Reform of CPF Ordinary Account Rates

MP Louis Chua

Mr Chua Kheng Wee Louis (Sengkang): The CPF Board’s vision is, among others, to enable Singaporeans to have a secure retirement through lifelong income. It is imperative that therefore we consistently review and revise, where necessary, the mechanisms that underlie its functions to ensure that it serves its purpose as effectively as possible.

One of the key concerns frustrating Singaporeans now is inflation. I understand that the liquidity of Ordinary Accounts (OA) pegs them to shorter-term interest rates. However, for much of our working lives, the bulk of our CPF contributions gets allocated towards the OA. I appreciate the interest rate floor that has been put in place at 2.5%. However, we must balance CPF OA rates against the goal of preserving the purchasing power of our retirement funds and guarding against inflation over time. While our CPF monies are invested in Special Singapore Government Securities (SGS) fully guaranteed by the Government, GIC’s portfolio has been able to beat inflation both nominally and in real terms at 7.0% and 4.2% returns respectively over the past 20 years.

Pegging OA interest rates to deposit rates has its issues as it can be quite arbitrary. For example, DBS states that the 12-month fixed deposit rates for deposits up to $19,999 is 3.2%, while an amount of $20,000, which is used for OA calculations, drops to 0.05% instead.

We are beginning to see a stark contrast in rates. Recent news articles show banks competing with one another to get deposits. UOB has even raised its maximum bonus rates from 3.6% to 7.8%, while many now offer fixed deposit rates at 3% to 4%. Despite this, the CPF Board’s assessment of major local banks interest rates to be at 0.52% for the period from November 2022 to January 2023, and one cannot help but feel as though these are unrealistically suppressed given the realities of the deposit environment of the local banks today.

Chairman, the OA formula itself has remained unchanged since 1999. Many of us now have the likes of a DBS Multiplier or UOB ONE account where higher interest rates can be earned easily as compared to historical savings accounts. Even if the Government does not wish to take inflation into account, I urge the Government to reconsider the formula after 24 years, to take into account the current nature of fixed deposits and savings rates from the three local banks so that it better reflects economic realities.

Ministry of Manpower
1 March 2023

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