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No more 'shielding' of CPF soon?

Sunday, July 25, 2021

I found out that people were exploiting a loophole in the CPF system back in 2017 and at the time, some people told me it wasn't a loophole and that it was working as intended. 

I am referring to what is popularly known as "CPF Shielding" where members who have ample funds in their CPF OA drain their CPF SA funds just before turning 55 years old so that their CPF RA will be made up of money from their CPF OA instead. 

Shortly after turning 55, they will refund money to their CPF SA so that they will enjoy higher interest income from their CPF savings overall. 

This to me has always sounded like a loophole as the CPF is meant to help the masses and in particular poorer CPF members. 


This is why there is a limit on CPF annual contribution. 

This is why we cannot do CPF SA top ups once the prevailing FRS is hit. 

This is why upon turning 55 years old, the first 30K of our CPF savings enjoys additional 2% interest and the next 30K of our CPF savings enjoys additional 1% interest. 

This is to help members who have lower CPF savings with retirement funding.

The CPF system is not meant to make the rich richer. 

CPF members who are able to do "CPF Shielding" are those who are better off financially and they should not be overly reliant on the CPF to fund their retirement. 

I know many rich people who would like to park more money in their CPF accounts but they are not allowed to. 

Rightly so. 

Let the CPF system help those who need the help most. 


Unfortunately, very often, people who need the help most are the most stubborn.

They would resist the CPF system instead of making use of the system to help themselves. 


I said this in 2018 in reply to a reader's comment on "CPF Shielding" here: 

"The more people talk about this, the more people do this, the more this loophole could be plugged." 
AUGUST 17, 2018 AT 5:44 PM 

It seems that this is finally happening. 

"The days of exploiting loopholes in the national retirement scheme could be over soon, after the Central Provident Fund (CPF) Board posted a warning on its website. 

"In particular, it is taking aim at the act of "shielding", which is promoted by some financial advisers to circumvent the transfer of funds from members' Special Account (SA) to their Retirement Account when they hit 55." 


The last time I blogged about "CPF Shielding" was in December 2019. 


I still think that the CPF can be our best friend in our golden years but our best friend does not appreciate being exploited. ;) 



JC said...

The current rule should remain. It will be high handed for CPF to dictate how a person should be utilising his/her savings be it in the form of CPF Shielding or otherwise.

There are a lot of loopholes in the Sunday article. The "proper" way as mentioned is to transfer money from OA to SA account while young. For a start, how much does a young working adult has ? Secondly if my understanding is correct, most would use monies in the OA account to finance their HDB purchase amongst other possible investments eg. education etc...

For the the rest who are uninterested or ignorant (like myself) of the CPF rules blah blah blah, one may never really learn until a later point in life. Hey, its better late than never right.

Singapore is a Socialist Republic not a Communistic country. The days of bashing an idea thru and expound that one's theory/principal is right on how wealth should be equalize are over. If CPF thinks that its rules and principals are set right - have the confidence that CPF holders will see the light eventually. Unless even CPF itself does not believe what it has mentioned to be the truth and hence there is a need for a quick fix to plug the "truth".

For all that is mentioned that Singapore has a world class education blah blah blah, I still do not see the confidence the government or the government agencies having confidence in the people of Singapore.

So for once, have some faith in us to do the right thing and not because you say it is "right" and so it must be.

AK71 said...

Hi JC,

Well, you know what they say in the USA.

"Don't fight the FED."

Here, I think it is,

"Don't fight the CPF."

LOL. ;p

I did OA to SA transfer for the first 4 years of my working life and it helped a lot as it gave the magic of compounding more time and a bigger base to work with

I have blogged about this before, of course.

1. How to upsize $100K to $225K in 20 years?
2. $1 million in CPF by age 65?

Whether the "Shielding CPF" loophole gets plugged or not, time will tell. ;)

Newer readers might be interested in this blog:
Building a cornerstone in retirement funding with CPF.

AK71 said...

Some readers might also be interested in these blogs:

1. Use CPF-OA or cash to pay for HDB Flat?
"Ask yourself if you want more stability or are you ready to stomach more volatility..." - AK

2. Keep $20K in CPF-OA when taking HDB loan.
"I would keep enough in my OA for 12 to 24 months of mortgage payment (or any number of months that I think I might need to find work offering similar pay I had before)." - AK

SnOOpy168 said...

I did VC to all 3 account instead and forgo the tax-relief portion, which didn't help me much all these year. Helps to beef up my SA to cross ERS this year. :-)

For every $1000 of VC, the allocation for my age group will be

Ordinary Account $405.50
Special Account $310.80
Medisave Account $283.70 (this is full, so it will go to OA)

Try out the calculator here for the fun of it.

AK71 said...

Hi SnOOpy168,

If we do not have any taxable income, then, income tax relief becomes irrelevant for us.

I like that my voluntary CPF contributions will see a bigger percentage going to the CPF-SA too. :)

I blogged about this back in 2017 and, yes, it was pretty fun. :D

CPF-SA savings 10 years from now.

Siew Mun said...

Ak, 50-54 is the golden opportunity to VC3A. The effective interest is 2.96% assuming MA reached prevailing BHS at $63,000 for 2021

AK71 said...

Hi Siew Mun,

Absolutely and I intend to take full advantage of this.

The plan is still to do maximum voluntary contribution to my CPF account at least till I am 55 years old. :)

Verseun said...

Hi AK ,

Somewhat unrelated to the issue of CPF. Just to seek your opinion on this as its quite unusual for a ST writer to tout the shares of Sembcorp Marine , maybe its national service.


But from the looks of it

1) It is uncertain that Semcorp Marine can pivot successfully to renewables , also renewables are not as profitable and require vast amounts of capex.

2) Share price can always fall way below 8 cents ex rights

3) A Temasek backing does not mean a get out of jail free pass . But the idea that there is a Mandatory General Offer seems likely and a catalyst.

4) O&G has been trading under NAV for quite a few years now, NAV cannot be realized or used as an indicator. Cashflow has been persistently negative for this company and not sure the additional infusion will stem the flow with certainty.

AK71 said...

Hi Verseun,

The ST writer did say that he has been a SembMarine shareholder for many years and, so, he has a vested interest.

NAV as a valuation metric is only useful if we can be sure that the assets are as valuable as claimed and will remain so.

It seems to me that with the aim to pivot to renewables which will be materially different from what the business is today, some of SembMarine's assets today might not be as valuable in the future.

As for pricing the rights at 8 cents per share, to me, it is an illusion because at 2 for 1, it is basically the same as a 1 for 1 at 16 cents a rights share.

The previous 5 for 1 rights issue, priced at 20c each, was basically a 1 for 1 at $1.00 a rights share.

5 for 1 or 2 for 1 to create an impression of cheapness so that more will buy in? I wonder.

Just like for SIA, it could be many years before things improve for SembMarine even with Temasek's help.

2Q 2021 passive income: Rights issues.

laurence said...

"In particular, it is taking aim at the act of "shielding", which is promoted by some financial advisers to circumvent the transfer of funds from members' Special Account (SA) to their Retirement Account when they hit 55."

Oh my, could this be referring to AK?

AK71 said...

Hi Verseun,

I made a mistake on SembMarine's latest rights issue.

Should be 3 for 2 at 8c per rights share which is the same as saying 1 for 1 at 12c per rights share.

Doesn't change what I am trying to say but the numbers should be corrected. :)

AK71 said...

Hi Laurence,

AK is not a financial adviser but a hobbyist blogger.

So, pretty sure they are not talking about me. ;)

Anyway, if they were to go and read my past blogs, they would see that I did not encourage anyone to do CPF shielding.

In fact, I said more than once that it felt like a loophole and that I wouldn't be surprised if it should be plugged eventually but while the loophole existed, CPF shielding could be done.

Unknown said...

Hi AK, the article did not mention how CPF will stop "shielding" so far. Meaning it is still practically viable to continue until some regulations are added or amended. In the meaning time, what can people do with the "shielded SA" that is sitting in CPF SA account other than collecting interest? The money is still tied inside CPF and cannot be used.

Or is there a way to withdraw those "shielded SA" for use after 55yo or after 65yo?

AK71 said...

Hi Unknown,

The article shows that the CPFB knows what is going on and that they do not approve of it.

What are they going to do next if they do anything at all?

Time will tell. ;)

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