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Oral Answer by Mr Tan Chuan-Jin, Minister for Manpower and Minister for Social and Family Development, to Parliamentary Question on CPF Interest Rates

Notice Paper No. 102 Of 2015 For The Sitting On 13 Apr Question No. 561 For Oral Answer

MP: Ms Foo Mee Har

To ask the Minister for Manpower whether interest rates for CPF accounts will be revised upwards in line with rising interest rates and, if so, how will this be implemented.

Answer

  1. CPF interest rates1 are pegged to returns on investments of comparable risk and duration in the market. Hence, changes in the yields on market instruments such as Singapore Government Bonds and fixed deposits will automatically have an impact on CPF interest rates through the interest rate pegs.
  2. The interest rates on the Ordinary Account, Special Account, and Medisave Account are reviewed quarterly, while the interest rate on the Retirement Account is reviewed annually. This ensures that the CPF interest rates remain sensitive to market conditions.
  3. However, to shield members from the risk of low market interest rates, the Government has maintained a floor interest rate of 2.5%, or 3.5% for balances of up to $20,000, for the Ordinary Account and a floor interest rate of 4%, or 5% for balances of up to $60,000, for the Special, Medisave, and Retirement Accounts (SMRA). These floor rates are considerably higher than the computed interest rates currently of about 0.2% for the OA and about 3.4% for the SMRA, based on the interest rate peg formula.
  4. If market interest rates rise sufficiently such that the interest rate pegs are above the floor interest rates, then the interest paid to members for the respective CPF accounts will be adjusted upwards accordingly.
1 The interest rate on the Ordinary Account (OA) is pegged to the 12-month fixed deposit and month-end savings rates of the major local banks, subject to a guaranteed floor interest rate of 2.5%. Due to the Extra Interest that the Government provides, the first $20,000 of OA balances can earn up to 3.5%.

The interest rates on the Special, Medisave, and Retirement Accounts (SMRA) are pegged to the yield of 10-year Singapore Government Securities (10YSGS) plus an additional 1%. Since 2008, we have maintained a floor interest rate of 4% on the SMRA. Due to the Extra Interest, the first $60,000 of SMRA balances can earn up to 5%. And from next year onwards, members age 55 and above can earn up to 6% on the first $30,000.