Saturday, August 25, 2007

Two CPF Changes Will Benefit Members

Source : The Straits Times Forum News, Aug 23, 2007

THE Government will raise the interest rate on all CPF accounts combined by one percentage point, with a cap of $60,000, and postpone the Minimum Sum drawdown age from 62 to 65 gradually.

Few Singaporeans would really understand or appreciate the combined financial benefits of the two changes. Some hypothetical examples are discussed here in order to highlight their financial benefits.


















Table 1 shows the relationship between the amount in the CPF Retirement Account at age 55 and the amount of monthly withdrawal starting at age 62 for 20 years, under the old system at the effective interest rate of 4 per cent per year.

Assume that a person has only the CPF Retirement Account at age 55.

Table 2 shows how the increase of one percentage point in the interest rate with a cap of $60,000 and the higher drawdown age affect the amount of monthly withdrawal.

As can be seen from Table 2, the lower-income cohort will receive a larger percentage of increment in the monthly withdrawal when compared with their higher-income counterparts. The combined effects of the two changes increase the amount of monthly withdrawal by about 23 to 30 per cent, in the examples considered.

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