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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the Retirement Sum Top Up Scheme, I checked with CPF and they mentioned that all funds made under this scheme cannot be withdrawn in lump sum.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.
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| Source: CPF Allocation Rates |
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