Mr Chua Kheng Wee Louis asked the Minister for Manpower whether the CPF Board has conducted a review of the computation of monthly CPF interest payment and, if so, whether it will consider including (i) contributions received during the month and (ii) amounts held in the account prior to its withdrawal, as pro-rated by the number of days that the respective amounts reside in the CPF accounts during the month.
The Minister for Manpower (Dr Tan See Leng): Mr Speaker, over the past two decades of protracted low interest rate environment, the Government has continued to pay the 2.5% minimum interest on Ordinary Account savings and the 4% floor rate for savings in the Special, MediSave and Retirement Accounts (SMRA). With the SMRA pegged rate currently exceeding the 4% floor rate, Central Provident Fund (CPF) members will receive 4.08% per annum interest on their SMRA savings in the first quarter of 2024. In addition, the Government continues to pay 1% of extra interest on the first $60,000 of combined CPF balances for all members, as well as an additional 1% extra interest on the first $30,000 of combined CPF balances for members aged 55 and above.
The CPF Board’s current practice of computing monthly interest payments should be seen in the context of the abovementioned features of our CPF system which do not apply to bank deposits. Furthermore, premature withdrawals from banks’ fixed deposits would, in many cases, result in the forfeiture of the potential interest earned. While changing the computation method can translate into some marginally higher CPF interest payments, the features that I have just laid out already provide our CPF members with much higher interest and a greater boost to their CPF savings.
The Government will continue to review CPF interest rates periodically to ensure their relevance in the prevailing operating environment.
Mr Speaker: Mr Chua.
Mr Chua Kheng Wee Louis (Sengkang): Thank you, Speaker. Just one supplementary question for the Minister. Indeed, my question is more in terms of the computation of this interest which, as I agree with the Minister, actually it is the absolute interest rates that matter a lot more. But especially in the current environment whereby, at least for now, or the last 12 months, there have been various banks that have been offering various attractive fixed deposit rates or even the Treasury Bills themselves are even offering higher rates than the Ordinary Account. I think many residents as well as Singaporeans have observed that because of the way CPF interest is being computed, even if, let us say, you put it into a 12-month fixed deposit rate and earn the high interest, because of the computation, you may lose potentially up to two months of the interest from the CPF as a result of their method of calculation.
So, following Minister’s reply to my colleague, Assoc Prof Jamus Lim, slightly over a year ago, in terms of reviewing the computation of CPF interest rates, I was wondering whether the Minister can advise whether or not the method of computation can actually be aligned to ensure that it is relevant.
Dr Tan See Leng: I thank the Member for his supplementary question. As I have mentioned earlier on, our CPF system, indeed, has quite a number of important features which are not comparable to bank deposits. And because of this, these features actually provide CPF members with a much higher interest rate, compared to the local banks’ computational methods. Because over a long period of time, the method in which we have actually been using for our CPF members has resulted in them having higher interest rates. Let me explain to Members.
Not wanting to sound repetitive, but it is important for us to appreciate because the numbers are actually quite important. First, the Government has paid 2.5% minimum interest on the Ordinary Account savings and 4% floor rate for the Special, MediSave and Retirement Account savings over the past two decades, in spite of the protracted low interest rate environment.
So, if you do a like-for-like comparison, without the 4% floor rate, the SMRA interest rate would have been an average of 3.2% per annum or about 0.8% points lower. So, on that basis, we review constantly but periodically, of course, and in terms of trying to see how we can continue to optimise returns for CPF members and also address the volatilities as well as the uncertainties in the current geopolitical environment.
The reassurance that I want to give to the hon Member and also Members of the House is that this is a more sustainable method of computation over the longer haul, compared to investing in shorter term, more volatile instruments.
Mr Speaker: Assoc Prof Jamus Lim.
Assoc Prof Jamus Jerome Lim (Sengkang): Thank you, Speaker. Just one quick elaboration on my part. Maybe one concern that some may have is that when we allow mechanisms, such as individuals that are sophisticated enough to transfer their CPF holdings into, say, very, very safe instruments like Singapore Government bonds for short periods of time, we may be exacerbating inequality. Just because individuals that are sophisticated enough to exploit such transfer mechanisms are typically also the slightly more well-off, we then end up disadvantaging those who are not as tuned in to methods for trying to squeeze out additional returns from CPF.
Mr Speaker: Minister Tan.
Dr Tan See Leng: I think Assoc Prof Lim is just making a comment. I do not think I need to respond to that.
Ministry of Manpower
7 February 2024
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Office of the Leader of the Opposition 