MONEY IN CPF ACCOUNTS

MONEY IN CPF ACCOUNTS

3.

Mr Steve Chia Kiah Hong asked the Acting Minister for Manpower (a) what is the total amount of (i) CPF money loaned to the Government over the last two years (2002 and 2003) and (ii) interest earned from such loans; and (b) how much interest was paid into each CPF member's Ordinary Account at the prevailing interest rate of 2.5%.

Dr Ng Eng Hen: The CPF Board does not loan money to the Government as implied by Mr Chia's question. Instead members' savings are invested mainly in risk-free Singapore Government bonds* issued specifically to the Board to meet its interest and other obligations.

The Board's interest rate for the Ordinary Account is computed based on a weightage of 80% on the 12-month fixed deposit rate and 20% on the savings rate of the major local banks, and is reviewed quarterly. Based on this computation, the prevailing rate should have been between 0.59% and 2.16% since July 1999, but the Government guarantees CPF members a minimum interest rate of 2.5% per annum, even if the market rate should fall below this level.

For the Special and Medisave Accounts, the interest paid to members is computed on the OA rate plus 1.5%. A 4% interest rate has been paid on the SA since July 1999 and on the MA since October 2001

because of the minimum interest rate paid on the OA. By comparison, the yield on 10-year Singapore Government Securities since July 1999 has ranged from 1.79% to 5.01%. The yield has been below 4% since January 2001, except for the last quarter of 2003 when the rate briefly went as high as 4.09%.: *

In 2002, $1.28 billion of interest was paid to the Ordinary Account of members.

• The Special Singapore Government Bonds are floating rate bonds with interest rates pegged to the same interest rates that the Board pays to members on their balances. They do not have quoted market values.

** MA rate was only pegged to SA rate from October 2001. Before October 2001, MA rate was pegged to OA rate.

*** As at 14th May 2004, the yield on 10-year SGS was 3.48%.