One of the plans highlighted for the CPF is for a higher returns, but there is no free lunch. The assets that generate the returns must take more risk. And there will be periods of GFC like volatility.
Most investors will be well aware of things not always going up or down in a straight line. Not the average folks. Even if they do, their behavioural tendency to feel more pain than joy will make them irrationally curse.
In 2004, a speech at SAF highlighted the case study of the SAF officers retirement and SAVER Scheme, some of the ‘flaws’ against it:
Sir, Dr Ong Chit Chung has asked about the SAVER scheme. We have a policy of keeping the SAF young. With the threat environment and war-fighting becoming ever more complex, the timely renewal of the SAF leadership is key if we want to keep the SAF dynamic, vigorous and forward-looking, with a constant supply of fresh ideas and receptiveness to new concepts and change. This is the best way to make sure that our generals are always prepared to fight the next war and not be trapped trying to fight the last war.
In 1998, MINDEF implemented a 23-year career for our officers. This maintains a balance between the requirement for experience while ensuring timely leadership renewal. This also means that the individual officer is still young enough to acquire the skills and knowledge to make a switch in career, and he has enough working years left to have a meaningful second career.
To support this new career structure, MINDEF introduced the SAVER scheme. This scheme offers our officers accelerated career advancement and a very good salary and benefits package. A key feature of SAVER is a generous superannuation scheme to support their transition to a civilian career when they leave the SAF. This is designed such that an SAF officer in his 23-year career would earn close to 75% of what his private sector counterpart would earn in a 40-year career. Since its inception, the SAVER scheme has met its objectives of improved recruitment and retention of officers and timely leadership renewal.
Currently, MINDEF is enhancing the career transition program to provide better support to those officers who are leaving as the employment environment in recent years has been more difficult. The program offers career counseling, networking opportunities and outplacement services in preparation for their career transition.
Dr Ong has also referred to some complaints by retired officers that they did not get good returns from the SAVER scheme. Now, let me explain. The SAVER fund is no different from other pension funds, it’s invested and we have explained to our officers that they should take the long-term view. In fact the returns are slightly higher than the benchmark which the fund compares itself to. SAVER benefits are invested with a view to giving good returns over the long term, based on a strategy of balanced asset allocation. There may however be a few years when the performance of the fund is negative, and there may be a small minority who leave the SAF at that point where the returns are negative. The performance of the fund as I’ve said so far, have been better than our benchmark, and better than numerous established pension funds in the market. Our officers also have the option. They can move their retirement benefits into a more conservative portfolio two years before their retirement, depending on their risk appetite. But of course if they do that and if the investment makes exceptional gains in those two years, then they will not benefit from those exceptional gains. But those are the risk-return benefits. However, having now run the fund for about six years, MINDEF is reviewing the fund structure to fine-tune it to see whether there are better options, more options, that can be developed to meet the needs of the fund members at the various points of their careers.
Sir, good and strong leadership in the SAF is vital and cannot be compromised. MINDEF will ensure that our employment schemes continue to attract officers of a quality which can meet the demands required of those who shoulder the responsibility of safeguarding our nation’s defense and security.
The officers should be the better educated batch of the working adults in Singapore. If many of them struggle with this, imagine those than have less financial literacy.
It is a difficult proposition. The folks want a better rate but at no point should they see losses.