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Taking control: Active investment choice in Singapore’s national defined contribution scheme

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  • Fong, Joelle H.

Abstract

This paper examines what factors drive non-default investment choice among more than 7000 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 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.

Suggested Citation

  • Fong, Joelle H., 2020. "Taking control: Active investment choice in Singapore’s national defined contribution scheme," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    • Handle: RePEc:eee:joecag:v:17:y:2020:i:c:s2212828x20300141
    DOI: 10.1016/j.jeoa.2020.100249
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    More about this item

    Keywords

    Retirement; Pension investment decisions; Investment choice; Financial literacy; Pension policy; Workplace pension;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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