True, but I believe CPF, a part of it, pays exceptionally high interest rate of 4%, so people will be content and won't take risk with equities. If the authorities want STI to shoot up, then they could promote STI to be major chunk of CPF just like 401k.
Most use cpf to buy their residences. Cpf monies may also be used for investments and if one is already vested in the equity markets, the that cpf portion is probably held as cash proportion to suit diversification purposes. Freeing cpf monies for equity investment may boost the markets but such investment is not without risks. Not everyone knows how to pick stocks and most may end up burnt in penny counters. So I do not think it is prudent to allow free investments into any asset class if the purpose for it is as a nest egg for retirement.