Parliament: CPF interest rates 'better than market alternatives'

But Govt will still study how returns can be improved: Manpower Minister

The interest rates on Central Provident Fund savings are better than what similar financial pro- ducts in the market offer, said Manpower Minister Tan Chuan-Jin yesterday.

Still, the Government will look at how the returns can be improved, Mr Tan assured Parliament.

He noted that Ordinary Account savings earn 2.5 per cent interest, while savings in the Special, Medisave and Retirement Accounts earn 4 per cent. An extra 1 per cent is paid on the first $60,000 of combined balances.

"These are rates that are far higher than the equivalent rates provided by similar products out in the market today," he said.

"But be that as it may... this is an area that we are looking at in terms of making sure that we enhance CPF Life." Details of improvements to this national annuity scheme will be ready in August, when Prime Minister Lee Hsien Loong gives his National Day Rally speech, he added.

Mr Tan's disclosure yesterday comes a day after Mr Lee said the Government wants to enhance CPF Life so payouts will keep pace with the rising cost of living.

As people live longer, the focus of CPF is to ensure "we can live well as well", said Mr Tan.

In his speech, he also laid out the different needs the CPF savings must continue to cater to, as there has been much discussion recently, both inside and outside the House, about the scheme.

One is housing.

Noting that some have questioned if the national pension scheme should address housing adequacy, Mr Tan said: "We believe that it's an important component."

Another is health care.

Along with the Pioneer Generation Package, the CPF system is one way the Government is addressing health-care needs.

Third is retirement adequacy.

Helping workers earn good wages and making sure jobs are available will help them build up their CPF savings. Workers should also have the chance to work longer.

"Raising the retirement age isn't about forcing people to work longer," he said. "If you don't want to work longer, you can actually stop working any time that you wish to." But many do find that work is part of active ageing, so letting them continue to work is important, he said.

Mr Tan acknowledged MPs' concerns about whether CPF returns are adequate, but said the question was where an increase should come from.

"Some have asked whether CPF interest rates should be higher in order to withstand inflation. That's a fair consideration."

But others have suggested seeking higher returns by taking on more risk, he said, adding: "Is that something we want to do?"

Mr Tan also addressed Workers' Party MP Png Eng Huat's suggestion of an option for CPF Life payouts to start at an earlier drawdown age of 60. The drawdown age is 63 now but will rise to 64 in 2015 and 65 in 2018.

Mr Png, the Hougang MP, recalled his father's excitement at turning 55 and being able to withdraw his CPF savings, an episode that took place before the Minimum Sum scheme was introduced in 1987. This is the sum that cannot be withdrawn and must be set aside for retirement and medical needs when CPF members turn 55 now.

Such excitement could "turn into a look of horror" if the drawdown age is not adjusted as life expectancy increases, and CPF members see their money beginning to run out, said Mr Tan.

"The more you draw out earlier, what it means is that the payouts correspondingly will reduce," he added.

janiceh@sph.com.sg