There are four main changes to the CPF and financial help that the Singapore Government just announced recently. In short, they are
- Additional 1% interest rate for the CPF accounts;
- Deferment of Draw-Down Age of our Minimum Sum from age 62 to 65;
- Compulsory Longevity Insurance (Annuity) to provide income for life from age 85; and
- 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