The Central Provident Fund (CPF) stands as the cornerstone of financial planning for Singaporeans, serving as a mandatory savings scheme that addresses three fundamental needs: housing, healthcare, and retirement. For decades, CPF has provided a secure foundation with guaranteed interest rates, offering peace of mind to millions of members. However, whilst CPF’s guaranteed returns provide stability, they may not always keep pace with inflation or align with individual financial aspirations for higher growth.

This presents an intriguing dilemma: should you be content with the security of guaranteed CPF interest rates, or explore opportunities to potentially enhance your returns? The CPF Investment Scheme (CPFIS) emerges as a compelling option, allowing members to invest their CPF savings in a range of approved financial products, potentially achieving higher returns than the standard CPF interest rates.

This comprehensive guide aims to demystify the CPF Investment Scheme, providing you with a thorough understanding of its benefits, risks, eligibility requirements, and investment options. By the end of this article, you’ll have a solid foundation to assess whether CPFIS aligns with your financial journey and how to embark on it responsibly, should you choose to do so.

What is the CPF Investment Scheme (CPFIS)?

The CPF Investment Scheme (CPFIS) is a government-approved programme that allows CPF members to invest their Ordinary Account (OA) and Special Account (SA) savings in a diverse range of approved investment products. Rather than leaving your CPF funds to earn the standard guaranteed interest rates, CPFIS enables you to potentially achieve higher returns through strategic investment choices.

The scheme’s primary purpose is to help members enhance their retirement savings by accessing investment opportunities that may outperform the CPF’s guaranteed interest rates over the long term. However, it’s crucial to understand that investing inherently carries risks. The CPF Board does not guarantee profits from investments made under CPFIS, nor does it endorse specific products or providers. As a CPFIS investor, you bear full responsibility for your investment decisions and their outcomes.

CPF Accounts & Their Respective Investment Schemes

To understand CPFIS effectively, you must first grasp the structure of CPF accounts and their respective interest rates. The CPF system comprises three main accounts, each serving distinct purposes:

Ordinary Account (OA): Primarily used for housing, insurance, and approved investments, the OA currently earns 2.5% per annum or the 3-month average of major local banks’ interest rates, whichever is higher, subject to a 2.5% floor.

Special Account (SA): Designated for retirement-related financial products and investments, the SA earns 4% per annum or the 12-month average yield of 10-year Singapore Government Securities plus 1%, whichever is higher, subject to a 4% floor.

Retirement Account (RA): Created when members reach 55, combining funds from OA and SA to meet the Full Retirement Sum. The RA earns the same interest rate as the SA at 4% per annum.

Additionally, CPF members enjoy extra interest of 1% on the first S$60,000 of combined CPF balances (capped at S$20,000 for OA), and members aged 55 and above receive an additional 1% on the first S$30,000 (total S$60,000).

CPFIS-OA and CPFIS-SA: The investment scheme operates through two distinct programmes:

CPFIS-OA involves investments made using OA savings and generally accommodates products with higher risk and return profiles, reflecting the OA’s lower guaranteed interest rate.

CPFIS-SA utilises SA savings for investments but is limited to lower-risk products, acknowledging the SA’s primary role in retirement planning and its higher guaranteed interest rate of 4% per annum.

This distinction is crucial because investing SA funds means forgoing the attractive 4% guaranteed interest rate, making it essential that your investments significantly outperform this benchmark to justify the risk.

Eligibility for CPFIS

Before embarking on your CPFIS journey, you must meet specific eligibility criteria:

You must be at least 18 years old and not an undischarged bankrupt. For CPFIS-OA, you need a minimum of S$20,000 in your OA, whilst CPFIS-SA requires S$40,000 in your SA.

The Self-Awareness Questionnaire (SAQ) represents a mandatory requirement for new CPFIS investors. This comprehensive assessment evaluates your financial knowledge, investment experience, and risk tolerance. The SAQ comprises online educational modules covering investment basics, followed by a quiz to test your understanding. This process ensures you possess adequate knowledge before making investment decisions with your CPF savings.

How to Get Started with CPFIS

The process of beginning your CPFIS journey differs depending on which account you’re investing from:

For CPFIS-OA: You must open a CPF Investment Account (CPFIA) with one of the three CPFIS agent banks: DBS, OCBC, or UOB. These agent banks facilitate transactions and track your investment holdings. Each member can only maintain one CPFIA, regardless of the number of investments made.

For CPFIS-SA: No CPFIA is required. You can approach product providers directly to make investments using your SA savings.

General Steps:

1. Complete the mandatory Self-Awareness Questionnaire (SAQ)
2. Assess your eligible investible amounts in your respective CPF accounts
3. Choose your preferred agent bank (for OA investments) or product provider
4. Submit your investment application with required documentation

It’s important to factor in processing times for transactions, particularly if you’re approaching age 55, when funds are transferred to your Retirement Account and certain investment options become restricted.

Approved Investment Products Under CPFIS

The CPF Board maintains strict criteria for approved investment products, generally focusing on local options or those with appropriate local exposure and licensing for regulatory oversight.

CPFIS-OA Approved Products (Broader Range):

The OA investment scheme offers a comprehensive range of investment options:

• Unit Trusts: Managed funds covering various asset classes and geographical regions
• Investment-Linked Insurance Policies (ILPs): Combining insurance coverage with investment opportunities
• Shares: Listed on Singapore Exchange (SGX) mainboard and Catalist, subject to a 35% limit of investible savings for shares, corporate bonds, and non-gold ETFs combined
• Exchange Traded Funds (ETFs): Listed on SGX, including those with US and global exposure through SGX-listing
• Corporate Bonds: Subject to the 35% investment limit
• Singapore Government Securities (SGS): Government-backed bonds offering stable returns
• Fixed Deposits: Traditional savings instruments with guaranteed returns
• Statutory Board Bonds: Bonds issued by government-linked entities
• Gold: Available only through UOB Investment Account, subject to specific limits
• Fund Management Accounts: Including robo-advisors like Syfe and StashAway, which provide automated, algorithm-driven investment management services

CPFIS-SA Approved Products (More Conservative):

The SA investment scheme offers a more limited selection, reflecting its conservative approach:

• Unit Trusts: Specific, lower-risk funds focusing on capital preservation
• Investment-Linked Insurance Policies (ILPs): Conservative ILPs with lower risk profiles
• Fixed Deposits: Guaranteed return instruments
• Singapore Government Securities (SGS): Government bonds providing stable income
• Statutory Board Bonds: Conservative bond options

The narrower selection of SA-approved products reflects the account’s primary role in retirement planning and the need to safeguard these funds whilst potentially earning returns that justify forgoing the 4% guaranteed interest rate.

Fees and Charges

Understanding the cost structure of CPFIS investments is crucial for making informed decisions, as fees can significantly impact your returns over time.

Agent Bank Charges: These include quarterly service charges for maintaining your CPFIA and transaction fees for buying and selling investments such as stocks and unit trusts.

Product Provider Charges: Management fees for unit trusts, ILPs, and robo-advisors, along with sales charges and redemption fees, form a significant portion of investment costs.

Other Potential Costs: Brokerage commissions for shares and ETFs, plus Central Depository (CDP) settlement fees, add to the overall cost structure.

The cumulative effect of these fees can substantially erode potential returns, particularly over long investment periods. It’s essential to request a comprehensive breakdown of all charges from your agent bank and product provider before making investment decisions. Consider how these fees compare to the guaranteed CPF interest rates you’re forgoing – your investments must not only outperform these rates but also cover all associated costs to be worthwhile.

Risks and Considerations of Investing with CPF

Investing through CPFIS involves several critical risks that demand careful consideration:

Forgoing Guaranteed Interest: The most significant consideration is that any amount invested from your OA means giving up the guaranteed 2.5% per annum (or higher) interest, whilst SA investments mean forgoing the attractive 4% per annum rate. Your investments must consistently outperform these benchmarks to justify the risk.

Investment Risks: Market risk exposes your investments to volatility and potential downturns. Inflation risk means that even if your investments grow, their purchasing power might not keep pace with rising costs. Liquidity risk is particularly relevant as CPF funds are locked until statutory withdrawal age, limiting your ability to access funds during emergencies. Concentration risk arises from inadequate diversification across different asset classes or geographical regions.

Performance Monitoring: Regular review of your investment performance is essential. Unlike the passive nature of earning CPF interest, CPFIS requires active monitoring and potential rebalancing of your portfolio.

Self-Management Responsibility: The onus lies entirely on you to manage your investments prudently. This includes staying informed about market conditions, understanding your investments, and making timely decisions when necessary.

Long-Term Investment Horizon: CPFIS is designed for long-term investing, typically for retirement purposes. Short-term market fluctuations should not trigger panic selling, as this can crystallise losses and undermine the long-term investment strategy.

Is CPFIS Right For You?

Determining whether CPFIS aligns with your financial situation requires honest self-assessment across several key areas:

Financial Literacy: Do you possess a solid understanding of investment basics, risk management, and different product types? The mandatory SAQ helps evaluate this, but ongoing education is crucial for investment success.

Risk Appetite: Are you genuinely comfortable with the potential loss of capital, including your CPF savings? This goes beyond theoretical acceptance to practical emotional resilience during market downturns.

Time Horizon: Do you have a sufficiently long investment horizon to ride out market cycles and benefit from compound growth? Generally, this means at least 10-15 years before retirement.

Alternative Uses: Do you have immediate or future plans for your OA savings, such as housing down payments or other major expenses? If so, keeping funds in CPF might be more appropriate.

When to Leave Funds in CPF: If you lack confidence in your investment knowledge, have immediate financial needs, or find that guaranteed CPF interest rates provide sufficient growth for your goals, maintaining funds in CPF may be the wiser choice.

For the most authoritative and current details on the CPF Investment Scheme, including the latest approved products and eligibility criteria, you should always refer to the official CPF Board website. To explore the specific stocks and ETFs available for investment under CPFIS, the Singapore Exchange (SGX) website provides comprehensive listings and detailed information about available securities.

Conclusion

The CPF Investment Scheme represents a valuable tool for potentially enhancing your retirement savings, offering the opportunity to achieve higher returns than guaranteed CPF interest rates. However, this opportunity comes with inherent risks and responsibilities that demand careful consideration and ongoing attention.

Success with CPFIS requires informed decision-making, thorough understanding of investment risks, and diligent monitoring of your portfolio’s performance. It’s not a decision to be taken lightly, as it involves your precious retirement savings.

Ultimately, CPFIS offers an avenue for greater financial self-determination, empowering you to take control of your retirement planning. However, this journey requires dedication, continuous learning, and the discipline to make rational decisions even during challenging market conditions. Whether you choose to embark on this investment journey or remain with guaranteed CPF returns, the key lies in making an informed decision that aligns with your financial goals, risk tolerance, and personal circumstances.