Opportunity cost of keeping funds in SMRA accounts
Letter from LOKE YUE CHONG
I REFER to Second Minister for Finance Tharman Shanmugaratnam’s statement in Parliament yesterday.
Mr Shanmugaratnam said that the Government has to peg Central Provident Fund (CPF) interest at market rates, instead of paying above-market rates.
If the Government paid CPF interest above market rates, then the CPF would become an interest rate subsidy scheme instead.
One can agree with the Minister’s remarks only if the CPF scheme is a voluntary one and is subject to free market forces, which it is not.
Minister of Manpower Ng Eng Hen had admitted in Parliament that 30 years is the average time that the money in members’ Special, Medisave, Retirement Accounts (SMRA) stays in their account.
CPF members are now better educated and more financially savvy. Thirty years is a very long time for their funds to be locked into an SMRA account.
It seems almost pointless for members to have such large sums of money in their accounts when they are restricted in how they can invest this money.
Given the opportunity cost, economic logic dictates that the Government should offer CPF members a premium over market rates as a form of compensation.
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Self-reliance in retirement will safeguard the economy
Letter from GILBERT GOH KEOW WAH
I AGREE with Second Finance Minister Tharman Shanmugaratnam that Singaporeans must continue to be self-reliant when financing their retirement needs.
Many expect the Government to subsidise and even fund retirement programmes.
However, the Government already subsidises healthcare, education and housing. Although we have substantial reserves, Singaporeans should always be self-reliant and have enough personal savings for their retirement.
In many developed countries, retirement pensions are funded by governments. In some countries, this has contributed to record budget deficits year on year. People squander their earnings and expect their governments to provide for their retirement needs. Leaders in such countries continue to do this for political reasons but their citizens will pay the price ultimately.
Our Government’s policy of topping up our retirement account by providing favourable interest rates is admirable.
Not only is it safe, it almost guarantees that the population will receive more money when they retire.
The drawback is that only the first $60,000 of CPF money is eligible for this higher interest rate.
Perhaps more CPF money can be made eligible for the higher interest rates, especially for low-income earners?
I am also glad to know that low-income earners will continue to enjoy Workfare Income top-ups.
This group will need the most assistance when they retire, as they probably will not be able to save money regularly. Their relatively low monthly incomes also mean their CPF accounts will have insufficient funds.
I am confident the Government is on the right track in looking after our retirement needs.
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