CPF Interest Rates And Longer Employment : Are Floating Rates Better Than Fixed Interest Rate?

Source : The Straits Times, Sep 21, 2007

SINCE the Prime Minister's National Day Rally speech, the message I have been getting is that 'the Government wants to adjust the status quo to assist citizens, CPF members to deal with old-age employment and health issues'.

Thus, I am not comfortable about the announced 'one extra percentage point policy' with respect to the Special, Medisave and Retirement Accounts (SMRA) which, after two years, will be floated at 10-year Singapore Government Securities (SGS) rates.

As stated in the article, 'How higher interest rates will benefit members' (ST, Sept 18), the SGS was launched only in 1998 which, to me, seems like making a decision based on one data point.

That does not give me the confidence that I will not be worse off compared to the current fixed-interest-rate policy.

While government bonds are much more stable and secure compared to equities, they are still a financial tool and, as often quoted in fine print, 'Past performance and any forecast are not necessarily indicative of the future or likely performance'.

Is there any guarantee that the rosy picture painted of a $17,900 gain in 20 years will come true?

How do we ensure that government policies that can affect SGS do not cause CPF members to feel like they are making Hobson's choice?

Loh Hwui Theng (Ms)