Manpower Minister rejects suggestion to change how CPF interest payments are computed
MP Louis Chua asked about the method for computing CPF monthly interest payments as members lose potential interest when they transact CPF funds for investment.
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SINGAPORE:Â Manpower Minister Tan See Leng said on Wednesday (Feb 7) there will be no change to how CPF monthly interest payments are computed.
He was responding to a question by Member of Parliament Louis Chua (WP-Sengkang) on whether the CPF Board has reviewed how monthly interest payments are computed.
Mr Tan said that while changes could result in marginally higher interest payments for members making CPF transactions, all members already benefit from the system's higher interest rates.
Currently, CPF contributions made in one month only start earning interest the next month, while CPF withdrawals and deductions made in one month will not earn interest from that same month.
Mr Chua asked whether the board would consider including CPF contributions made during the month when computing the monthly interest payment.
He also asked about pro-rating the monthly interest payment to the number of days an amount is held in the accounts before withdrawal.
Elaborating in the House, Mr Chua noted that banks' fixed deposits and the Singapore government's Treasury bills have been offering attractive interest rates, above the 2.5 per cent minimum interest on CPF Ordinary Account (OA) savings.
But because of the way the CPF monthly interest payment is computed, members who channel CPF funds into such investments could lose up to two months' worth of potential interest payments on the sum, he said.
Mr Tan responded that the current method of computing CPF monthly interest payments should be seen in the context of features of the CPF system that do not apply to bank deposits.
He reiterated that the government has continued to pay the OA's 2.5 per cent minimum interest and the 4 per cent floor rate for the Special, Medisave and Retirement Accounts (SMRA), despite a protracted low interest rate environment over the past 20 years.
He added that the CPF system gives all members 1 per cent extra interest on the first S$60,000 of combined CPF balances. Members aged 55 and above receive another 1 per cent extra interest on the first S$30,000 of combined CPF balances.
He also said that in many cases, if customers prematurely withdraw funds from banks' fixed deposits, they would forfeit potential interest earned.
"While changing the computation method can translate into some marginally higher CPF interest payments, the features that I've just laid out already provide our CPF members with much higher interest and a greater boost to their CPF savings," the minister said.
The Government will continue to review CPF interest rates periodically to ensure their relevance in the prevailing operating environment, said Manpower Minister Tan See Leng. While changing the computation method can translate into some marginally higher CPF interest payments, CPF members already have much higher interest and a greater boost to their CPF savings, he said in reply to an MP’s question in Parliament on Wednesday (Feb 7).
He told the House that without the 4 per cent floor rate on SMRA savings, if the SMRA interest rate were aligned with local banks, it would average 3.2 per cent.
He added that the CPF Board regularly reviews the computation of CPF interest both to continue optimising returns for members and to address geopolitical uncertainties.
"This is a more sustainable method of computation over the longer haul, compared to investing in shorter term, more volatile instruments," said Mr Tan.
