Tea with LS: Withdraw CPF MSTU and interest at 55?

Very well researched and put together. Hats off to LS who originally placed this in the comments section.
Hi AK,

I guess this withdrawal regarding top-up money and its interest is causing a lot of confusion. This is due to the frequent changes in CPF policies/withdrawal rules. What is making it worse is that some of our CPF officers are also not as well-versed and providing wrong information (anecdotes from my friends and some comments in forums. Please disregard this if its offensive to you) and also the CPF website is poorly designed with incomplete information all over the place. 

I had trawled through the website for more than 1 hour in order to post the information below. (Maybe I am just lousy at searching for information at the CPF website, lol)

Firstly, what is causing the confusion? It is because of this particular rule...

"After setting aside your Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge, you can choose to withdraw the remaining CPF balances (excluding top-up monies, government grants, and interest earned in your Retirement Account)"

https://www.cpf.gov.sg/Members//Faq/schemes/retirement/retirement-sum-scheme#faq17406

But in the same webpage, this is we can also see this;

"​Your Ordinary and Special Account savings after setting aside the applicable Full Retirement Sum (FRS) or Basic Retirement Sum (BRS) with sufficient property charge/pledge."

Does this means you can withdraw all remaining funds in OA/SA after you set aside the amount for FRS/BRS? Or will the first statement take priority and takes effect (resulting in unable to withdraw the top-up money and its interest) even after we set aside enough for FRS/BRS? This is what is causing the confusion.


After searching the CPF website for over an hour, I finally found this;

"If you had received top-ups before age 55, the top-ups and accrued interest in your Special Account (SA) will be transferred to your Retirement Account (RA) when you turn 55. Any excess, above the Full Retirement Sum applicable to you, can be withdrawn when you apply for withdrawal at age 55."

https://www.cpf.gov.sg/Members//Faq/schemes/retirement/retirement-sum-scheme#faq17406

What is interesting and yet confusing is this (also in the same webpage);

"In addition, top-up monies cannot be used to form part of the Basic Retirement Sum (BRS) in computing how much RA savings above their BRS that can be withdrawn through sufficient CPF property charge or pledge"

Which actually means that even if your BRS is $83,000, and you have $123,000 in your RA ($100,000 is from top-up and its interest), you will not be able to withdraw anything. That is due to after deducting your top-up money ($100,000) from your RA ($123,000), you got only $23,000 left which is less than the BRS ($83,000). You can read in detail of the example provide at the webpage.

So let us summarize :

1) If it is about FRS, you can withdraw all the remaining funds that exceeds the FRS amount,

2) if it is about BRS, the rule applies and you cannot withdraw the top-up money and its interest. You can only withdraw remaining funds if your RA still exceed BRS after deducting the top-up and its interest.

Sorry for the exceedingly long post but I hope it clears up the doubts.

P.S. actually I may be wasting my time here trying to clear things up since the withdrawal might change again 1-2 years down the road. I still have almost 2 decades before I hit the withdrawal age...
P.P.S hopefully this is useful for people who is near to the withdrawal age (55 years old)...

Related post:
Did CPF Top Ups but denied lump sum withdrawal?

Tea with LS: The Pros and Cons of topping up the CPF-SA.

LS left a very good comment on the CPF recently in my blog and I suggested that a guest blog could be next and here we have the maiden guest blog:

Just want to share with you some of my thoughts on the CPF cash top up to SA. Please note that we are talking about CPF cash top up, not transfer of OA to SA.

I know you have being recommending readers to do cash top up to SA early as this will greatly assist them in achieving their Minimum sum(MS) in the future. While this advice is mathematically sound, does it applies equally to all? Is there any cons involved in such a plan? Let’s us look at some of the pros and cons.

Pros

1) You can enjoy up to $7000 in tax relief per calendar year. The amount of tax relief you get is the amount you contribute to OA/SA, up to S$7000. How much saving do you get from this?  If you are earning more than $80k, the tax rate after the first $80k is 11.5%. Which mean you get a one-time saving of $805 from the $7000 top up. That is a very respectable amount for a one time saving fee. Average Singaporean will be earning between S$40-80k so the tax rate is only 7% which work out to be a one-time saving of $490. Still a decent amount. This clearly works better for the higher income earners but the lesser income earners do get quite a bit of saving too.

2) You get free 4% interest (not accounting in the additional 1% interest for first S$40k in SA) from the government. Who do not like free money from the government? Lol. Contributing S$7000 yearly into SA for the first 10 years and leave it to roll for another 15 years will nett you around S$87k in interest alone after 25 years. That is decent return with a contribution of S$70k of your own. S$87k free money after 25 years, risk free J

3) It can also act as a risk free bond portion in your overall portfolio. This will reduce the overall volatile in your portfolio since the SA will not be affected in times of a crash.

Cons

1) While SA is earning us an interest rate of 4%, there are also other options that is earning more than 4% though not risk free. STI ETF (stock code ES3) is having an average return of 8.55%(inclusion of dividends) since inception from April 2002. Rate of returns does matters especially over a long period of time.

2) Opportunities cost. While transferring S$7000 cash per year might means confirmed 4% compounding and one-time tax saving, you will also lose opportunities to invest in cheap bargains if they do come your way (example like OCBC at S$9 last year and Keppel at S$8 this year). We can always alleviate this 4% loss by putting our money in some high yield saving accounts like OCBC 360 account which earns 3.05% with some terms and condition. (Interest will soon be changed with more details yet to be announced) These high yield accounts provide lesser returns but with no lock up of funds until age of 55. Feel like a good alternative comparing to 4% return but no flexibility in withdrawing of funds at your convenient timing. 

3) Lastly, to enjoy the fruit of the accumulated SA, we have to wait until the draw down age which is 64 in 2015, 65 in 2018 (hopefully no more adjustment to a later age though I highly doubt it) or a portion of the fruits at the age of 55 if you have excess of MS. How you will enjoy your fruit of labour is through the policy of CPF Life. You will enjoy life long monthly pay out with the amount depending on how much you have accumulated and which plan you select. What is not widely known is that the monthly payment is not fixed and will be adjusted depending on the money left in the overall pool that everyone contributes in. The solvency of the fund could be affected by many factors. Mr. Wilfred Ling had sent a post to Straits Times and MOM replied. What we are given is just a verbal assurance that CPF Life scheme is designed to be sustainable. But if they are sure, why do they feel the need to include in the non-payment in the case of insolvency in the bill? Isn’t this like preparing a back door exit and they are not as sure as they want us to believed? So is contributing guaranteed cold hard cash of S$7000 into SA really risk free? Could that money be better used investing somewhere so it will still be available if something do happen to CPF or Singapore?

  

Above are just my thoughts and I am just another common man in the streets with limited knowledge. Read everything with a huge pinch of salt and disregard any portion that you find distasteful.

Also feel free to advise me if I am misguided :P

Thanks for sharing, LS. Appreciate it. :)

Related post:

Should I do a CPF OA to SA transfer?