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0802 Oral Answer by Minister for Manpower Dr Tan See Leng to PQ on CPF Interest Rates

Employment practices

NOTICE PAPER NO. 1209 OF 2022 FOR THE SITTING ON OR AFTER 6 JULY
QUESTION NO. 3079 FOR ORAL ANSWER

MP: Mr Kwek Hian Chuan Henry

To ask the Minister for Manpower whether the CPF interest rate will be increased for the next few years to compensate for the high inflation rate that is expected to last for a considerable period so as to strengthen the retirement adequacy of Singaporeans and seniors.

NOTICE PAPER NO. 1251 OF 2022 FOR THE SITTING ON OR AFTER 2 AUGUST
QUESTION NO. 3193 FOR ORAL ANSWER

MP: Mr Chua Kheng Wee Louis

To ask the Minister for Manpower in computing the CPF Ordinary Account interest rate based on the three-month average of major local banks’ interest rates (a) which are the banks identified as major local banks and what are the criteria for selection; (b) what are the types of interest rates and parameters used in the determination; and (c) whether there has been a change

Answer

  1. CPF interest rates are pegged to returns on investments of comparable risk and duration in the market.
  2. Ordinary Account (OA) savings is in a liquid account that can be withdrawn at any time for home purchases, servicing mortgage loans, or other specified purposes such as investment. Thus, the OA interest rate is pegged to the 3-month average fixed deposit and savings rates of our three major local banks which are DBS, UOB and OCBC. These three banks have a larger share of domestic deposits than other banks. The formula was last changed in 1999 when the ratio of fixed deposits to savings was updated from 50/50 to 80/20 to reflect the longer duration that CPF OA monies remained with CPF Board. As stated in CPFB’s press release in May 2022 which announced the CPF interest rates effective from July to September 2022, the local banks’ 3-month average interest rate was 0.09%. Based on our latest estimates, the interest rate remains around 0.09%.
  3. The Special, MediSave and Retirement Account (SMRA) interest rates are pegged to the 12-month average yield of 10-year Singapore Government Securities plus 1%. The peg was 2.72% as stated in the May’s CPFB press release. It is around 3% based on our latest estimates. CPFB will announce in September 2022 the CPF interest rates effective from October to December 2022.
  4. As these are below the effective floor rates for these accounts, the interest rates for the OA and SMRA are maintained at 2.5% and 4% respectively. The Government has maintained the floor rate of 4% for SMRA since 2008 and will continue to review this annually. Therefore, despite the low interest rate environment since the Global Financial Crisis, the Government has continued to pay generous interest rates due to the floor rates. If the pegged rates exceed the floor rates, members will correspondingly earn the higher interest rates on their CPF savings.
  5. There is some time-lag in CPF interest rate adjustments to avoid subjecting members to unnecessary fluctuations. Members with HDB concessionary loans who pay the prevailing OA interest rate plus 0.1%-point also benefit from the stability vis-à-vis market mortgage rates. This is the case when interest rates are rising, but the converse also applies when interest rates are falling.
  6. The Government will continue to pay 1% of extra interest on the first $60,000 of members’ combined CPF balances as well as an additional 1% on the first $30,000 of post-55 members’ combined CPF balances, to help boost their retirement savings. This means members below age 55 can earn up to 5%, while members aged 55 and above can earn up to 6%. Members can also transfer their Ordinary Account monies to the Special or Retirement Account to earn the higher risk-free rate.
  7. We will continue to review CPF interest rates periodically. The interest rates on the Ordinary Account, Special Account, and MediSave Account are reviewed quarterly, while the interest rate on the Retirement Account is reviewed annually.