CPF plans to lower interest rates for medisave and retirement accounts
September 4, 2009 by admin
Filed under Top News
According to the latest news release from the Central Provident Fund (CPF) board posted on its website, it will be applying a new floor rate of 2.5% interest for all CPF accounts after 31 December 2009 (Source: CPF)
The government has been maintaining the 4% floor rate for savings in the Special Medisave and Retirement Accounts (SMRA) for two years from 1 January 2008 to 31 December 2009.
The interest rate for SMRA is pegged to the 12-month average yield of the 10-year Singapore Government Security plus 1% for this entire period of time.
The lower interests rate mean that Singaporeans will have less savings in their medisave accounts to be used for medical expenses and retirement account to depend on during their golden years.
In fact their value will probably depreciate with time as the interest (floor) rate of 2.5% is far below the annual inflation rate of 4 to 6%. Last year, inflation hit a record high of 6.7%
The CPF was originally introduced in 1967 to help Singaporeans saved for their old age. Singapore workers are required under the law to contribute 20% of their monthly savings into the CPF together with a lesser percentage from their employers.
The medisave account was subsequently set aside from the holders’ ordinary accounts to pay for hospitalization bills. Most Singaporeans use the funds in their ordinary accounts to service the mortage loans of their homes.
Due to the rising prices of HDB flats, more and more Singaporeans are having insufficient savings in their CPFs left for retirement needs as they are used to repay the bank loans.
The government has rolled out a series of initiatives to help Singaporeans cope with the impending crisis by increasing the retirement age to 62, urging employers to re-hire elderly workers, raising the minimum sum in CPF and introducing a CPF Life (annuity) scheme which will give a monthly allowance to Singaporeans after they retire from working life.
While the cost of living has increased steadily over the last few years, especially that of HDB flats, the wages of Singaporeans have not kept pace with it. The lower income group is the hardest hit as the wages had remained stagnant for the last decade due to the relentless influx of foreign workers.
The government’s open-door policy towards foreigners and the lax criteria for granting PRs had led to an increase in the number of PRs in Singapore. They are allowed to buy resale HDB flats thereby contributing to their demand and eventually prices.
National Development Minister Mah Bow Tan admitted recently that the price of HDB resale flats had reached a record high and will continue to rise. However, he was quick to add that HDB flats remain “affordable”.
Despite repeated reassurances from the ministers and HDB that public housing is affordable to the masses and that the inflationary housing market helps to generate wealth for the people, many are still not convinced.
Recent letters to the Straits Times Forum highlighting the high prices of HDB flats by concerned readers are brushed aside by HDB with the often quoted answer that their prices lie below the internationally accepted benchmark of housing affordability.
Young Singaporeans who have limited savings in their CPFs will be stretched to their limits to start a family under present circumstances.
For Singaporeans who just bought their homes, a grim prospect awaits them that they may end up with literally nothing in their CPFs after paying off their housing loans over a period of 30 years.
September 4, 2009 by admin
Filed under Top News
According to the latest news release from the Central Provident Fund (CPF) board posted on its website, it will be applying a new floor rate of 2.5% interest for all CPF accounts after 31 December 2009 (Source: CPF)
The government has been maintaining the 4% floor rate for savings in the Special Medisave and Retirement Accounts (SMRA) for two years from 1 January 2008 to 31 December 2009.
The interest rate for SMRA is pegged to the 12-month average yield of the 10-year Singapore Government Security plus 1% for this entire period of time.
The lower interests rate mean that Singaporeans will have less savings in their medisave accounts to be used for medical expenses and retirement account to depend on during their golden years.
In fact their value will probably depreciate with time as the interest (floor) rate of 2.5% is far below the annual inflation rate of 4 to 6%. Last year, inflation hit a record high of 6.7%
The CPF was originally introduced in 1967 to help Singaporeans saved for their old age. Singapore workers are required under the law to contribute 20% of their monthly savings into the CPF together with a lesser percentage from their employers.
The medisave account was subsequently set aside from the holders’ ordinary accounts to pay for hospitalization bills. Most Singaporeans use the funds in their ordinary accounts to service the mortage loans of their homes.
Due to the rising prices of HDB flats, more and more Singaporeans are having insufficient savings in their CPFs left for retirement needs as they are used to repay the bank loans.
The government has rolled out a series of initiatives to help Singaporeans cope with the impending crisis by increasing the retirement age to 62, urging employers to re-hire elderly workers, raising the minimum sum in CPF and introducing a CPF Life (annuity) scheme which will give a monthly allowance to Singaporeans after they retire from working life.
While the cost of living has increased steadily over the last few years, especially that of HDB flats, the wages of Singaporeans have not kept pace with it. The lower income group is the hardest hit as the wages had remained stagnant for the last decade due to the relentless influx of foreign workers.
The government’s open-door policy towards foreigners and the lax criteria for granting PRs had led to an increase in the number of PRs in Singapore. They are allowed to buy resale HDB flats thereby contributing to their demand and eventually prices.
National Development Minister Mah Bow Tan admitted recently that the price of HDB resale flats had reached a record high and will continue to rise. However, he was quick to add that HDB flats remain “affordable”.
Despite repeated reassurances from the ministers and HDB that public housing is affordable to the masses and that the inflationary housing market helps to generate wealth for the people, many are still not convinced.
Recent letters to the Straits Times Forum highlighting the high prices of HDB flats by concerned readers are brushed aside by HDB with the often quoted answer that their prices lie below the internationally accepted benchmark of housing affordability.
Young Singaporeans who have limited savings in their CPFs will be stretched to their limits to start a family under present circumstances.
For Singaporeans who just bought their homes, a grim prospect awaits them that they may end up with literally nothing in their CPFs after paying off their housing loans over a period of 30 years.
