Favourable Interest Rates Offered for CPF Savings to Preserve Retirement Adequacy

Ms Foo Mee Har asked the Minister for Manpower whether the favourable interest rates provided to CPF members amidst record low market interest rates will prevail to preserve retirement adequacy.

CPF interest rates 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.

Based on this interest rate peg formula, the current computed interest rate would be about 0.6% for the Ordinary Account (OA). However, CPF members currently enjoy a significantly higher rate of 2.5%, as this is the legislated minimum.

The legislated minimum of 2.5% also applies to the Special, MediSave, and Retirement Accounts (SMRA). On top of this, the Government has maintained a floor interest rate of 4% for the SMRA since 2008. This is considerably higher than the current computed interest rates of about 2.4% for the Special and MediSave Account (SA and MA), and 3.0% for the Retirement Account (RA). In September, the Government announced that the 4% floor would be extended till December 2021. In addition, to help further grow CPF savings, extra interest continues to be paid on the first $60,000 of a member’s combined balances (capped at $20,000 for the OA).

The interest rates on the OA, SA and MA are reviewed quarterly while the interest rate on the RA is reviewed annually, taking into account market conditions.