Manpower Minister Ng Eng Hen yesterday sketched out details of the
IN 20 years, a Central Provident Fund member with $60,000 in his
Manpower Minister Ng Eng Hen cited this example yesterday to show just how much a member will benefit from higher
Indeed, seven in 10 of all
From next January, the Government will pay out an additional percentage point on the first $60,000 on all
This change was announced by Prime Minister Lee Hsien Loong in his National Day Rally speech last month.
It is aimed at helping Singaporeans, especially low-income workers, build a bigger retirement nest egg.
Yesterday, Dr Ng fleshed out details of the
At the same time, the Government will float the interest rates of the Special, Medisave and Retirement Accounts (SMRA) and peg them to 10-year Singapore Government Securities (SGS) rates.
Under the current system, the SMRA rate is a guaranteed 4 per cent.
Under the new system, the SMRA rate is pegged to the previous year's 10-year SGS rate plus one percentage point.
The average SGS rate is now 3 per cent. Based on this peg, it means the SMRA interest rate will be 4 per cent - the SGS rate of 3 per cent plus 1 percentage point.
To help members adjust to the floating rate, the Government will still pay out a minimum of 4 per cent on the SMRA for the next two years, said Dr Ng.
This 4 per cent floor will also apply to the first $60,000 in the combined
Since the 10-year SGS was launched in 1998, the highest daily rate it rose to was 5.69 per cent, while the lowest it hit was 1.79 per cent.
Dr Ng said the decision to peg rates to the 10-year SGS was based on several factors.
Among other considerations, the move had to be financially sound, easily understood and not exposed to fluctuations in currency exchange rates, he said.
The ideal peg, added Dr Ng, would have been a 30-year SGS because that would be the average time members' money stayed in their SMRA.
But there was no such bond and shorter bonds of 20 years were not actively traded, making them unsuitable as a peg.
Said Dr Ng: 'Why plus 1 per cent? Because this will adequately provide for the difference we would expect between the interest on the 10-year SGS, which we are using, and the 30-year SGS, if it existed.'
Addressing worries over fluctuating returns, Dr Ng said the new rates should be viewed from a long-term perspective.
'For members' information, had the new SMRA formula been in place since the first issue of the 10-year SGS in 1998, the SMRA rate would have averaged 4.5 per cent,' he noted.
Likewise, he dismissed fears that the
Under the new rules, from next April, a
Said Dr Ng: 'Money already invested in CPFIS will not be affected. Even after these restrictions, $42 billion will still be available for use in CPFIS.'
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There will also be no change to the HDB concessionary loan rate, which is currently at 2.6 per cent, pegged 0.1 percentage point above the
Financial analysts like Mr Leong Sze Hian said the change will make people less negative about the floating SMRA rates.
'With the additional 1 percentage point in the formula, there is a good chance that the rates might exceed 4 per cent over the long term,' said Mr Leong, who is president of the Society of Financial Service Professionals.
Accountant Joe Lim, 28, agreed, saying the new formula struck a balance between risk and reward.
Said Mr Lim: 'There is a potential for slightly higher gains while the extra 1 percentage point acts as a buffer for my savings. Not too bad a deal.'
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