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Why increase the CPF MS and not pay 5% interest for SA?

Saturday, September 12, 2015

A recent Q&A:

TKX:
One thing I have failed to understand about the cpf ms and rs.... It doesn't make sense that the government used inflation as a reason to increase the ms/rs because Sa interest rates, at 4%, is at least equal or usually beat inflation. Based on this school of thought, there is absolutely no grounds for the retirement sum can be adjusted upwards further right?


AK:
For all CPF members, they should want to make sure that their CPF-SA money continues to beat inflation. So, a 3% increase yearly in Minimum Sum (MS) requirement to take into consideration inflation makes sense for everyone.

The MS requirement must be at a level that will give CPF Life the ammunition to pay out more meaningful monthly income. So, unless the MS increases 3% per annum given current day assumption on inflationary pressures, inflation will make the CPF Life less relevant as time goes by.

The government is paying 4% interest on the money in our CPF-SA which is a good thing but without a 3% yearly increase in the MS requirement, would CPF members voluntarily set aside more money to be put into their CPF-RA at age 55? Would they consider the impact of their decision on their annuity that is CPF Life (which kicks in at age 65)? I wonder.



As an aside, I would like to share an exchange that took place on my FB wall on whether the government could pay a higher interest rate on our CPF-SA savings:




I believe CPF members already got a pretty good deal with an extra 1% interest for the first $60K in our CPF-OA and SA. 

Of course, for those age 55 and above, they will get another 1% on the first $30K now in their CPF-RA (without having to take on any risk).

Related posts:
1. Proposed changes to the CPF system.
2. Funding XX% of our retirement with CPF.

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