Calls for a review of CPF interest rates gain traction amid ongoing concerns over retirement adequacy.
SINGAPORE: Former GIC chief economist Yeoh Lam Keong expressed his disagreement with Manpower Minister Tan See Leng’s remarks regarding Central Provident Fund (CPF) interest rates during a parliamentary speech on August 2. In his Facebook post, Mr. Yeoh raised concerns that the existing policy could lead to significant long-term hardship for current and future lower-income pensioners due to inadequate pensions that might have been avoided with a higher and more equitable CPF interest rate.
Mr. Yeoh highlighted that CPF interest rates should reflect returns on long-term compulsory pension contributions, which GIC invests globally in assets that yield over 4% in real terms above global inflation, or over 6% nominally over more than 20 years. He commended GIC for its capability to generate substantial long-term returns typical of large pension funds.
In a show of support, Mr. Lee Hsien Yang, the younger brother of Prime Minister Lee Hsien Loong, shared Mr. Yeoh’s post, agreeing that it is a sensible suggestion that could address the retirement savings inadequacy faced by many Singaporeans despite their high savings rates during their working years.
What Manpower Minister Tan See Leng Said
During the parliamentary session, MPs Louis Chua (WP-Sengkang GRC) and Henry Kwek (PAP-Kebun Baru) questioned whether CPF interest rates would be adjusted in light of rising inflation. Mr. Chua specifically inquired if the CPF Board would consider reviewing its interest rate formula, which is linked to the interest rates offered by DBS, OCBC, and United Overseas Bank—three banks that have recently increased their rates.
In response, Dr. Tan stated that there are currently no plans to raise CPF interest rates despite inflation, describing the rates as “generous.” He added that the interest rates for the Ordinary Account, Special Account, and MediSave Account are reviewed quarterly, while the Retirement Account rate is reviewed annually.
Mr. Yeoh’s Concerns
In his Facebook post, Mr. Yeoh pointed out that only the Special, MediSave, and Retirement Accounts enjoy a return of approximately 3%, which remains significantly lower than GIC’s long-term nominal return of around 6.2%. He argued that while CPF interest returns are guaranteed, GIC’s returns are not, and CPF contributors should have the option to choose between guaranteed rates and actual long-term returns, given that their contributions are compulsory and belong solely to them.
“With all due respect to the earnest Manpower Minister, no other modern pension fund in the world could operate with such a discrepancy,” Mr. Yeoh remarked, emphasizing that this situation results in compounded pension savings that fall several percentage points short of what pension funds typically return.
He further lamented that members’ final pensions are often only half of what they could be if actual returns were provided, compromising their retirement adequacy. He pointed out that CPF members are pushed to rely excessively on real estate investments, which may depreciate due to HDB lease decay, especially when they need these assets most.
Mr. Yeoh concluded that the current policy could lead to considerable long-term hardship for lower-income pensioners and called for urgent reform to address these shortcomings.
