to "capture 'X' dollars at guaranteed, risk-free and attractive interest rates".
Agreeing, Promiseland Independent's investment adviser Wilfred Ling suggested regarding the amount locked up as a type of 'safe' fixed-income asset within a person's diversified portfolio.
As for fresh graduates with little spare cash and CPF savings, the new ruling would mean no investing for the first few years, which may not be a bad thing, said Mr Wong. "Generally the 25-year-old will tell you, 'I can take maximum risk'. But what a fair number don't factor in is, they'll get married and want to buy a house when they're, say, 28."
Faced with this, the young person's "time horizon" — the longer it is, the more risk he can afford to take and ride out market downturns — is actually rather short, said Mr Goh. "If his investment time-frame is less than five years, I don't suggest he get into anything volatile."
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