Taking Control: Active Investment Choice in Singapore’s National Defined Contribution Scheme

31 Pages Posted: 18 Jul 2019

See all articles by Joelle H. Fong

Joelle H. Fong

National University of Singapore

Date Written: June 28, 2019

Abstract

This paper examines what factors drive active investment choice among more than 7,000 older plan participants in the Singaporean Central Provident Fund (CPF), and assesses the extent to which financial knowledge, experience, and attitudes help predict such choice. We find that only 16% of plan participants aged 50 and above in our sample in 2016 invest a portion of their pension savings outside of the default government-run CPF fund. Plan participants who are male, younger, not married, currently working for pay, have higher risk tolerance, and higher net worth are more likely to choose to actively manage their pension savings. Education is a strong independent determinant of active investment choice, but its effect diminishes with age. Longer-term financial planning horizon and experience in managing household finances, as well as in stocks investment, are also significantly associated with higher self-invested balances. Financial literacy score is, however, not significantly associated with non-default decision-making in our sample. Our findings have important implications for policy makers seeking to encourage greater individual responsibility in pension savings and investments within defined-contribution retirement systems.

Keywords: retirement, pension investment decisions, investment choice, financial literacy, pension policy, workplace pension

JEL Classification: D14, E21, G11, J32

Suggested Citation

Fong, Joelle H., Taking Control: Active Investment Choice in Singapore’s National Defined Contribution Scheme (June 28, 2019). Available at SSRN: https://ssrn.com/abstract=3421980 or http://dx.doi.org/10.2139/ssrn.3421980

Joelle H. Fong (Contact Author)

National University of Singapore ( email )

469C BUKIT TIMAH ROAD, LKYSPP
SINGAPORE, Singapore 259771
Singapore

HOME PAGE: http://https://lkyspp.nus.edu.sg/our-people/faculty/fong-hung-yee-joelle

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