CPF rate will be lower in the future?

[PostCountWarrior[+1]]

what do u think?

see so many CPF threads, see some transfer from OA to SA la, some top up SA lah

http://www.todayonline.com/business/gic-sees-lower-returns-warns-tougher-times

GIC already say they see lower returns.

And also, imagine if tmr CPF suddenly lower SA rate, its not like you can just take out and invest in something else. You are stuck with whatever rate they give you.

 

[havetheveryfun]

it won't be reduced , at least not in the next few years.

Why would they reduce it so soon when they just increased it for the elderly? like 1% interest more for dono age 50 and above ? (don't know the exact details , lazy to check)

transferring from OA to SA has always been something that is available. It is just that only now that more and more people are realizing it.

There are many other ways around this for them if they don't want to incur the wrath of the masses, such as limiting the interest rate. e.g limit 4% up till the ERS, any amount above gets lesser interest, etc

 

[koja6049]

Does TS even understand what is the meaning of floor rate?

And I see TS use chart from Roy Ngerng website, so TS reads that kumgong website

 

[Lewis.T]

Does TS even understand what is the meaning of floor rate?

And I see TS use chart from Roy Ngerng website, so TS reads that kumgong website

They can change the floor rate. The current floor rate has been extended twice now, with the last one ending end 2016.

 

[BBCWatcher]

Sure, that's a risk, but if the floor rates are reduced it'll almost certainly happen at the same time your private sector alternatives are much worse than they are today.

 

[doody_]

There's always a chance they change the laws regarding how CPF interest rate is determined. But that is a dangerous choice between cash and political capital. There will be some backlash if the rates are cut.

Personally I don't expect that to happen before I get to withdraw it

 

[Majestic12]

It's actually a valid possibility that nobody hardly questions. The issue here concerning political backlash is a non factor, since there is no other political party other than the PAP for Singapore.

 

[BBCWatcher]

This argument is not unique to CPF. You are free to direct your investment dollars (beyond compulsory CPF contributions) however you wish. With few exceptions you will have no guarantee of any particular yield or even of preservation of capital.

One exception is if you buy Singapore Government Securities and/or Singapore Savings Bonds. However, those bonds and bills are only guaranteed (by the AAA-rated Singapore government) to provide a particular nominal yield and return of principle.(*) If Singapore dollar inflation increases during your holding period then that's just too bad. CPF, on the other hand, will automatically increase its yields based on current benchmark market interest rates. Yes, with the caveat that policymakers could change the interest calculation rules, but see above about no guarantees.

Another possible option is to buy U.S. Treasury Inflation Protected Securities ("TIPS"). TIPS provide a U.S. government guaranteed real return in U.S. dollar terms, based on U.S. dollar inflation. A few other governments with high credit ratings issue bonds similar to TIPS, but TIPS are likely the most accessible such bonds for Singaporean investors.

Of course, you get what you pay for. TIPS, SGSs, and SSBs are all low yielding. Safety (nominal or real) has a price. Also, bear in mind that CPF is unique in offering substantial, immediate Singapore tax relief. That's upfront, thus realized and guaranteed (and also on the backend, under current tax law). Factor that into your calculus, always.

Since you cannot avoid all risks, my advice would be to diversify your portfolio, to a reasonable degree. CPF risks are low in any rational assessment, but of course they are not zero. Nothing offers zero risk. So hold some CPF -- the government already caps voluntary contributions anyway, so nobody well-to-do can overinvest in CPF -- and hold some other stuff, too.

(*) Actually, nominal bond value -- "face value." Also, SGSs are often callable.

 

[koja6049]

They can change the floor rate. The current floor rate has been extended twice now, with the last one ending end 2016.

floor rate has been extended since 1955. 2.5% and never changed.

https://www.cpf.gov.sg/Assets/common/Documents/InterestRate.pdf

You can wait for singapore to snow before it changes

 

[henrylbh]

floor rate has been extended since 1955. 2.5% and never changed.

https://www.cpf.gov.sg/Assets/common/Documents/InterestRate.pdf

You can wait for singapore to snow before it changes

Floor rate is in the statute. It doesn't depend periodic announcements. It can't change unless they go parliament to change the law.

 

[koja6049]

Floor rate is in the statute. It doesn't depend periodic announcements. It can't change unless they go parliament to change the law.

but still got people here believe floor rate can be lowered

 

[PostCountWarrior[+1]]

everyone quote the law, but realistically your returns come from where? GIC. The way they do their investments sometimes make me facepalm. Just google gic bad investments. Plus the people get paid very very well, but do not undergo retrenching cycle to purge poor performing staff like the private sector in banking cos its still considered govt agency.

Lets hope I am wrong and GIC continue to get good returns, but the way bond yields are going in Japan and Europe, how high can they really go. Even for the US who want to hike, how high can they really hike before we get into a recession again? 5.25% was the last high in Fed funds rate in the last cycle. I dont think we can even surpass that for this hiking cycle.

you can quote the law for all you like, but I am going to be cautious. As someone said, diversify is the key, so please dont go All In into CPF.

 

[havetheveryfun]

but still got people here believe floor rate can be lowered

They are talking about SA interest also.. that can be changed anytime as seen in the first post by TS

Anyway just because its the law doesnt mean it cant be changed either.. they just need to go through parliament to change it

 

[BBCWatcher]

As someone said, diversify is the key, so please dont go All In into CPF.

I wrote that, but I also wrote that it's important to be reasonable in pursuing portfolio diversity. If, in particular, you don't have at least fairly substantial income or wealth then it can be quite reasonable to get some foundational insurance coverage (disability, term life if you have dependents), rely on CPF (even with some voluntary contributions and tax breaks), and leave it at that. The alternatives realistically available to many if not most Singaporeans are...well, the word "crap" comes to mind. The evidence abounds. Most Singaporeans aren't even beating CPF OA when they try. I do not think diversifying into crap makes sense.

This government is rather well diversified, by the way. And a AAA-rated sovereign with tremendous untapped taxing power, and a fiat currency. You're not dealing with Bolivian corporate bond derivatives here.

 

[Layers]

Anything is possible. Just when? 10yrs 50yrs from now

Anyway I too peasant to do this. I rather invest OA to be more flexible

Sent from Sony E6853 using GAGT

 

[Lewis.T]

floor rate has been extended since 1955. 2.5% and never changed.

https://www.cpf.gov.sg/Assets/common/Documents/InterestRate.pdf

You can wait for singapore to snow before it changes

I thought we were talking about SA here?

But anyway,

MINIMUM 4% INTEREST RATE FOR SPECIAL, MEDISAVE AND RETIREMENT ACCOUNT MONIES TO BE
EXTENDED UNTIL 31 DECEMBER 2017
CPF interest rates from 1 October 2016 to 31 December 2016
 Up to 3.5% per annum on the Ordinary Account
 Up to 5% per annum on the Special and Medisave Accounts
 CPF members aged 55 and above will earn an additional 1% extra interest on the first $30,000 of their
combined balances
HDB mortgage rate from 1 October 2016 to 31 December 2016
 Remains unchanged at 2.6% per annum

To help members cope with the transition, the Government had committed to providing a 4% floor rate for SMRA
interest for two years up to December 2009. This was subsequently extended in light of global economic conditions
and the fact that interest rates had been exceptionally low. The 4% floor rate is currently due to expire on 31
December 2016.

 

[BBCWatcher]

As BBCWatcher mentioned, it would be wise and prudent to diversify one's portfolio and hedge against contingencies instead of extracting temporary contentment based on a false sense of security.

Is "overinvesting" in (extremely safe) CPF a real problem, though? Does that problem even exist in the real world?

Compulsory contributions are compulsory. There's no use worrying about those. I'm pretty sure the majority of CPF members cannot afford voluntary contributions to CPF. Most children, nonworking adults, and retirees drawing down savings cannot afford voluntary CPF contributions.

Many CPF members who can afford voluntary contributions can only afford, say, $50/month. Should they be putting that $50/month in (for example) unit trusts with 3% loads and 2% annual management fees, to "diversify"? No, that makes no sense. Crap is crap. Diversification needs to be reasonable in the circumstances, and that wouldn't be reasonable. CPF risks are gossamer light, and 3% loads with 2% management fees are horrible.

Then there are wealthy CPF members. But they don't have a problem either, because CPF caps voluntary contributions. If you have a $50 million net worth and max out your CPF voluntary contributions (as you probably should!), you're not violating any best practices because of CPF when it comes to portfolio diversification.

If you're among that remaining small fraction of CPF members that can afford substantial savings but are not genuinely well-to-do -- younger workers with little accumulated savings but high incomes, typically -- then maybe there's a decision worth considering carefully. In my view that cohort should still grab at least the maximum CPF tax relief they can. That's well worth doing. Beyond that, if they can dollar cost average into a low cost, well diversified index fund or two, then they might consider doing some of that instead of some more CPF, above tax reliefs. But I don't think I'd criticize even that cohort for exceeding tax reliefs to run up their CPF balances (Medisave BHS, Special Account FRS) to establish a nice "bedrock," first. Maybe now is the time to do that if you're otherwise a globally value-oriented investor, when the U.S. dollar is relatively strong and U.S. financial markets are at/near all-time highs. Maybe now you accelerate the "bedrock" part of your financial plan (CPF) and position yourself for greater future dollar cost averaging into other assets. I can't find fault with that logic.

 

[koja6049]

They are talking about SA interest also.. that can be changed anytime as seen in the first post by TS

Anyway just because its the law doesnt mean it cant be changed either.. they just need to go through parliament to change it

like I said, can wait for singapore to snow before it will be lowered.

You can just look across the causeway how they did things. Their economy is so bad now but their EPF is still hovering at 5 - 6%

No government will risk a rebellion from the voters

 

[koja6049]

I thought we were talking about SA here?

But anyway,

SA is also subject to a floor rate of 2.5%. Same with MA. Where can you find a 2.5% interest rate in this kind of low interest climate?

 

[Maeda_Toshiie]

like I said, can wait for singapore to snow before it will be lowered.

You can just look across the causeway how they did things. Their economy is so bad now but their EPF is still hovering at 5 - 6%

No government will risk a rebellion from the voters

The Malaysian EPF does make decent returns from their investments (local and global), even if their economy tanks.