Although it has been repeatedly pointed out that Central Provident Fund (CPF) interest is not the same as investment income, the confusion persists at a recent protest (“CPF protest draws crowd”; last Sunday).

It is the legal distinction between a depositor and an investor that makes it clear what benefits accrue to each. Had it not been so, bank depositors can demand to partake in their banks’ profits. Banks borrow at 1 per cent but lend at 10 per cent, making huge profits. Have the depositors been short-changed? Shouldn’t the depositors also stage a protest?

Once this distinction is understood, it will be clear that the role of Temasek Holdings and GIC has no bearing on CPF interest rates.

Similarly, CPF members have no reason, much less right, to question how the Government applies its budgetary surplus.

The call by protest leaders for rates of more than 6 per cent is misguided, considering that the country’s prime rate is only 5.25 per cent. Interest rates are determined by market forces for the economy to function properly, smoothly and free from imbalances.

The higher interest rate paid by Malaysia’s Employees Provident Fund (EPF) actually reflects financial stress in the country. Since 1997, Malaysia has run up fiscal deficits that have made the country uncompetitive, with high inflation, unemployment, debt and a much depreciated currency. Last July, Fitch rating agency downgraded Malaysia’s sovereign outlook to “negative”, leading to yet higher borrowing costs or interest rates.

In short, we cannot have the higher interest rate regime of another country without also importing its economic ills.

The Minimum Sum must necessarily increase over the years as it is projected to meet future needs of longer working life and higher life expectancy, and to offset inflation.

Tan Yip Meng

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