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Singapore in rethink on pensions investments


By: John Burton
Financial Times, July 16, 2002



Singapore yesterday proposed changes in its S$64bn (US$36bn) national pension system that could provide more business for fund managers and boost the stock market but at the cost of weakening property prices.

The state-led economic review committee, which was set up last year to study ways of restructuring the economy in the midst of Singapore's worst recession, said some pension savings should be shifted from property to financial investments to provide better returns.

Allowing fund managers and insurance companies greater access to the management of Central Provident Fund (CPF) money would help promote Singapore as a regional financial centre - a key government goal. But the panel did not provide further details on the proposal, such as how much of the CPF funds might be given to fund managers or guidelines on types of investments that would be permitted.

Although Singaporeans have been allowed since 1997 to invest some of their CPF funds in approved mutual funds, there has been a lukewarm response because of worries about the risks of financial investments.

Officials have expressed concerns that Singaporeans have been using too much of their CPF funds for buying property instead, which means little cash is left for retirement. Singapore has one of the world's highest home ownership ratios at 90 per cent. The panel recommended that a cap be placed on the withdrawal of pension money for home purchases over five years, which is likely to weaken further the struggling property market.

"The government is trying to engineer a soft landing for property prices without causing a systematic shock," said Christopher Gee, research head at ING Financial Markets in Singapore. "The proposals are likely to kill off speculative demand."

The government has sought a fall in land prices to make Singapore more attractive for investments as it confronts increased competition from the rest of south-east Asia and China.

The recommendations were offered against the background of a wider debate over whether Singapore has an excessive savings rate, which at 52 per cent of gross domestic product is the highest in the world. Some economists argue that the money locked up in CPF and government fiscal reserves might be better used to develop entrepreneurial businesses and finance other investments in the state-dominated economy.

But the panel yesterday said the government had no intention of scaling back contributions to the CPF, which amount to 40 per cent of a worker's annual salary.

Daniel Lian, an economist at Morgan Stanley in Singapore, says the government wants to maintain a high savings policy in anticipation of a decline in pension and state reserves from 2015.

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