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He did CPF top ups but is denied lump sum payment.

Wednesday, July 27, 2016

Reader:

Hi AK, I'm one of your readers.

With respect to the Retirement Sum Top Up Scheme, I checked with CPF and they mentioned that all funds made under this scheme cannot be withdrawn in lump sum. That is to say that all funds under this scheme and the associated interest earned will be ring-fenced into the RA upon reaching 55.

Neither can such funds be used to meet the FRS /BRS requirement.

If a person wants to withdraw lump sum upon reaching 55, he would need to have at least the BRS sum solely from his Mandatory contributions, then the amount over this sum can be considered for withdrawal as lump sum. (Assuming property pledge)


AK:

That is not what I understand.

When we discussed this with Christopher Tan from Providend who is on the CPF Advisory Committee, we were told that any amount above the FRS is available for withdrawal (except for money from MS Top Ups and the interest earned).


Reader:

Right, so the point here is that the funds from the MS TopUps are not allowed to be considered as part of the BRS or FRS.

My dad wanted to do a withdrawal but they told him that he needed to clear the BRS threshold and funds under the MS top ups are not considered in this regard.


AK:

It doesn't make sense because we are not allowed to have more than the ERS in our CPF-RA. If the MS Top Ups to SA is ring fenced for the CPF-RA, we could end up having much more in our CPF-RA.

This is especially if the person does this regularly and hits the FRS early on in life and continues to contribute to his CPF whether mandatory or voluntary.

If a person does MS Top Up to the max of $161K by 30 years old, for example, he would have $440K by 55 years old (at 4% p.a.) without any further mandatory or voluntary contribution.

If he must set aside a FRS from mandatory contributions alone by age 55, plus this $440K, it would be far higher than the prevailing ERS allowed at that time, I am willing to bet.

They allow MS Top Up to the prevailing MS (FRS) and nothing more. This stays in the CPF-RA. This makes sense.

But in addition to this, FRS must be from mandatory contributions only? That does not make sense.


Reader:

Thanks. But based on the letter which I received from CPF, it seems that they don't allow such withdrawals. My dad made significant topups under MS topup scheme but because his mandatory contributions are not much, they do not allow him any withdrawals, on the basis that the BRS needs to be from mandatory contributions.

He has more than $175k in his RA now but most of it is from MS Topups Do u think it makes a difference if the person is above 55 when they started doing their MS topups ?


AK:

When did he start doing the MS Top Ups?


Reader:

He started topups after age 55.


AK:

Mystery solved :)

The $40+K would have gone into his CPF-RA when he turned 55.

Then, his MS Top Ups after age 55 would go into the CPF-RA too.

It is all locked up for CPF Life.

If he had $175K when he turned 55, then, he would have been eligible for a lump sum withdrawal and the MS goes into his CPF-RA.


Reader:

Ok. Then that probably explains it.
In any case, I'll write in to CPF to confirm this point.



Source: CPF Allocation Rates

20 comments:

senorita said...

Hi AK,

I am following the email exchange you have with your reader but I am lost when you quoted the $40+K in your last paragraph. Mind clarifying how this figure came about?

Rgds,
Heartland Boy

AK71 said...

Hi HB,

Thanks for spotting this. I missed out one line from the reader:

"... within this 175k, he had 40+k from his Mandatory contributions."

Henry said...

Hi AK
I have met the FRS but has not reach 55. I tried doing transfer from OA to SA but was rejected because my SA already met FRS.

If I put in cash to top up:
1. If I do a cash top up, can I specify that amount to go to SA? I like to get the 4% interest.
2. If the above is not allowed, then I have to top up into OA, which means I only get 2.5% interest, is this correct?
3. Upon reaching 55, can I withdraw all the amount that is above the FRS?

Thanks for your advise in advance.

AK71 said...

Hi Henry,

If you have already hit the MS (FRS) in the CPF-SA, you won't be allowed to do OA to SA Transfer or MS Top Up to the SA.

You can still do Voluntary Contribution (VC) to your CPF account if your mandatory contributions from employment do not hit the contribution cap for the year. The money will go into your OA, SA and MA. If MA has hit the ceiling, only the OA and SA.

See:
CPF Annual Limit and VC.

Henry said...

Hi AK, thank you for your reply.

I don't have mandatory contribution because I am still unemployed. My SA and MA both hit limit. So I cannot do a Top Up but can do a VC? And the money can only go into OA right?

If I continue to be unemployed next year and beyond (touch wood), does it mean that I can do a Top Up to SA by then because a new and higher MS will kick in and will increase every year ?

P/S: Sorry I am a quite confused with the technicalities of the system.

AK71 said...

Hi Henry,

If you do not have any mandatory contribution by end of November, you can do a VC up to the annual contribution limit in the first half of December, giving them ample time for processing. The money will go into your OA and SA (even though you have hit the FRS in the SA).

You will earn a significant amount of interest on your CPF-SA savings which has hit the FRS. That alone would probably help you meet the new and higher MS every year.

cheryl2010 said...

Hi AK, I read this entry a few weeks ago, tried to make comment but maybe its my phone problem and wasnt able to comment.

Anyway, I felt quite worried when its written that the guy was denied lump sum payment? I have made 7k cash contribution for the past two years to my SA, and I understand from CPF (emailed before) that as long as the amount in OA+SA exceed the FRS I am able to withdraw the excees money regardless of the whether the exccess money is from the cash voluntary or the monthly salary contribution. Is that also your understanding?

E.g. assume I contribute 7k for 20 years from age 30 to 50, when I reach 55, this 140k has accumulated to 250k, and my monthly salary contribution is 200k. Assume the FRS is 200k (though should be much higher), I can withdraw 50k (250k - 200k cash voluntary contribution) +200k (monthly salary contribution) right?

Hope you could clarify.... Thanks

AK71 said...

Hi Cheryl,

You said:
"I am able to withdraw the excees money regardless of the whether the exccess money is from the cash voluntary or the monthly salary contribution."

This is correct. Mandatory and voluntary contributions are capped annually. Mandatory contributions are from work. Voluntary contributions are possible if your mandatory contributions do not hit the annual contribution cap. Mandatory plus voluntary contributions cannot be more than the annual contribution cap.

If you do MS Top Up to SA, that is for retirement funding. This is not the same as a voluntary contribution which will see the money going to OA, SA and MA (i.e. not just the SA). Together with interest earned, the money will go to your CPF-RA at age 55. This money cannot be withdrawn at age 55.

If your mandatory and voluntary contributions and the interest earned should exceed the FRS, you can withdraw all the excess at age 55.

The answer as to why the reader's father is not able to get a lump sum withdrawal is in the blog post. It doesn't apply to you. You might want to read the blog post again. ;)

AK71 said...

Hi Cheryl,

This blog post might be useful to you:
CPF OA to SA transfer or MS Top Up to SA?

cheryl2010 said...

Hi Ak, thanks for your reply.

I re-read the article and you said "When we discussed this with Christopher Tan from Providend who is on the CPF Advisory Committee, we were told that any amount above the FRS is available for withdrawal (except for money from MS Top Ups and the interest earned)."

Why did you say except for money from MS Top Ups? Isn't this cash voluntary contribution to SA?

Confused...

Anyway, you said the reader's father cannot withdraw because his father contribute when he was above 55?

AK71 said...

Hi Cheryl,

"MS Top Up to SA" is meant for retirement funding and will go to the CPF-RA eventually. Together with interest earned, it cannot be withdrawn in a lump sum. MS Top Up to the SA will enjoy tax benefit.

The term "Voluntary Contribution" refers to cash top up distributed to the OA, SA and MA (i.e. not only to the SA). There is no tax benefit for this. If the "mandatory contribution" (i.e. from earned income) has hit the annual limit, no "voluntary contribution" is allowed.

Both "MS Top Up to SA" and "Voluntary Contribution" are voluntary and can be confusing.

cheryl2010 said...

Sorry AK... I am more confused now..... the 7k which I have been doing is cash top up to SA..... which qualifies for tax deduction....so in my example:

E.g. assume I do cash top up 7k for 20 years from age 30 to 50, when I reach 55, this 140k has accumulated to 250k, and my monthly salary contribution is 200k. Assume the FRS is 200k (though should be much higher), I can withdraw 50k (250k cash top up - 200k) +200k (monthly salary contribution) total of 250k right?

Now I am worried I will not be able to withdraw the 7k which I have been topping up at age 5...

AK71 said...

Hi Cheryl,

You will not be able to withdraw the yearly $7K MS Top Up to SA and its interest earned at age 55. That money will go to your CPF-RA.

So, in your example, $250K will go to the CPF-RA but you will be able to withdraw the Mandatory Contributions (i.e. from earned income) and the interest earned at age 55.

cheryl2010 said...

Hi AK,

I emailed CPFBoard to verify what we have discussed and the officer said that the cashtopup can be withdrawn upon age 55 once it exceed FRS.

Dear Cheryl

Thank you for taking time to write to us on 17 August 2016.

The cash top-ups will be used to set aside the Full Retirement Sum of $200,000 at age 55.

Yes, you can withdraw the remaining cash top-ups of $50,000 as well as the contributions of $200,000.

For more information, please visit www.cpf.gov.sg. If you would like assistance, please call 1800 227 1188 from Monday to Friday, 8am to 5.30pm.

Yours sincerely

cid:image001.png@01D19577.8AD13BB0
Kirk Tan
Customer Service Executive
Customer Correspondence Unit
Central Provident Fund Board

NOTICE: This message may contain confidential and privileged information. Unless you are the intended addressee, any distribution, copying or disclosure of such information is strictly prohibited. Any views and opinions expressed in this message by CPF Board are not legal opinions. If you have received this message by mistake, please notify the sender immediately and delete all copies of this message from your computer. It is an offence under the Official Secrets Act (Cap 213) to communicate any information in this message to any unauthorised person.


-----Original Message-----

From: Cheryl Yap

Sent: Wednesday, 17 August, 2016 12:08 PM

To: CPF MEMBER (CPF)

Subject: Enquire on cash top up to special account




Hi cpf board officer,



I would like to enquire on cash top up to special account.



assume I do cash top up 7k for 20 years from age 30 to 50, when I reach 55, this 140k has accumulated to 250k, and my monthly salary contribution is 200k. Assume the FRS is 200k (though should be much higher), I can withdraw 50k (250k cash top up - 200k) +200k (monthly salary contribution) total of 250k right?

AK71 said...

Hi Cheryl,

This is certainly different from my understanding. Good news. Thanks for sharing. :)

You might want to save this email from CPFB just in case. ;)

cheryl2010 said...

Hi AK,

I believe you have a blogger guest by the name of Matthew on your page who is an expert in CPF. Are you able to check with him to confirm? I will keep the email definitely.

By the way, where did you get the impression that cash top up cannot be withdrawn at age 55?

Thanks

AK71 said...

Hi Cheryl,

Matthew? ETFs, not CPF. ;)

It is not an impression I got, I read it in CPF website before and so did many readers. And a few readers also shared emails they received from CPFB that MS Top Ups to the SA with the interest earned cannot be withdrawn at age 55. It is meant for retirement funding and will go to the CPF-RA.

So, the reply you got is quite unique. Make sure to save it. :)

Confused said...

Hi AK,

I'm confused. So can we withdraw the MS Top ups to SA when we exceed the FRS? If it can't be withdrawn, then may I know what's the point of topping up the SA? Is it only for tax relief? or am I missing something?

Need your guidance on this. Thanks!

Regards,
Confused

Confused said...

Hi AK,

I'm confused. So can we withdraw the MS top up to SA when we exceed the FRS? If we cannot withdraw it, then what's the purpose of topping up? Is it only for tax relief? or am I missing something?

Do you see it as a problem if you're not able to withdraw your topups?

Can you talk to yourself again? your guidance is very much appreciated.

Thanks,
Confused

AK71 said...

Hi Confused,

You might be interested in this blog post which was published more recently:

CPF only cares how much to take from our OA and SA.

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