Favourable Interest Rates Offered for CPF Savings to Preserve Retirement Adequacy
Ministry of ManpowerSpeakers
Summary
This question concerns Ms Foo Mee Har’s inquiry on whether favourable CPF interest rates will be maintained to preserve retirement adequacy despite low market rates. Minister for Manpower Mrs Josephine Teo explained that the Government provides legislated minimums, such as the 2.5% rate for the Ordinary Account, which exceeds its computed 0.6% rate. She highlighted that the 4% interest rate floor for Special, MediSave, and Retirement Accounts has been extended to December 2021 to support retirement savings. Additionally, extra interest is paid on the first $60,000 of combined balances, with the Ordinary Account portion capped at $20,000. Finally, she noted that interest rates are reviewed quarterly for most accounts and annually for the Retirement Account to account for market conditions.
Transcript
69 Ms Foo Mee Har asked the Minister for Manpower whether the favourable interest rates provided to CPF members amidst record low market interest rates will prevail to preserve retirement adequacy.
Mrs Josephine Teo: CPF interest rates are pegged to returns on investments of comparable risk and duration in the market. Hence, changes in the yields on market instruments such as Singapore Government Bonds and fixed deposits will automatically have an impact on CPF interest rates through the interest rate pegs.
Based on this interest rate peg formula, the current computed interest rate would be about 0.6% for the Ordinary Account (OA). However, CPF members currently enjoy a significantly higher rate of 2.5%, as this is the legislated minimum.
The legislated minimum of 2.5% also applies to the Special, MediSave, and Retirement Accounts (SMRA). On top of this, the Government has maintained a floor interest rate of 4% for the SMRA since 2008. This is considerably higher than the current computed interest rates of about 2.4% for the Special and MediSave Account (SA and MA), and 3.0% for the Retirement Account (RA). In September, the Government announced that the 4% floor would be extended till December 2021. In addition, to help further grow CPF savings, extra interest continues to be paid on the first $60,000 of a member’s combined balances (capped at $20,000 for the OA).
The interest rates on the OA, SA and MA are reviewed quarterly while the interest rate on the RA is reviewed annually, taking into account market conditions.