CPF balances expected to increase with rising income and labour force participation

Singapore's Minister of Manpower, Josephine Teo, has affirmed: "Over time, we expect members’ CPF balances to increase with rising income and labour force participation."

This was in response to a Parliamentary question on CPF balances and interest rates raised by Dr Lim Wee Kiak, where she spoke on how the CPF system is designed to be progressive through limits on CPF contributions and differentiated interest rates.

Explaining the process, Minister Teo shared reinforced the monthly and annual limits on the amount of CPF contributions a member can make, with mandatory contributions capped at the salary ceiling of S$6,000 per month. Thus, the maximum amount of mandatory and voluntary contributions that a person can make in a calendar year is subject to the CPF annual limit, currently at S$37,740.

In line with this, CPF members with lower balances earn a higher effective interest rate than those with higher balances. Balances in the Ordinary Account earn 2.5% per annum, while those in the Special Account, Retirement Account, and MediSave Account earn 4% per annum. On top of this, since 2008, an Extra Interest of 1% is paid on the first S$60,000 of combined CPF balances.

Since 2016, CPF members aged 55 and above also receive an Additional Extra Interest of 1% on the first S$30,000 of their combined CPF balances. Hence, members aged 55 and above enjoy interest rates of up to 6% for the first $30,000, up to 5% for the next S$30,000 and up to 4% for balances above S$60,000.

Minister Teo noted that members’ balances can vary widely due to their unique circumstances, such as differences in age, employment, income, and withdrawals for retirement payouts and housing payments.

As such in 2018, for active CPF members turning 55, more than six in 10 had at least the Basic Retirement Sum (BRS) of $85,500 in their Ordinary and Special Accounts.