Higher CPF rate of interest would assist resolve ‘inadequate retirement savings problem’ — Lee Hsien Yang agrees with Lam Keong Yeoh, ex-GIC chief economist
Former GIC chief economist Lam Keong Yeoh voiced his disagreement in a Facebook publish to an Aug 2 (Tuesday) speech in Parliament by Manpower Minister Tan See Leng concerning Central Provident Fund (CPF) rates of interest.
The minister stated that CPF members earn greater rates of interest on their financial savings than native banks and securities because the CPF Board locations a better emphasis on the long run.
Mr Lam expressed concern that the coverage concerning CPF rates of interest would “cause our current and future especially lower income pensioners considerable long term hardship from inadequate pensions that could have been quite easily avoided with a higher and more equitable CPF interest rate with which to grow their compulsory savings.”
He wrote that “CPF interest rates should be returns on very long term compulsory defined contribution pension contributions. They are effectively invested globally by GIC in long term assets yielding over 4% in real terms over global inflation or over 6% in nominal terms over 20 plus years. This is a fairly normal long term return for most decent big superannuation or pension funds. Well done GIC for building this valuable capability over the decades.”
Along with many others, Mr Lee Hsien Yang, the youthful brother of Prime Minister Lee Hsien Loong, shared the ex-GIC chief economist’s publish on Wednesday (Aug 3).
“I agree with Lam Keong. It is a very sensible suggestion. It would help to resolve the inadequate retirement savings problem that many Singaporeans face despite a very high savings rate during our working years.”
What Manpower Minister Tan See Leng stated
Mr Louis Chua (WP-Sengkang GRC) and Mr Henry Kwek (PAP-Kebun Baru) posed questions in Parliament about whether or not the CPF rate of interest paid on members’ funds will probably be elevated, given the current excessive inflation charge.
Mr Chua additionally requested if CPF Board would evaluate its rate of interest system, which is pegged to the rates of interest of DBS, OCBC and United Overseas Bank. These prime three banks within the nation just lately elevated their rates of interest.
Dr Tan stated that despite the excessive charge of inflation, there aren’t any plans in the meanwhile to boost rates of interest for CPF accounts.
He referred to as the rates of interest the federal government pays “generous”.
“We will continue to review CPF interest rates periodically. The interest rates on the Ordinary Account, Special Account, and MediSave Account are reviewed quarterly, while the interest rate on the Retirement Account is reviewed annually,” the minister added.
Mr Lam disagrees…
In his Facebook publish, the previous GIC economist identified that “only the SMRA (Special and MediSave, and Retirement Accounts) accounts enjoy a roughly 3% return, which is still over 3% below GICs long term nominal return of around 6.2%.”
And whereas CPF curiosity returns are assured, GIC returns are usually not, Mr Lam added that CPF contributors ought to have the proper to decide on between present CPF assured charges and precise long-term returns, since their contributions are obligatory and owned solely by them.
“With all due respect to the earnest Manpower Minister… no other modern pension fund in the world could get away with this discrepancy which means that pension savings over a 40 year working life compound at effectively several percentage points less than what pension funds are actually returning.”
He added that members’ ultimate pension “is only half what it could be if the actual returns were given to CPF holders” and that their “retirement adequacy can also often be severely compromised.”
“CPF members are thus incentivized and find yourself having to rely disproportionately on actual property investments in housing which, for the overwhelming majority of the inhabitants, may even finally find yourself as deprecating property because of HDB lease decay of their twilight years once they want it most.
Is this honest or sensible ? As coverage presently stands will it not trigger our present and future particularly decrease earnings pensioners appreciable long run hardship from insufficient pensions that would have been fairly simply prevented with the next and extra equitable CPF rate of interest with which to develop their obligatory financial savings?
Yet one other poorly designed and defended coverage for the extraordinary citizen badly in want of reform imho.”
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