Investors must keep at least $30,000 in Special Account

The Straits Times - Feb 14, 2009
budget debate: CHANGES IN CPF

Investors must keep at least $30,000 in Special Account

PEOPLE with less than $30,000 in their Special Accounts (SA) will not be able to use these funds to invest under the Central Provident Fund Investment Scheme (CPFIS) from May 1.

Acting Manpower Minister Gan Kim Yong said this was being done because the SA receives an additional interest on its funds, and also because of the uncertainty around CPFIS returns.

'Given the higher interest rate on the SA and the uncertainty of CPFIS scheme, it is better to be more conservative,' he said yesterday.

The change will not affect existing investments.

Currently, all CPF members earn a flat floor rate of 4 per cent on their Special, Medisave and Retirement Accounts (SMRA).

But by the end of this year, interest rates of the SMRA accounts will be floated and pegged to the average yield of 10-year Singapore Government Securities rates.

They will earn the floating rate plus 1 percentage point.

CPF members earn higher interest on their first $60,000 of savings - 5 per cent on their Special, Medisave and Retirement accounts, and 3.5 per cent on up to $20,000 of their Ordinary Account.

Previously, CPF members had to keep a minimum of $20,000 each in their Ordinary and Special accounts before they could start to invest.

But with this change, they will need to keep a minimum of $30,000 in their Special Account and $20,000 in their Ordinary Account.

The excess funds can be invested in CPF-approved bonds, equity-linked funds, unit trusts and investment- linked insurance products.

Latest data from the CPF Board showed that investments in such products have not been paying off.

In December last year, the CPF Board said nearly half of all CPFIS investors who sold their Ordinary Account investments last year lost money, up from 43 per cent in 2007.

Only about 174,000 members, or 20 per cent made profits from their CPF savings over and above the 2.5 per cent they could have earned anyway.

These figures reflected the financial meltdown that began in September last year, the CPF board said at the time.

It said that CPF members had withdrawn $7.8 billion from their Special Accounts for investments.

Nearly 80 per cent of that figure, or $6.19 billion, went into insurance policies. About $1.61 billion went into unit trusts.

AARON LOW