Mr Chua Kheng Wee Louis (Sengkang): Chairman, I would like to once again repeat my call for us to reform the long-outdated and archaic formula in which OA interest is computed. This was last changed in 1999, when the ratio of fixed deposits to savings was updated from 50-50 to 80-20 to reflect the longer duration that CPF OA monies remained with CPF Board. A reform is a long due.
As shared by the Monetary Authority of Singapore in its reply to my Parliamentary Question, deposit rates are set competitively in the market. Apart from basic savings accounts, consumers can choose from a range of other savings and fixed deposit products with higher interest rates offered by banks. Yet, despite much higher market rates for both fixed deposits and savings deposits, the CPF deems the level of deposit interest rates to be an unbelievable 0.66% for the period from August 2023 to October 2023. The least we can do is to reflect prevailing rates in the market. I hope the Government will proactively review CPF interest rates to ensure their relevance in the prevailing operating environment.
The Minister for Manpower (Dr Tan See Leng): Mr Saktiandi Supaat and Mr Louis Chua talked about the interest rate peg for the OA. The Government is aware that the OA interest rate has remained relatively stable, while yields of market instruments of comparable risk and duration have increased.
But let us take a long-term view. Over the past two decades of low-interest rate environment, we have paid 2.5% interest, as well as extra interest, while the market was paying well below that. On average, the annual OA interest rate was 1.7 percentage points higher than the 12-month fixed deposit rates, from 1999 to 2021.
Nevertheless, we are still monitoring the situation, we will continue to review our CPF interest rates periodically, to ensure their relevance in the prevailing operating environment.
The Chairman: Mr Louis Chua.
Mr Chua Kheng Wee Louis: Chairman, two clarifications. The first is that it is hard not for some to see it as a form of carry trade whereby the Government is borrowing at 2.5%, 4% from Singaporeans while the GIC makes 7%, both of which in the long-term. So, the question is: if we already have the CPFIS, can we not allow Singaporeans to co-invest part of their savings?
Dr Tan See Leng: I assume the Member has directed that question at myself. On the first part in terms of the difference between GIC returns and CPF interest rates that both Mr Louis Chua and Ms Hazel Poa talked about this has been discussed earlier at the debate on the Motion on Public Finances on 7 February 2024. I do not want to go too much into details. But it is always very easy from the point of investment to look at hindsight because hindsight is perfect. I have done a lot of investments in my past life. There are a lot of “I should have done this, I should have done that”. We need to understand that while GIC’s historical 20-year returns have exceeded CPF interest rates, this is really looking at it backwards.
Above all, I think Mr Louis Chua, as a financial analyst, it is always very good to look at past historical records. But to make a projection in the future, I seriously wonder how many people can be that spot-on and precise in terms of projecting future returns and on a guaranteed basis. For the 20 years of historical returns, even though GIC has exceeded CPF interest rates, there is no guarantee that GIC’s future returns will always exceed CPF interest rates in every year.
So, if we pass some of these returns directly to members, there will be significant year-to-year fluctuations in the interest rate that members receive. I wanted to set that basic principle. So, what the Government has done is that it has used our buffer of net assets to ensure that CPF members receive fair and stable interest rates to grow CPF balances for retirement adequacy.
That is the underlying principle. And I have said before that since CPF started in 1955, the three core priorities are: (a) to fund retirement adequacy for our members; (b) to provide housing; and (c) healthcare.
Ministry of Manpower
4 March 2024
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=budget-2369
Office of the Leader of the Opposition 