PM Lee announced some changes to the CPF scheme during National Day Rally. Subsequently, Manpower Minister Ng Eng Hen divulged further details. I summarise the changes here:
- The interest rate for the Special, Medisave and Retirement accounts (SMRA) will not be fixed at 4% anymore. Starting from 1 Jan 2008, the rate will be pegged to an “appropriate long-term bond rate”. It has been suggested that the selected bond may be a Temasek Holdings-related bond.
- The SMRA rate may start off at below 4%, but Minister Ng assured us that in the long run, what we get may be above 4% per annum. It depends on the performance of the bond. [Update: the SMRA rate is guaranteed to be at least 4% for 2 years starting from 1 Jan 2008.]
- The first $20,000 in your Ordinary account will earn 3.5%. This is 1% more than the current 2.5%.
- Up to $60,000 in all the accounts combined will get an extra 1%. I interpret this to mean that if you have $10,000 in Ordinary, you will earn 1% extra on $50,000 in your SMRA accounts. I also assume that this 1% is risk free, i.e. it is guaranteed.
Let’s do some calculations. Ignoring the pegging to the long-term bond rate, the extra guaranteed 1% on a maximum of $60,000 translates to an extra $600 every year. Or $50 every month. In your CPF.
If the bond does well, we may get some more dollars every month. If not, ahem.