Factors Used to Determine Guaranteed Interest Rate of 3.5% for Endowment Funds

Parliamentary Question by Mr Fadli Fawzi:

To ask the Prime Minister and Minister for Finance (a) how does the Government determine the guaranteed interest rate of 3.5% for Endowment Funds; (b) how frequently is this interest rate reviewed; and (c) how does this guaranteed interest rate differ from the fixed coupon rate of the Special Singapore Government Securities (SSGS) invested by non-Government Funds.  

Parliamentary Reply by Second Minister for Finance, Mr Jeffrey Siow:

Endowment Funds receive a guaranteed interest rate from the Government pegged to long-term bond returns, reflecting the Funds’ protected principal and perpetual investment horizon. The guaranteed interest rate is reviewed every two years, to ensure it remains appropriate while providing Fund administrators with near-term certainty of the annual interest returns.

In contrast, SSGS are issued with a fixed tenor. The interest rate for other non-Government Funds invested in SSGS is thus pegged to market instruments of comparable risk, such as Government securities, and of an equivalent duration to the tenor of the investment.