What happens when 4% CPF rate ends in 2014?

Published by The Online Citizen on October 15, 2012

By Leong Sze Hian

I refer to the article “4% interest rate on CPF extended till end 2013” (ST, Sep 26).

It states that “Since Jan 1, 2008, SMRA savings have been invested in Special Government Securities, which earn an interest rate pegged to the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1 per cent.

2.5% floor rate?

The CPF SMRA interest rates will be pegged to that rate from Jan 1, 2014, subject to the statutory floor rate of 2.5 per cent per year that applies to all CPF accounts”.

As the yield of the 10YSGS is now at 1.45 per cent, does it mean that if the yield remains at this low level, the CPF SMRA rate may be just the floor rate of 2.5 per cent from 1 January, 2014?

What will happen to CPF Life payouts?

How will this affect the estimated life annuity payouts under the CPF Life scheme, as these are based on the SMRA rate of 4 per cent plus minus 0.25 per cent?

Cheap CPF funds to invest?

In such a scenario, how do we reconcile paying just 2.5 per cent for CPF funds which may then be channeled for investment to derive say a return of 6 per cent per annum?

In this connection, I understand that the Government Investment Corporation’s (GIC)  historical annualised return was about 6 per cent in US$ terms.

Any other countries keep the excess returns?

How much have Singaporeans’ CPF savings been in a sense, given to the Reserves, instead of being credited with the actual returns like Malaysia’s Employee Providend Fund (EPF)?

Are there any countries in the world which pay a low interest rate for the citizens’ pension funds to invest and keep the difference?

2 Responses to “What happens when 4% CPF rate ends in 2014?”

  1. CPF Board even yau-kwee for “free float”.

    Operationally, CPF Board prohibits insurers from deducting Medishield premiums from Medisave A/cs until after 27th of each month. So if CPF member wants to top-up Medisave balance already at max, it is not possible.

    Since CPF Board computes interest on lowest balance in the month, the Board basically enjoys “free float” of aggregate Medishield premium deductions.

  2. Mls

    The continue screwing of savers and pensioners through the grave mis allocation of capital and wealth to the property developers and speculators.

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