Manpower minister rejects Workers’ Party’s proposal to alter CPF interest computation

SINGAPORE: Manpower Minister Tan See Leng asserted on Wednesday (Feb 7) that there will be no changes to the current computation method for Central Provident Fund (CPF) monthly interest payments after a Workers’ Party member raised concerns about potential interest loss for CPF members engaging in fund transactions for investments.

While acknowledging that the adjustments could result in slightly higher interest payments for those making CPF transactions, the minister said that all members already benefit from the existing system’s higher interest rates.

Currently, CPF contributions made in a month only begin earning interest the following month, while withdrawals and deductions made in a month do not accrue interest from that same month.

Sengkang GRC MP Louis Chua had proposed reconsidering the inclusion of CPF contributions made during the month in the monthly interest payment computation and pro-rating the interest payment based on the number of days an amount is held before withdrawal.

In response, Minister Tan emphasized that the current computation method should be considered in the context of the unique features of the CPF system that differ from bank deposits.

He highlighted the government’s commitment to maintaining the Ordinary Account (OA)’s 2.5% minimum interest and the 4% floor rate for the Special, Medisave, and Retirement Accounts (SMRA) despite a prolonged low-interest rate environment.

The minister also pointed out additional benefits for CPF members, including 1% extra interest on the first S$60,000 of combined CPF balances and an additional 1% for members aged 55 and above on the first S$30,000 of combined CPF balances.

Addressing concerns about potential interest loss for those investing in bank deposits, Mr Tan noted that premature withdrawal from fixed deposits could lead to forfeiting potential interest earned.

He added that the SMRA interest would have dropped to an average of 3.2 per cent if it was aligned with local banks without the 4 per cent floor rate on SMRA savings.

Stressing the sustainability of the current computation method over the longer term compared to investing in shorter-term, more volatile instruments, Mr Tan said:

“While changing the computation method can translate into some marginally higher CPF interest payments, the features that I’ve just laid out already provide our CPF members with much higher interest and a greater boost to their CPF savings.”

Mr Tan assured that the CPF Board regularly reviews interest computation to optimize returns for members and address geopolitical uncertainties.