Strengthen Retirement Adequacy by Reforming the CPF
The CPF scheme plays an important role in securing Singaporeans' retirement needs. Any enhancement of these returns will benefit Singaporeans, particularly when inflation and interest rates are relatively high. There is a need to regularly review and refine CPF policies to ensure they function as effectively as possible in fulfilling their purpose.
Enable Co-Investing of CPF Savings with GIC
GIC Private Limited (GIC) has attained a 6.9 per cent return over the past 20 years. In contrast, CPF Special Account (SA) rates have remained at a floor rate of 4 per cent and Ordinary Account (OA) rates have been even lower. Excess returns above CPF interest rates, earned by GIC via investing CPF monies, through the issuance of special Singapore govt securities, should be shared with CPF account holders.
Higher returns are even more important when inflation is high. CPF interest rates have not made up for the rate of price increases, resulting in negative real returns. This has eroded our retirees’ purchasing power, who do not have inflation-adjusted wage adjustments, and this ultimately compromises their retirement adequacy.
CPF should give members the option to co-invest a portion of their CPF savings with GIC in a dynamic portfolio, to enjoy higher returns without incurring high management fees.
Introduce a Special Dividend from GIC Investments for CPF members
As GIC indirectly invests CPF funds, CPF members must be provided transparency on the nature and performance of their money. The government should notify CPF members of GIC’s annualised total and investor returns for not just the five, 10 and 20-year horizon, but also the one- and three-year horizon. This is consistent with the standard reporting practices of private sector asset managers, as well as other sovereign wealth funds with strong governance scores.
GIC should also report the 10-year moving average difference between the investment returns of GIC and the net interest payable on CPF member balances. A third of this difference, where positive, should be returned as a special dividend and paid into CPF members’ SAs.
Review the CPF OA Interest Rate Formula and Set a New Level
The CPF OA interest rate serves as an important benchmark rate for Singaporeans’ semi-liquid CPF savings. The current formula – which is tied to the three-month average rate of major local banks’ interest rates, subject to a 2.5 per cent minimum – has been in place since 1999 and has not kept up with significant changes to the global interest rate environment or local deposit offerings.
The formula for setting the CPF OA interest rate should be reviewed and set at a level that is more consistent with market realities. One possibility is to link OA rates instead to the Singapore Overnight Rate Average (SORA).
Permanently De-Link HDB Loan Rate from CPF OA Rate
Presently, the interest rate of HDB concessionary loans is set at 0.1 per cent above the CPF OA rate. This unnecessarily limits the freedom of CPF to increase OA rates, for fear of affecting those serving HDB loan mortgages.
The HDB concessionary loan rate should be de-linked from the CPF OA rate. It should instead be pegged at 0.1 per cent above the average three-month fixed deposit rate of the major local banks, with a floor of 2.6 per cent.