Why higher % on CPF quite meaningless?

Photo: TODAYonlinePhoto: TODAYonline

What’s the point of higher interest rates on some CPF accounts, when most Singaporeans may not get to enjoy it? 

I refer to the article “4% rate on some CPF accounts stays until end 2019” (Straits Times, Sep 28).

It states that “The Government has further extended the 4 per cent floor rate for interest earned on all Special, Medisave and Retirement Account monies until the end of next year.

Before the extension, the current 4 per cent floor rate was due to expire on Dec 31 this year.

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 their Special and Medisave accounts’ monies in the last quarter of this year.

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

Up to $20,000 of this $60,000 comes from a member’s Ordinary Account.

CPF members aged 55 and above will also earn an additional 1 per cent interest on the first $30,000 of their combined balances.

This is paid over and above the current extra 1 per cent interest that is earned on the first $60,000 of their combined balances.

As a result, CPF members aged 55 and above will earn up to 6 per cent interest a year on their retirement balances.

The extra interest received on a member’s Ordinary Account will go into their Special Account or Retirement Account to enhance their retirement savings.”

Since under the mandatory CPF Life default standard plan – all interest accrued is not included in the bequest to a CPF member’s nominees upon death – and contributed to the CPF Life pool – arguably, what’s the point of the higher interest on the Special Account and Retirement Account, as most Singaporeans may never get to enjoy it?

In this connection, even the higher interest on up to $20,000 of the Ordinary Account is credited to the Special Account.

As to the higher interest on the Medisave Account – it may only serve to pay ever increasing medical costs and insurance premiums.

Our CPF system pays the lowest real rate of return among all national pension funds in the world since 1999, has the highest pension contribution rate (implicit tax) of up to 37% of income in the world, and eats up the highest proportion of the pension returns in the world.

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.