Sat, Sep 14, 2019 - 5:50 AMThe central concept underlying the LRIS is that suitable, low-cost and prudent institutional-type life cycle funds, which are "pooled or "commingled" in some form, could be offered to CPF members based on their age and risk tolerance. The pooling of investment choices enables lower expense ratios to be "negotiated" by the plan's sponsor.
Unfortunately, the CPFIS programme in its current form is a colossal, and perhaps confusing, retail fund scheme, where retail-type investment products are marketed and sold to individual investors. Retail-type investment products typically impose much higher fees. This is where the LRIS could add great value.
Additionally, many 401 programmes offer a default investment option, which tend to be life-cycle products - these are simple-to-understand, low-cost, well-diversified products with a risk-adjusted"automatic glidepath" that calibrates target risk levels from the start of a cohort's savings and accumulation period to retirement .
Secondly, we need simpler, low-cost, well-diversified and potentially customised institutional-level retirement products for CPF members, such as life cycle funds. This is particularly true for younger people, who have a longer runway to retirement and wish to invest their retirement savings for higher potential returns because of larger balances and greater expectations in terms of their lifestyle in retirement.