SINGAPORE -- Singapore's government wants its citizens to save more for retirement, and it's counting on money managers to lead the way.
The key for managers is tapping into Singapore's mandatory defined contribution savings plan, the S$85 billion (U.S.$52 billion) Central Provident Fund. All figures are in Singapore dollars.
On top of that amount, CPF members -- the 1.2 million workers, nationals and permanent residents, in Singapore --have another $15 billion in a separate DC investment scheme, said Ronald Chong, spokesman for the CPF Board. Of that, only $400 million is invested through the CPF in unit trusts, which are like mutual funds, he said. The majority is invested in insurance policies or stocks.
The government wants individuals to save more and get higher returns on their retirement savings and it's looking to money managers to get people to do that. Money managers are trying to get CPF members to buy their funds.
CPF-approved unit trusts range in styles from Asian growth stocks to global fixed income.
CPF guidelines for approved unit trusts are broad.
A fund must be "reasonably diversified in terms of investment, markets, industry, issuer, etc., taking into account the type and size of the fund, its investment objectives, and prevailing market conditions," according to the organization's website.
One of the largest problems facing retail fund managers is Singapore's investment culture.
"People are impatient here," Mr. Chong said. "They don't understand the value of long-term planning for their retirement vs. short-term gain."
The task for managers is daunting. Competition is fierce, with 65 unit trusts and 42 investment-linked insurance products approved by the CPF competing for members' money. More will surely come.
But the government's campaign to funnel cash to unit trusts is clear. In the past, workers could put 100% of their savings over $60,000 in a variety of investments, from unit trusts to individual stocks to gold. The amount individual investors can place directly into the local stock market was cut last year to 50% of extra savings.
A specific unit trust can focus solely on domestic stocks.
The Singapore government needs strong returns on CPF accounts to take care of a potential pension problem.
In the past couple of years, the government has shifted more of the burden for retirement savings onto employees. At the beginning of 1999, it cut the mandatory employer contribution to the CPF to 10% of an employee's salary. The intent was to ease companies' burdens during the financial crisis that started in 1997. The employee contribution rate to the CPF remained at 20%.
Investors must have a minimum $60,000 in their CPF savings accounts before they can invest in unit trusts. The CPF invests that money in short-term bonds and cash.
But the government is ratcheting that number up in the next three years to $80,000.
A few companies in Singapore have pension plans, but the CPF is the principal pension scheme for the overwhelming majority of workers.
Most of the CPF's $85 billion is invested in Singapore government bonds or fixed deposit accounts. That money earns the roughly 1.2 million active plan participants a return between 2.5% and 4%. That's not enough to fund retirement, many argue.
Singaporeans commonly use the majority of their savings through the CPF to finance the purchase of a home. This leaves many asset rich but cash poor when they reach retirement.
But the pool of potential assets to be funneled into unit trusts is huge.
About $25 billion of the savings plan is sitting in fixed deposit accounts, Mr. Chong said. That could be channeled into unit trusts designated for retirement, according to the government.
It's up to money managers, however, to pry these savings from investors. "Fund managers have been told to go get it," said Mr. Chong.
The CPF is not just a pension plan. For example, members can buy health and home insurance through the CPF, too.
The government clearly wants members of the plan to focus on investing for retirement.
In 1998, it hired consultant William M. Mercer to approve CPF managers and funds. It also is working to educate CPF plan members to make long-term investments.
Fund managers have so far made little headway into the CPF unit trust market. Many said that amount of retail unit trust assets they managed was small, amounting to 10% to 20% of locally sourced assets.
The retail unit trust market is about $6 billion, sources estimated. Managers will have to wait to see growth in CPF unit trusts.
"In time to come, (CPF assets) will probably be quite significant," said Tan Keng Hock, a director with Schroder Investment Management (Singapore) Ltd. "In the immediate future, I wouldn't be very excited. CPF investors will probably continue to deploy savings in CPF accounts to the payment of mortgage loans on homes."
People have tended to regard their homes as investments for retirement because of the robust real estate market. "Historically, housing has been seen as an investment option by CPF members," said Rich Nuzum, investment consulting practice leader, Asia, with William M. Mercer (S) Pte. Ltd. "We don't anticipate those returns going forward.
"Singapore has one of the world's highest rates of home ownership. At some point, there's a limit on the amount of housing the population will consume. If we're not there yet, we're closer to it than we were five to 10 years ago."
Despite the competition and the tough sale, the fees on unit trusts, which are about 1%, have money managers interested, managers said.
Executives with fund management companies, in turn, are writing editorials for local newspapers detailing the purpose of saving for retirement. Money managers have been holding investment seminars. As money managers try to tap into CPF members' funds, they might find working closely with the government of Singapore not always easy.
In fact, in a speech delivered to fund managers on Feb. 18, CPF Board Chairman Ngiam Tong Dow said that the "high fees charged by unit trusts . . . is an area where the industry can do more." He told an audience filled with money managers that they could lower administrative, management and "other avoidable costs" on their unit trusts.
He also recommended managers close down their smaller funds, which "tend to be inefficient," and suggested "amalgamating them with others with similar investment objectives or absorbing some of the expenses of running small funds."
The government has not made size of a unit trust part of its criteria, but might do so in the future, Mr. Ngiam added.
