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Siow Nan
05 Jun 2019
E at NUS
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Tian Yufan
04 Jun 2019
Projects & Pricing Analyst at Pacific Life Re
The answer can be found here - https://www.mof.gov.sg/Policies/Our-Nations-Res...
In summary, the baseline interest rates are pegged to risk-free market instruments of comparable duration, about 10 years.for OA, and 30 years for SA accounts. This was done all the way back in 1999, where interest rates are higher compared to the current situation (Source: https://www.cpf.gov.sg/Assets/common/Documents/...). The rates are then guaranteed to protect CPF members from low interest rates.
My guess is the rates will only increase when interest rates around the world goes up, as we are still in a low interest rate environment. It is unlikely to increase anytime soon as a result, and i fear that it might even decrease if the government finds that maintaining the current interest rates is not sustainable. As a benchmark, 10 year govt bonds have yields hovering around 2.0%2.5%, while 30 year bonds are hovering around 2.5%3.0% (source: https://secure.sgs.gov.sg/fdanet/BondPricesAndY...), which means there is still a significant gap in interest rates compared to CPF interest rates.
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If cpf rates increase, it would mean our bank loan rates have risen significantly as well. Better to remain in a low interest rate environment unless we have tons of money in cpf.