Workers’ Party MP Jamus Lim tackled higher interest rates recently, noting that this has been a global occurrence, and isn’t just happening in Singapore. It has meant that people have had to face higher mortgage bills, loan repayments, and other payables, on top of the higher prices of goods.
For savers, the Sengkang GRC Member of Parliament wrote in an Oct 7 Facebook post, the “situation could be better.”
“And of course, almost all of us are huge savers, because of forced saving via CPF,” noted Assoc Prof Lim, who teaches Economics at ESSEC Business School.
He pointed out that many saving vehicles now have higher deposit interest rates as well, which would help “offset soaring inflation.”
“Our national gross saving rate, at 44 percent, is among the highest in the world (since, for most workers, 37 percent of each paycheck is automatically saved),” Assoc Prof Lim added.
However, he noted that “CPF OA (Ordinary Account) interest rates have stubbornly remained at 2.5 percent (3.5 percent for the first $60K).
This is because the OA interest rate is based on the average of major local banks’ plain-vanilla deposit rates over the recent past (or a minimum of 2.5 percent, whichever is higher).
But our local banks have kept these deposit rates very low, in spite of inflation. This is also in spite of other interest rates having already climbed up significantly, accurately capturing the effects of inflation.”
Therefore, to help CPF account holders, particularly pensioners living fixed incomes, Assoc Prof Lim asked in Parliament if OA interest rates could be increased to pay more interest, which can be done “by pegging OA rates not only to the average of deposit, but also lending rates.”
However, he wrote that Manpower Minister Tan See Leng said in response that “this comparison cannot be made, since OA returns are guaranteed by the government.”
Assoc Prof Lim wrote, “But so are government securities, which are already paying more!”
Dr Tan had suggested as well that individuals who want to access higher rates move their holdings to other CPF accounts.
But Assoc Prof Lim wrote that “SAs (Special Accounts) cannot be used as freely, and RAs (Retirement Accounts) are not available for those under 55.”
Nevertheless, he expressed the hope that “in light of high inflation, there will be a reconsideration of the formula for calculating CPF rates. This will help all of us cope better with the higher cost of living.”
He also noted that “one objection to raising OA rates is that HDB mortgage loans are tied to this rate.
That’s a fair concern, but if OA rates rise in tandem, then higher returns on members’ excess savings will go toward offsetting the higher loan rates.”
/TISG
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