Ordinary Account rate too low

Ordinary Account rate too low

I Agree with Manpower Minister Tan Chuan-Jin that the "CPF is put in place to help Singaporeans have peace of mind when it comes to their retirement years" ("CPF money is your money, says Chuan-Jin"; yesterday). But why does there seem to be unhappiness with the system?

One key reason is the 2.5 per cent interest rate for Ordinary Account funds. Is it a fair return for such long-term savings? How does it compare with interest rates on 20- and 30-year Singapore Government bonds that are rated AAA?

Another comparison is with life annuity schemes offered by insurers, which typically pay 2.75 per cent per annum and declare bonuses when investment performance is good.

The 4 per cent interest for the CPF Special, Medisave and Retirement accounts is a more reasonable rate of return for such long-term savings.

Perhaps the Government could consider compensating CPF members more equitably for their funds in the Ordinary Account.

Granted that investment performance may vary from year to year, perhaps the Government could consider the practice of insurance companies in declaring bonuses for members when they do well in a particular year.

Tan Hong Choon

This article was first published on May 27, 2014.
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