The CPF Board announced last Friday that the minimum floor rate of 4% in the Special, Medisave and Retirement Account (SMRA) will be extended by another year to the end of 2012.
Since 2008, the SMRA rates were supposed to be pegged to the 12-month average yield of the 10-year Singapore Government Securities (10YSGS) plus 1% subject to a floor rate of 2.5% per annum. However, the government had kept a floor rate of 4% till the end of 2009 in order to help people cope with the transition.
Subsequently, the government extended the 4% floor rate of the SMRA interest twice, once for 2010 and once for 2011.
So this time round will be the third extension.
Incidentally, the average yield of the 10YSGS plus 1%, from 1 September 2010 to 31 August 2011, works out to be 3.30%.
PAP won’t cutover till the new formula is showing closer to about 3.8%, otherwise there will be hell to pay politically. I see the low rates persisting at least until after the next GE in 2016. By then the next secular bull will begin and more scope for interest rates to rise.
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