A look at past changes to CPF interest rates
IN A joint release on Monday (May 29), the Central Provident Fund (CPF) Board and the Housing and Development Board said interest rates for Special and MediSave Account (SMA) members will increase to 4.01 per cent per annum, up from 4 per cent, for the period from Jul 1 to Sep 30.
This is due to an increase in the 12-month average yield of 10-year Singapore Government Securities (SGS), which the SMA’s interest rate is pegged to, they added.
This is the first time interest rates for SMA have gone above 4 per cent since the figure was set as a floor interest rate for Special, Medisave, and Retirement Accounts (SMRA) accounts in 2008.
The interest rates for the Ordinary Account (OA) and Retirement Account will remain unchanged at 2.5 per cent and 4 per cent respectively per year.
Here is a recap of past instances when CPF interest rates were changed:
2016: Extra 1 per cent interest on first S$30,000 of CPF balances from age 55
Starting on Jan 1, 2016, CPF members received an extra 1 per cent interest on the first S$30,000 of their CPF balances from the age of 55.
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This was layered on top of the 1 per cent extra interest that was already being provided on the first S$60,000 of members’ balances.
“Hence, given the 4 per cent interest rate on Retirement Account balances, members with lower balances can earn 6 per cent interest,” said then-deputy prime minister and finance minister Tharman Shanmugaratnam, when he unveiled the scheme as part of the government’s 2015 Budget in February that year.
The CPF salary ceiling was also raised to S$6,000 from S$5,000.
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2008: Extra 1 per cent interest rate on first S$60,000 of CPF balances, SMRA rate pegged to SGS with 4 per cent floor
Prime Minister Lee Hsien Loong announced during his National Day Rally (NDR) in August 2007 that the CPF board would pay 1 per cent more on CPF balances for the first S$60,000 of a member’s combined balances, with up to S$20,000 from the Ordinary Account.
“Now, one percentage point may not sound like a lot of money, but it makes a big difference,” PM Lee said then, citing the example of a “young man who starts to work today, 21 years old, earning S$1,700 a month” who could expect to earn SS$20,000 more in CPF interest by the time he retires at 55 – one-quarter more interest than before.
Subsequently, in a speech in Parliament in September 2007, then-minister for manpower Ng Eng Hen announced that along with other changes to CPF announced by PM Lee during his NDR speech, the SMRA rate would be re-pegged to the 12-month average yield of 10-year Singapore Government Security (SGS) plus 1 per cent.
The re-pegging of the SMRA rate to “an appropriate long-term yield bond” was first announced in 2002.
Dr Ng said in his speech that the new interest-rate system would start on Jan 1, 2008, adding that the government would keep the 4 per cent floor for the SMRA rates for the first two years “to help members adjust to the floating SMRA rate”.
“After two years, the 2.5 per cent floor rate will apply for all accounts as prescribed under the CPF Act,” he added.
However, the 4 per cent floor rate for SMRA accounts has been extended to date, for reasons including global market conditions and exceptionally low interest rates.
2001: MediSave accounts’ turn to get a boost
From Oct 1, 2001, MediSave accounts earned an additional 1.5 per cent interest over the interest rates paid for OAs, joining Special and Retirement Accounts.
1999: Change in computation formula
From Jul 1, 1999, the formula to calculate the calculated rate for Ordinary and MediSave Accounts was changed to 80 per cent fixed-deposit rate and 20 per cent savings rate of the average of the major local banks over the preceding relevant three months.
Prior to July 1999, the formula to compute the calculated rate was based on half the fixed-deposit rate and half the average savings rate of the local banks over the preceding relevant six months.
Special and Retirement Accounts earned an additional 1.5 per cent interest over the rates for OAs and MediSave Accounts.
1998: Special and Retirement Accounts get additional leg-up
From Jul 1, 1998, Special and Retirement Accounts earned additional interest of 1.5 per cent above the CPF interest rate paid for Ordinary and MediSave Accounts, an increase from the previous 1.25 per cent.
1995: Special and Retirement Accounts get a boost
From Jul 1, 1995, Special and Retirement Accounts earned additional interest of 1.25 per cent above the CPF interest rate paid for Ordinary and MediSave Accounts.
Prior to that, interest rates were uniform across all the accounts, subject to the 2.5 per cent floor guaranteed minimum that was part of the 1953 CPF Act.
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