CPF interest rate floors being maintained: Tan See Leng

ASKED if Central Provident Fund (CPF) interest rates would be increased to make up for high inflation, Minister for Manpower Tan See Leng on Tuesday (Aug 2) said that the rates for Ordinary Account (OA) and Special, Medisave and Retirement Account (SMRA) savings are currently being maintained at the respective floor rates of 2.5 per cent and 4 per cent.

But he added that the government will continue to review CPF interest rates periodically. The interest rates for the OA, Special Account, and Medisave Account are reviewed quarterly, while that of the Retirement Account is reviewed annually.

In September, the CPF Board will announce the CPF interest rates effective from October to December 2022.

Dr Tan was replying to Member of Parliament Henry Kwek (Kebun Baru SMC), who had asked if rates would be increased for the next few years to strengthen retirement adequacy.

Also replying to Workers’ Party MP Louis Chua (Sengkang GRC), who asked how CPF interest rates are calculated, Dr Tan said that these are “pegged to returns on investments of comparable risk and duration in the market”.

The OA interest rate is pegged to the 3-month average fixed deposit and savings rates of the 3 major local banks: DBS, UOB and OCBC. Based on latest estimates, the OA rate remains at around 0.09 per cent.

SMRA rates are pegged to the 12-month average yield of 10-year Singapore Government Securities plus 1 per cent. The peg was 2.72 per cent in the CPF Board’s last release in May, with latest estimates placing the SMRA rate at about 3 per cent.

As the current rates are below the effective floor rates, the latter apply, he said. The floor rates are why, “despite the low interest rate environment since the global financial crisis, the government has continued to pay generous interest rates”, he noted.

“There is some time-lag in CPF interest rate adjustments to avoid subjecting members to unnecessary fluctuations,” he added.

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In response to a supplementary question by Chua on the obstacles to granting higher CPF interest rates and reviewing their formula, Dr Tan noted that the CPF interest rates are risk-free and for the long term. This is in contrast to bank rates, which are “short-term, volatile instruments”, with promotional rates often contingent on customers satisfying criteria such as minimum spending and salary credited into the account.