Interest hiked by 1 percentage point for up to $60,000, in move targeted at lower, middle income
OVER the past eight years, interest rates on your Central Provident Fund (CPF) savings have not budged. Now, your returns are finally going up. For the first time, the rate hike — of 1 percentage point — is not prompted by movements in commercial deposit rates, but by Singapore’s growing retirement needs.
“Our main focus should be to help the lower- and middle-income groups … people who don’t have so much money in the CPF,” Prime Minister Lee Hsien Loong said last night, spelling out a move that will cost the Government $700 million a year initially.
Just how targeted is the approach?
Look at the cap on the amount of CPF savings that will enjoy the higher rates, said Mr Vasu Menon, chief editor of online bank finatiQ.com. “This is very targeted at CPF monies dedicated for retirement planning and clearly aimed at the masses,” he added.
Only the first $20,000 in the Ordinary Account (OA) will receive 3.5-per-cent annual interest; the remaining OA will continue yielding 2.5 per cent. In total, the CPF Board will pay higher rates on a maximum of $60,000 in your combined CPF accounts, that is, OA plus Special, Medisave and Retirement accounts. Currently, CPF pays 4 per cent interest for the non-OA accounts.
“If you have more than $60,000, you should be able to take care of yourself,” Mr Lee said to laughter from the audience, adding that such members can use the money to invest.
Lauding the move, Mr Leong Sze Hian, president of the Society of Financial Service Professionals, said there is a growing number of Singaporeans who are not able to meet the minimum sum requirement — now set at $99,600 — and higher returns would mean more having a higher balance when allowed to withdraw their CPF at age 55.
As the latest changes are aimed at bolstering the retirement kitty, the monies earning the higher interest cannot be used for investment purposes; only for housing or medical expenses, said Mr Lee. He added that there would be no change to the concessionary HDB loan rate formula, which is pegged at 0.1 percentage point above the OA rate.
However, Mr Leong felt that more would have to be done to help the poor because most of their CPF is tied up in mortgages, leaving little in the system to collect interest anyway.
The current rates have been in place since July 1999, when the CPF Board cut them from the all-time highs of 4.41 per cent for the OA and 5.91 per cent for the Special Account, due to a new formula and a drop in the local lenders’ interest rates.
Manpower Minister Ng Eng Hen will deliver a ministerial statement on the CPF changes in Parliament next month.
The changes
More than half of active CPF members will enjoy the 1-percentage-point hike on all their account balances.
For example, a 21-year-old male whose first job makes $1,700 monthly, and who buys a four-room flat, will earn an extra $20,000 at age 55. That is a quarter more than before.
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