There will be several changes to the CPF scheme starting from 1 January 2008. I’m not sure about you, but this somehow seems almost as complicated as the latest taxi fare hike scheme.

So, please correct me if I am wrong (and I might potentially be wrong), the interest rate for the current month Special, Medisave and Retirement Accounts (SMRA) is 1% + the 12-month average yield of the 10-year Singapore Government Security, which means that the interest every month will be different?

And if this falls below 4%, the government will give CPF members the 4% interest; and after 2 years, the SMRA will get 2.5% just like the Ordinary Account (OA).

An addition 1% will be paid for all accounts up to the first S$60,000 with a cap of S$20,000 on the OA. In addition, the required amount (RA) (something like a minimum balance) will be raised to S$14,000 from the current S$11,500, and gradually raising by S$2,500 each year until it reaches S$25,000 on 1 January 2013.

There are a few things that I would like to address here, starting from the interest rate for the OA and subsequently, the minimum requirement required to raise S$2,500 each year, which I think is much easier to calculate than the first issue.

What I am firstly concerned about is the cap on the OA. Working adults in Singapore know that the rate of growth of their OA is much faster than their SMRA because a larger percentage of their CPF contribution goes into the OA. With the cap on the OA, that means working adults will earn lesser interest on the whole because when their OA hits beyond S$20,000, they are only earning 2.5% for anything more than that. While their SMRA continues to earn 3.5%, the growth of the SMRA is much slower (statistics available from CPF website at; 66.67% of CPF contribution goes to OA, 14.49% goes to SA and 18.84% goes to MA).

There is no reason given for the S$20,000 OA cap.

This inevitably means that if you will be earning minimal interests for your CPF accounts since the only account that will be earning that 3.5% is your SMRA, which is already lower than what the CPF board is already giving. To add salt to the wound, you would not be able to invest any of the amount more than the S$20,000 cap if you do not already have S$40,000 in your SMRA.

To summarize the whole thing, in order to have S$60,000 in your CPF account, you would need to have earned S$173,913 in salary, assuming that the interest earned is negligible – and this will give you S$40,000 in your OA and S$20,000 in your SMRA. However, since you are earning 3.5% interest on your first S$20,000 of your OA and 3.5% for your SMRA up to the grand total (OA + SMRA) of S$60,000; and 2.5% for the remainder of your S$20,000 in your OA, your effective interest rate is

[(0.025 x 20,000) + (0.035 x 40,000)] / 60,000

= (500 + 1,400) / 60,000

= 0.03167

= 3.167% effective interest rate on the year that you hit the S$60,000 target

In addition, for CPF members who are interested in investing their CPF monies, and assuming that they earn about S$36,000 a year, this would take them approximately 5 years to hit this target, assuming that S$36,000 is a 5-year average.

There are also many other possible permutations of scenarios, which I will not be covering today. However, all I do know is that, if you are intending to buy a flat with your CPF monies, you can almost forget about investing your CPF money any more.

Singaporeans will continue to enjoy a 4-per-cent interest rate on their Special, Medisave and Retirement Accounts (SMRA) for the Jan 8 to March 8 quarter next year as several changes to the CPF scheme kick in from Jan 1.

In a statement yesterday, the Central Provident Fund Board said that savings in the SMRA would be pegged to the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1 per cent.

The average yield of the 10YSGS from Dec 1, 2006, to Nov 30, 2007, plus 1 per cent worked out to 3.9 per cent.

To help CPF members adjust to the floating SMRA rate, the Government will maintain the 4-per-cent floor rate for two years if the 10YSGS plus 1 per cent dips below 4 per cent.

However, after two years, the 2.5-per-cent floor rate will apply for all CPF accounts.

An additional 1 per cent interest will be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA).

The additional interest received on the OA will go into the members’ Special or Retirement Account to enhance his savings for old age.

CPF members turning 55 and who meet the Minimum Sum must set aside a required amount (RA) in their Medisave Account when they make a withdrawal.

From Jan 1, the RA will be raised to $14,000 from the current $11,500, increasing by $2,500 each year until it reaches $25,000 on Jan 1, 2013.

The changes will also affect the CPF Minimum Sum top up and investment schemes and housing withdrawal limits.

For details, log on to or call 1800-227 1188.

Article obtained from on 13th December 2007

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