High CPF Ordinary rate still at 2.5%

THE Central Provident Fund board will continue to pay 2.5 per cent interest per annum for Ordinary Account (OA) savings from April 1 to June 30.

The board said yesterday that although the computed interest rate derived from the rates of major local banks for the period Nov 1, 2008 to Jan 31, 2009 works out to 0.74 per cent, the higher rate of 2.5 per cent will be paid because that is the minimum specified under the CPF Act.

The Housing & Development Board said that the concessionary interest rate on its mortgage loans, pegged at 0.1 percentage point above the CPF interest rate for the OA, will be 2.6 per cent per annum from April 1 to June 30.

The interest rates for CFP Special, Medisave and Retirement accounts for April to June will be announced next month.

The prevailing interest rate for these accounts is 4 per cent, based on the 12-month average yield of the 10-year Singapore Government Security plus one per cent.

To help members adjust to this floating rate, a 4 per cent floor will be maintained until Dec 31 this year, as announced earlier.

An extra one per cent interest will also continue to be paid on the first $60,000 of a member's combined balances, with up to $20,000 from the OA.

The extra interest from the OA will go into members' Special or Retirement accounts to enhance their retirement savings.

Special Account for invesments need to be $30,000 .

PEOPLE with less than $30,000 in their Special Accounts (SA) will not be able to use these funds to invest under the Central Provident Fund Investment Scheme (CPFIS) from May 1.
Acting Manpower Minister Gan Kim Yong said this was being done because the SA receives an additional interest on its funds, and also because of the uncertainty around CPFIS returns.
'Given the higher interest rate on the SA and the uncertainty of CPFIS scheme, it is better to be more conservative,' he said yesterday.
The change will not affect existing investments.
Currently, all CPF members earn a flat floor rate of 4 per cent on their Special, Medisave and Retirement Accounts (SMRA).
But by the end of this year, interest rates of the SMRA accounts will be floated and pegged to the average yield of 10-year Singapore Government Securities rates.
They will earn the floating rate plus 1 percentage point.
CPF members earn higher interest on their first $60,000 of savings - 5 per cent on their Special, Medisave and Retirement accounts, and 3.5 per cent on up to $20,000 of their Ordinary Account.
Previously, CPF members had to keep a minimum of $20,000 each in their Ordinary and Special accounts before they could start to invest.
But with this change, they will need to keep a minimum of $30,000 in their Special Account and $20,000 in their Ordinary Account.
The excess funds can be invested in CPF-approved bonds, equity-linked funds, unit trusts and investment- linked insurance products.
Latest data from the CPF Board showed that investments in such products have not been paying off.
In December last year, the CPF Board said nearly half of all CPFIS investors who sold their Ordinary Account investments last year lost money, up from 43 per cent in 2007.
Only about 174,000 members, or 20 per cent made profits from their CPF savings over and above the 2.5 per cent they could have earned anyway.
These figures reflected the financial meltdown that began in September last year, the CPF board said at the time.
It said that CPF members had withdrawn $7.8 billion from their Special Accounts for investments.
Nearly 80 per cent of that figure, or $6.19 billion, went into insurance policies. About $1.61 billion went into unit trusts.

CPF top-ups for family members made easier

The Central Provident Fund board announces that more members will be able to top up the accounts of their family members following changes announced yesterday.

From April, they need only to have CPF balances of at least the prevailing Minimum Sum before being allowed to do top-ups.

At present, they need to have 1.5 times the Minimum Sum in their account before they can top up someone else's account.

Age restrictions will also be removed from August.

Currently, top-ups to parents and grandparents can be made only to those aged 55 or above.

The changes announced in Parliament are aimed at encouraging individuals to help older family members build up their retirement savings, Acting Manpower Minister Gan Kim Yong (below) said.

The rules for the top-up have been progressively eased in recent years, such as the change last year making it easier for CPF members to receive top-ups to their Retirement or Special accounts.

Such top-ups, said Mr Gan, can help older CPF members participate in CPF Life - the annuity scheme which provides a steady stream of income for life.

Those who turn 55 in 2013 will automatically go on the scheme, if they have a minimum of $40,000 in their CPF accounts.

The top-ups, Mr Gan added, will also help CPF members enjoy the 1 per cent extra interest on the first $60,000 of CPF savings.

'Naturally, if CPF members continue to work after 55, this would be the best way for them to continue building up their balances to participate in CPF Life,' he said.

The CPF board is a compulsory savings for old age deposit scheme for Singaporeans.