CPF % rates are very good & fair

Photo: TODAYonlinePhoto: TODAYonline

The interest rates on our CPF accounts are very good and fair 

I refer to the article “MAS’ net profit declines to S$5.3 billion due to strong Sing dollar” (Channel NewsAsia, Jul 4).

It states that “The Monetary Authority of Singapore (MAS) made a net profit of S$5.3 billion in the previous financial year, according to its annual report for FY2017/18 released on Wednesday (Jul 4).

The figure, which excludes a S$1.1 billion contribution to the Consolidated Fund, is lower than last year’s record net profit of S$24.3 billion as negative currency translation effects partially offset interest income and investment gains.”

As to “For the year that ended Mar 31, 2018, MAS made a gain of S$8.5 billion from the investments of its official foreign reserves (OFR).

At the end of Mar 2018, MAS held S$376.5 billion of OFR on its balance sheet” – does it mean that the annualised return for the last year was about 2.3% per anuum ($8.5 divided by $368 billion ($376.5 – $8.5 billion))?

Does this also mean that the CPF interest rates at 2.5% (Ordinary Account), 4% (Medisave, Special and Retirement Accounts), 5% (on the first $60,000) and 6% (on the first $30,000 from age 55), are very good and fair, compared to the 2.3%?

“While the OFR recorded “strong” gains of S$22.3 billion as global markets continued to rally, S$13.8 billion of negative currency translation effects was incurred as the Singapore dollar strengthened against the US dollar and the Japanese yen.

This compared with the investment gain of S$30.1 billion made during FY2016/17, helped by higher investment returns and the depreciation of the Sing dollar against some major currencies.

“The best way to interpret the number is to look at the 10-year average (which is a) good judgment of the kinds of investment gains that MAS is making over a long-term period. Year to year, there will be fluctuations.”

Over the last 10 financial years, investment gains, derived after stripping out currency translation effects, averaged S$12.1 billion per annum, according to the annual report.

This is invested in a well-diversified portfolio, comprising different asset classes across various geographies, for good long-term returns and resilience across market conditions.

About three-quarters of the MAS’ portfolio are denominated in the US dollar, euro, yen and British pound, with the greenback forming the bulk. Investment-grade bonds in the advanced economies form the largest allocation in the portfolio, said the central bank.”

Leong Sze Hian

About the Author

Leong Sze Hian has served as the 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), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.