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"E-book" by AK

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Extra 1% interest for CPF savings and MSTU.

Thursday, December 3, 2015

The following is contributed by a reader:
The CPF Board's response is appended below. I've edited the questions and part of the response to mask personal information hence, the flow of CPFB's reply may not make sense but I trust that the key points of interest are in there. Feel free to reproduce it:
Question: How would the extra 1% interest earned on OA + SMRA be earned? 
The extra 1% interest per year is currently paid on the first $60,000 of a member’s combined CPF balances.
The priority of the accounts that make up the $60,000 is as follows: 
1. Retirement Account (RA), including balances used to pay for the annuity premium under CPF LIFE
2. Ordinary Account (OA), up to $20,000
3. Special Account (SA)
4. Medisave Account (MA)
In general, CPF interest is computed monthly, and will be credited and compounded to your respective accounts yearly.
Any excess of the FRS will remain in the OA/SA which the member can apply to withdraw.  
There are no restrictions on when a member, age 55 and above, can make the withdrawals throughout the year. Now, they can apply for withdrawal at any time as long as they have the withdrawable monies and the Board will assess their applications.

Question: Assuming FRS of $X and MSTU of $(X + Y) including interests. At age 55, can $Y be withdrawn? 
No, the top-up monies of $Y cannot be withdrawn as these are meant for recipient’s retirement needs. Hence, the member cannot apply to withdraw the top-up monies:
(a) for payment of education, investments, insurance, housing, etc;
(b) by pledging his property in lieu of the Full FRS; and
(c) via exemption from the Retirement Sum Scheme.
Related posts:


Eddy T. said...

Hi AK!

I'm a silent reader of ur blog but this topic is just too disturbing as part of my plan is to top up to MS as soon as possible w/ $7,000 every year to maximize tax relief when I start working. Oh man... I'm still kinda confused.

So does it mean for example at age 55,
Assuming $161,000 FRS,
CPF Total OA+SA Balance $250,000 consists of:
[200,000 (employment + Int contribution) & 50,000 (MS Top-up + Int before 55)]

1) I can only withdraw $39,000 and the rest of $211,000 ($161,000 + $50,000) is to move to RA


2) I can withdraw $89,000 and the rest of $161,000 is to move to RA

I really liked our pension system but it's really getting a bit too confusing and somemore their ang moh a bit chim for me. Hope anyone can decipher the reply of CPFB for me. Hahas paiseh.

Cheryl said...

Hi Eddy it would be scenario 2). I have emailed CPFB before and they have confirmed that. I think CPFB should provide more clarity so that more Singaporeans will welcome this awesome scheme.

AK71 said...

Hi Eddy,

Well, to be quite honest, this debate doesn't really bother me because our mandatory contributions and any OA to SA transfer that is above the prevailing Minimum Sum (now called the Full Retirement Sum) can be withdrawn.

If we were to do MS Top Ups to the SA up to $7K a year and let us say this sum and the interest earned should be retained and transferred to the RA at age 55, if this sum meets or exceeds the FRS at that point in time, all the mandatory contributions and interest earned on those contributions (plus any OA to SA transfer plus the interest earned) could be withdrawn.

See my point? ;)

AK71 said...

Hi Cheryl,

Thanks for sharing your findings with us here. :)

Eddy T. said...

Heys Cheryl and AK,

I see!! Well it clears up some of my doubts now at least. Thks!!

Hahas I guess this issue is more psychological than economical for me.

Doing MS top up is like putting into a bond or FD that reinvests the 4% (hopefully even after decades) interest back in every year. I hope to be able to tap into the funds anytime I want in my own "Savings Account" (aka CPF after 55, even if most probably I won't withdraw them out at 55 to earn more int), rather than locking all initial MS contributions of (using eg above) $50000 into CPF Life and awaiting pocket money.

Yes, we do get it eventually but having that sum there with the freedom to withdraw is still more assuring. Hahas. Really appreciate your assistance(s) to clarify on this matter.

P.S. Pls continue to do good and spread financial literacy. I nag my friends about it and it's really difficult. I'll just be lazy and refer them to ur blog and other bloggers as well! Cheers!! =)

Eddie said...

Hi AK,

Let me introduce a 3rd scenario. Suppose that the MSTU component alone (including accrued interest) is 150K at age 55, which is somewhere between the BRS and the FRS (161K).

Would this also mean that even if I have met the BRS requirement (80.5K), I can't withdraw any part of the MSTU contributions above the BRS level of 80.5k, since according to the CPF website, it seems to suggest that the MSTU contributions cannot be replaced by pledging my property in lieu of the FRS.

So for those of us who are diligently contributing to the MSTU year after year, we are basically forced to choose the FRS option.

I'm asking because my original strategy was to contribute only enough MSTU to qualify for the BRS level, and then withdraw all my mandatory OA+SA contributions at age 55.

But it seems now that this strategy isn't going to work and that i would have to have sufficient amount for the Full Retirement Sum.

Hoping you can shed some light on this.


AK71 said...

Hi Eddie,

You do have a valid concern there. In your case, you might want to control your MSTU so that it does not exceed the BRS level at any time. Sounds logical?

Melvir S said...

Hi Ak,

Your reply to Eddy is what I too mentioned in a comment a few post back. It does make sense but has anyone clarified that with CPF before?

If so, it'll certainly make sense to continue contributing the 7k every year.

A better alternative would be if that excess $89000 that Eddy pointed out could be left in the RA and the interest withdrawn every year at 4% for complete risk free investment.

AK71 said...

Hi Melvir,

What I plan on doing at age 55 is not to make any withdrawal from my CPF savings unless I could find risk free and volatility free investments which would pay me more than 2.5% per annum.

The RA will earn 4% to 6% per annum and compound for 10 years to give us a monthly income for life from age 65. I believe that the monthly payment from CPF Life actually gives us more than 4% per annum. ;)

Melvir S said...

Hi AK,

What about if you exceed even the enhanced MS when you turn 55? Would CPF allow those funds to stay there and earn 4% and the interest be withdrawn?

Haven't really checked up on that. But I suppose gets more confusing adding in the portion of top ups and their compounded interests not being allowed to be drawn on.

AK71 said...

Hi Melvir,

I don't think I should answer the question on CPF Board's behalf. It is certainly a question that many have not and will never think of. ;)

I believe that if we are fully confident that the CPF system will not go kaput and if we believe in having an investment grade sovereign bond and an annuity to help fund our retirement at age 55 and from age 65, this question is really academic.

If MS Top Ups and its accrued interest must stay in the RA to fund our retirement via CPF Life from age 65, to me, that is not a bad thing. I would still get to withdraw any mandatory contributions, voluntary contributions and OA to SA transfers plus the accrued interests at age 55 in excess of the MS. :)

Koala said...

Hi all,

Does it mean that even if we do voluntary contributions and as long as we hit the FRS of $161,000 (for example), we can withdraw anything above the sum of $161,000 which includes portions of the voluntary contributions and accrued interests?

This is sooo confusing haha even after visiting the CPF website for the x number of times I haven't became extremely clear about it! Thanks in advance for the help :)

AK71 said...

Hi Koala,

At age 55, we will be able to withdraw all money in excess of the prevailing FRS. What is transferred to the CPF RA could be made up of mandatory contributions, voluntary contributions, minimum sum top ups to the SA and also the interest earned or in some combination.

AK71 said...

Did you know?

1. From 1 Oct 2001, the Medisave, Special and Retirement Accounts earned additional interest of 1.5% points above the CPF interest rate paid for Ordinary Account.

2. From 1 January 2008, an extra 1% interest is paid on the first $60,000 of a member's combined balances, of which up to $20,000 comes from Ordinary Account.

3. From 1 January 2016, for CPF members aged 55 and above, an additional extra 1% interest is paid on the first $30,000 of a member's combined balances, of which up to $20,000 comes from Ordinary Account.

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