CPF: Rich man gets more % than poor man?


Central Provident Fund (CPF ) Board’s policy of interests rates may result in inequitable outcomes.

I refer to the article “CPF extends 4% interest rate until end of next year” (Straits Times, Sep 23).

It states that “CPF members will continue to earn interest rates of up to 3.5 per cent a year on their Ordinary Account monies, and up to 5 per cent a year on monies in their Special and Medisave accounts, in the last quarter of this year.

These rates include an extra 1 per cent interest paid on the first $60,000 of a member’s combined balances – part of the Government’s efforts to enhance retirement savings for CPF members.

Members aged 55 and above will earn an additional 1 per cent interest on the first $30,000 of their combined balances, to be paid on top of the current extra 1 per cent interest that is earned on the first $60,000.

CPF members aged 55 and above will hence earn up to 6 per cent interest annually on their retirement balances.”

In this connection, I met a 60 year old Singaporean who has about $1 million in his CPF.

He said that he didn’t withdraw his CPF because he is getting at least 4 per cent interest.

Actually, he is mistaken as he is only getting at least 4 per cent interest on $249,000. The amount in excess of the Enhanced Retirement Sum (ERS) which is currently $249,000 in his Retirement Account (RA) –  gets only 2.5 per cent interest.

After reading the above, I realised that some CPF members age 55 and above are not getting the 4 to 6 per cent on their entire CPF accounts’ balance, but only 2.5 per cent on part of their CPF, even though they do not have more than the Basic Retirement Sum (BRS) of $83,000 (with property pledge) or the Full Retirement Sum (FRS) of $166,000.

In this regard, I believe most Singaporeans know that any CPF after age 55, as the case mat be – that exceeds the BRS ($83,000) or FRS ($166,000), unless they opt for the Enhanced Retirement Sum (ERS) of $249,000 – will only get 2.5 per cent interest.

However, I believe most Singaporeans may not know that even if they have less than the BRS or FRS, as the case may be – they may still not get the 4 to 6 per cent on their entire CPF balance below $60,000, $83,000 or $166,000.

For example, I looked at one CPF statement of a 63 year old Singaporean with about $20,000, $52,000 and $60,000, in his Ordinary, Medisave and Retirement Accounts, respectively – and he is only getting 2.5 per cent on his $20,000 (OA), 6 per cent on $30,000 (RA) 5 per cent on the next $30,000  (RA) and 4 per cent on the $52,000 (MA).

In other words – why does the CPF Board have a policy of only paying 2.5 per cent on CPF that can be withdrawn, which a member chooses not to withdraw?

Such a policy may result in inequitable outcomes, as a richer member with $249,000 may get at least 4 per cent interest on the entire amount, whereas a poorer member with say $120,000 and had pledged property may only get at least 4 per cent on $83,000, with the excess (that he can withdraw but chosen not to) getting 2.5 per cent only.

Leong Sze Hian

About the Author

Leong Sze Hian has served as president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), invited to speak more than 200 times in over 30 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of Indonesia and Brunei. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.