While I am almost lost in the midst of all the CPF changes which includes:

  1. Freezing the first $20,000 of your Ordinary Account
  2. Freezing the first $60,000 of your total CPF Accounts
  3. Adding 1% to the current prevailing interest paid to the sum in the CPF Accounts

I do have some comments regarding these changes. Mr Chin had written to the Straits Times forum (letter reproduced below) applauding the move to freeze the accounts as listed above accordingly because he feels that non-savvy investors should get protected from investments that do not even give them 5%. I feel that this is a 2-prong issue and it lies with not just the investor (with the CPF funds), but with the financial advisor as well. At the same time, I also think that the Mr Chin is a little misinformed about investments.

With regards to the 2-prong issue, I think that the financial advisor has the moral responsibility to inform the investor of potential risks and to gauge the risk appetite of the investor – be it for cash investment or CPF investment. In addition, since only CPFIS-approved funds can be invested in, this effectively cuts out high-risk investment portfolios that puts the investor in danger of losing funds in times of need and high volatility.

The investor should also exercise caution in investing his CPF funds – if he has no confidence in investments, he should just stick to what the CPF board can give him in the long run. If he has a higher risk appetite and is well informed of the risks in investment, I feel that he should not be restricted from investing using his CPF funds.

I have personally invested whatever little amount my CPF account has and have not regretted doing so. Based on the returns that I have now, it’s something that the CPF board can’t provide. However, I do recognise that returns are based on timing and environment and I was fortunate enough to have started investing at the right time. The market today may not be the same as the time that I started investing – but still, this should not discourage anyone from finding out more on what investing their CPF funds can bring them.

Like Mr Chin, I am waiting for Mr O’Dell to list the products that can benefit CPF members. The CPF board should not hinder investors from making informed choices.

CPF move to stop members using first $20,000 from SA to invest is timely

I REFER to the article, ‘Insurance industry to be hit by new CPF rules’ (ST, Nov 7), and applaud the CPF Board’s timely decision not to allow its members to use the first $20,000 in the Ordinary Account (OA) and Special Account (SA) savings for investment under the CPF Investment Scheme (CPFIS) to safeguard the savings of its members.

The recent sub-prime loans problem has an adverse global ramification on the investment climate. The new ruling could not come at a more appropriate time to protect non-savvy investor members from succumbing to sales pitches of investment companies.

The president of the Life Insurance Association (LIA), Mr Mark O’Dell, had postulated ‘that investment-linked products provide opportunities for superior returns, compared to the rates offered under the CPFIS’.

But the reality is that with the pending increase in interest rate by 1 per cent on the OA and SA savings, it is difficult, if not impossible, for any CPFIS products to match the 5 per cent return, much less achieve a higher rate.

Perhaps, Mr O’Dell could identity the products offered by the association’s member insurance companies for the benefit of CPF members.

Chin Kee Thou

Article obtained from straitstimes.com on 10th November 2007

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