Unfair FRS and ERS' CPF LIFE payouts compared to BRS'?

Reader says...
Singapore government seems to be steering the country to be more inclusive.

What does that mean?

It means if you have a lot of money in CPF, it will be used to tilt the balance or contribution to the needy individuals who do not have enough in their CPF.

As in FRS CPF Life is NOT exactly twice payout from BRS CPF Life.






AK says...
Of course. People who have greater ability to help themselves should do so and not lean too much on the government for assistance.

Reader says...
Should do so? Based on?

Retirement planning for someone who painstakingly TOP up with CASH should NOT be used as handouts to others.

This should be done in the domain of income tax... or those with CPF way above FRS or ERS...

FRS and ERS are for the sandwich class.






AK says...
The top ups you are making to your CPF account are not being used as handouts to help others.

It remains your own money as any excess above the FRS, you are allowed to withdraw at age 55.

Your CPF money is not being given away if you have the FRS in your CPF account compared to members who only have the BRS.

You CPF money is simply paid a lower average interest rate in comparison.

Reader says...
It is NOT equitable.

Your statement of “Your CPF money is simply paid a lower average interest rate in comparison” doesn’t bode well for the middle income who works hard and TOP up cash periodically to secure a comfortable retirement life.

It should NOT at any away tweaked so as to achieve FAIRNESS.

This can be achieved via OTHER means/Policies.






What does AK have to say?

When we reach 55 years of age, we will enjoy 6% interest on the first $30K, 5% interest on the next $30K and 4% interest for the balance in our CPF-RA account.

So, it is true that members who have the BRS will get a higher interest rate on average compared to members who have the FRS or ERS.

It also means that although the FRS and ERS are 2x and 3x more compared to the BRS, the monthly payouts from CPF Life will not be 2x and 3x more than the BRS'.







Although some with the FRS or ERS might think of it as being unfair to them, remember that the extra interest is really a bonus given on top of the floor interest rate of 4%.

Also, although the government might be seen as giving more aid to members with less in their CPF savings, in actual fact, all members are being given the same extra interest on the first $60K in their CPF-RA.

I don't think anyone should be complaining.







As Singaporeans enjoy longer life expectancy today, CPF LIFE helps guard us against running out of money during a long retirement.

Find out how CPF LIFE ensures monthly payouts for life in this video.





Related posts:
1. CPF LIFE Payout Estimator.
2. Remove the CPF Annual Limit and...

Keep $20K in CPF OA when taking HDB loan. (Growing CPF SA after OA was wiped out by home purchase.)

Just as I was about to publish this blog, I saw the news hot from the oven.

"Flat buyers will have more flexibility in using their Central Provident Fund (CPF) money, the Housing Board said as it launched 5,101 flats for sale from Tuesday (Aug 28).

"Buyers can now keep up to $20,000 in their CPF Ordinary Accounts (OA) when they take a Housing Board loan. Before, they had to use all the funds in their OA first.

"The funds can be used for their monthly mortgage instalments in times of need and will improve retirement adequacy if left unutilised."

Source:
The Straits Times





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Reader says...
Thank you for sharing so freely.

As like many others, I feel inspired and in awe.

I hope to get some advice if possible.

I recently emptied by OA to purchase a flat (on hindsight not such a great move).

Since then OA has been accumulating till it's about 10k now.






I plan to sell in 5-6 years time (depending on market).

Should I already start to transfer all my OA to SA?

Will there be any repercussions upon selling my BTO in 5 years time?

I am sorry if some of these questions look abit directionless.

Never been good with numbers, learning the hard way now.






AK says...
5 to 6 years from now, if you are not at least 55 years old or if you would be 55 but do not have the FRS in your CPF, you would have to pay back the accrued interest on the CPF money you used to purchase this flat.

I don't give advice but I will talk to myself.






If I had a mortgage now, it would not be a good idea to transfer all the money in my OA to my SA because if things do go terribly wrong, the OA money would go some way to pay the monthly mortgage.

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).






Then, if I am certain I do not need the remaining OA money for any other purpose, I can consider transfering any balance to the SA.

Please remember that OA to SA transfer will not enjoy any income tax relief.

So, if income tax relief is important to you, you might want to do cash top ups to your SA instead.

Fresh funds from you will be required.






The first $7K of cash top up to the SA each year enjoys income tax relief.

Although OA to SA transfer does not enjoy income tax relief, it is financially less demanding as it is simply moving money that is already in your CPF account and not a demand for fresh funds.

Saving more in the SA is a long term plan to help fund our retirement but we should not do it without first considering our circumstances and what might go wrong.








You might want to read this:
Topping up our CPF savings can wait for some.