Realising that many Singaporeans don’t have enough money for retirement, the CPF Board has appointed investment consultant Mercer to design a low-cost, privately-managed pension plan.

A CPF spokesperson confirmed that Mercer was appointed in late December to develop a plan to complement CPF investments.

“We are still working with the consultant on the project. Details will be announced when ready,” the spokesperson told Today.

US-based Mercer currently acts as the board’s consultant for its investment scheme.

Last year, the CPF Board invited consultants to submit proposals for a low-cost private pension plan under the framework of the CPF investment scheme (CPFIS).

In an effort to reduce costs for CPF investors, the Economic Review Committee (ERC) had urged the government to “facilitate the provision of low-cost privately managed pension plans to CPF members”.

Currently, Singaporeans can invest in a variety of unit trusts and investment-linked insurance products under the CPFIS.

The ERC noted that costs under the scheme “were very high” because many of the unit trusts on the market were small retail funds that could not achieve economies of scale.

And as most of these funds were sold through retail outlets like bank branches, an additional layer of bank agent fees and initial sales charges added to the cost of investing.

Pension plan providers are essentially large institutional funds that can negotiate better deals in terms of fees and other costs.

The typical management fee of institutional funds ranges between 0.2 and 0.3 per cent, compared to over two per cent for unit trusts.

Market watchers were not surprised at Mercer’s appointment, citing its experience and role as the CPF Board’s consultant.

Consultant Watson Wyatt, Mercer’s main competitor, had declined to bid, while other firms lack size or the technical expertise, FinanceAsia.com reported yesterday, citing sources.

The implementation of a private pension scheme for Singaporeans would probably involve the CPF Board selecting a handful of fund managers with relevant international experience, market watchers said.

A more straightforward option would be for the CPF Board to administer the pension plans itself, suggested Mr Shiv Taneja, a senior analyst at US-based asset management consultant Cerulli Associates.

“With the help of an actuarial consultant who can farm out mandates to international investment managers, CPF funds can be effectively invested for the long-term,” said Mr Taneja.

Meanwhile, industry players like NTUC Income are already preparing for the coming liberalisation.

The insurance company has positioned its recently- launched Flexi-Link product as a low-cost pension product, and plans to put $2 billion, or 20 per cent of its entire portfolio, into the scheme.

“We have economies of scale, so the charges are lower,” said NTUC Income chief executive Tan Kin Lian.

However, some observers warned that private pension funds might not necessarily lead to lower costs.

While pension funds in the US require huge volumes to justify their low fees, this may not be achievable in Singapore, unless the bulk of all business goes to just one or two players.

“For private pension plans to enjoy institutional cost savings, they have to be sizeable,” said Mr Vasu Menon, chief editor of unit trust distributor finatiQ.