Latest Changes in Central Provident Fund (CPF)

There are four main changes to the CPF and fin­an­cial help that the Singa­pore Gov­ern­ment just announced recently. In short, they are

  1. Addi­tion­al 1% interest rate for the CPF accounts;
  2. Defer­ment of Draw-Down Age of our Min­im­um Sum from age 62 to 65;
  3. Com­puls­ory Longev­ity Insur­ance (Annu­ity) to provide income for life from age 85; and
  4. Re-employ­ment Legis­la­tion and High­er Work­fare Income Sup­ple­ment.

Addi­tion­al 1% interest rate for the CPF accounts

From 1 Jan 2008, the interest rate for the first $60,000 in our CPF accounts will be increased by 1%, with up to $20,000 from the Ordin­ary Account. The new interest rate for Ordin­ary Account will be based on the cur­rent rate of 2.5% where­as the interest rate for the Spe­cial, Retire­ment and Medis­ave Account (SMRA), will be pegged to 10-year Singa­pore Gov­ern­ment Secur­ity (10YSGS) , (cur­rently aver­aged around 3%) plus 1%. The table below sum­mar­izes the new interest rate.

Accounts Old Interest Rate New Interest Rate Rate for First $60,000 of CPF Com­bined Accounts Guar­an­teed Min­im­um Interest Rate
Ordin­ary Account 2.5% 2.5% Up to $20,000: 3.5%* 2.5%
Spe­cial, Retire­ment & Medis­ave Account 4% 10-year Singa­pore Gov­ern­ment Secur­ity + 1% Up to $60,000: 10-year Singa­pore Gov­ern­ment Secur­ity + 2% 4% for 2008 and 2009; 2.5% from 2010 onwards

*the extra interest will be cred­ited to SMRA account.

Take note that if the bond rate drop below 3%, the interest rate for the first $60,000 in the SMRA will be below 5% and the excess of $60,000 will be below 4%! It seems then that it is bet­ter to invest the excess of your SMRA money in either unit trust or Invest­ment-Linked Fund that can earn poten­tially around 6–8% per annum.

 

Defer­ment of Draw-Down Age of our Min­im­um Sum from age 62 to 65

The draw-down age of our Min­im­um Sum in the Retire­ment Account will increase from age 62 to 65 from year 2012 onwards pro­gress­ively.

One-off defer­ment Bonus of 3–5% of up to $30,000 of Retire­ment Account bal­ance will be giv­en to affected mem­bers from age 50 to 57 as at 31 Dec 07.

Vol­un­tary Bonus of 2% of up to $30,000 of Retire­ment Account bal­ance will be giv­en to mem­bers age 58 and above for each year of vol­un­tary defer­ment of draw­ing down the CPF Min­im­um Sum.

The sum­mary is shown in the table below.

Age as at 31 Dec 07 Draw-Down Age Max. One-off Defer­ment Bonus Vol­un­tary Defer­ment Bonus Max­im­um Total Bonus
63 62 N.A. 2% (max $600) $600
62 62 N.A. 2% (max $600 for 2 years) $1,200
58 to 61 62 N.A. 2% (max $600 for 3 years) $1,800
56 to 57 63 5% (max $1,500) 2% (max $600 for 2 years) $2,700
54 to 55 64 5% (max $1,500) 2% (max $600) $2,100
52 to 53 65 4% (max $1,200) N.A. $1,200
50 to 51 65 3% (max $900) N.A. $900

 

Com­puls­ory Longev­ity Insur­ance (Annu­ity) to provide income for life from age 85

Annu­ity for Singa­pore Cit­izens and Per­man­ent Res­id­ents aged 50 and below as at 31 Dec 07 is now com­puls­ory. This gov­ern­ment annu­ity is non-par­ti­cip­at­ing. The monthly pay­out will be fixed since it does not include any profit shar­ing. You will needto pur­chase the annu­ity at age 55 but can only start draw­ing the pay­out at age 85. There will be no refund of premi­um if you pass away before 85 since the Gov­ern­ment need­sthe Law of Large Num­bers from the CPF mem­bers to help each oth­er­on this scheme.

For the time being, two groups will be exemp­ted from this scheme– the chron­ic­ally ill mem­bers and those who have already bought their own annu­ity from private insurers that can provide income for life.The Gov­ern­ment is also open to the idea ofCPF mem­bers vol­un­tar­ily stretch their draw-down peri­od ofMin­im­um Sum from 20 years to 30 years.Further details will be released later. So, if you are cash-rich, you may wish to leave your CPF Min­im­um Sum with CPF Board as it will pay you for a fixed num­ber of years with a poten­tially high­er interest rate. You can then use cash to buy an annu­ity that will pay you an increas­ing monthly income at a much earli­er age for life. 4) The last change is the require­ment by law for­em­ploy­ers to offer re-employ­ment to work­ers reach­ing age 62, up till age 65, then to 67 eventually.The guidelines for the re-employ­ment law will be drawn up with­in the next 2 years.

 

Re-employ­ment Legis­la­tion and High­er Work­fare Income Sup­ple­ment

Work­fare Income Sup­ple­ment for work­ers above age 55 will increase from $100 to $150 per month.For those above60 years old, the monthly pay­out will increase from $100 to $200. The eli­gib­il­ity cri­ter­ia to qual­i­fy for the Work­fare Income Sup­ple­ment (WIS) pay­outs in cal­en­dar year 2008 are:

  • Be a Singa­pore Cit­izen
  • Be aged above 35 as of 1st Janu­ary 2008
  • Live in a prop­erty with Annu­al Value (AV) of $10,000 or less, based on the AV of your NRIC address as at 31st Decem­ber 2006
  • Earn an aver­age monthly income of up to $1,500
  • Have worked at least 3 months in a 6‑month peri­od or 6 months in Year 2007
  • Self-employed per­sons have to make Medis­ave con­tri­bu­tions for work done in Year 2007

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