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Know how to grow our CPF savings.

Monday, April 10, 2017


I think there are quite a few readers who are confused about the difference between contributing to their CPF account and topping up their CPF account. 

I understand their confusion. Once upon a time, I was confused too.




1. There is such a thing as the CPF annual contribution limit. Basically, our mandatory contribution (MC) and voluntary contribution (VC), if any, cannot exceed the annual contribution limit. 

See:
CPF Annual Limit and VC.

If we are working, chances are we are contributing to our CPF account. That is required by law. So, it is called mandatory contribution (MC).

If our MC does not hit the annual contribution limit, we can do VC to hit that limit.

VC can either be done purely to our CPF Medisave Account (MA) which then gives us income tax relief or it can be a regular VC which the CPF Board will apportion to our OA, SA and MA (or just the OA and SA if our MA has already hit the ceiling). A regular VC does not give us income tax relief.

For more information, see: 
Online contribution to MA.
and

VC to my CPF accounts.






2. There is also the option to top up our CPF Special Account (SA). Known as minimum sum top up (MSTU), this is not subjected to the annual contribution limit. 

The MSTU is instead limited by the prevailing minimum sum (MS) or what is now known as the full retirement sum (FRS). We get income tax relief for the first $7,000 of MSTU every year.

For more information, see:
MSTU and interest computation.

So, do you want to contribute to your CPF account or do you want to top up your CPF account? 


To the CPF Board, this is not simply a case of semantics.

18 comments:

Venkatesan said...

May be this will be useful to someone:
If you have hit BHS (Basic Healthcare Sum) which stands at 52k now, your contributions to MA (both mandatory and voluntary) will flow first to SA. If SA has also reached the SA-MS (Minimum Sum) - 166k - then MA will flow to OA. This applies also to interest earned in MA - which implies BHS is the max you can have in your MA. This is the reply I got when I queried them few months ago:

"Your Medisave balance will be built up from the contributions until it reaches the BHS, after which it will be automatically transferred to other CPF accounts to boost the monthly payouts in retirement.


Medisave contribution in excess of the current BHS of $52,000 will be transferred to your Special Account (SA), up to the Full Retirement Sum (FRS). If your SA has reached the FRS, your excess Medisave contribution will be transferred to your Ordinary Account (OA). "

AK71 said...

From my FB wall.

Lee Keh Yi:
"just a minor point: MSTU is no more. It's called RSTU now: Retirement Sum Topping-Up Scheme"

tech fan said...

Hi AK. Just want to thank you for the clear explanation on CPF with numbers and scenarios. That really helped me understand it better.

Just wanted to point out that CPF savings (as long it stays in the CPF accounts) is protected from creditors, including credit card companies, banks, etc even in bankruptcy.

This is important because people may sign personal guarantees for family members, relatives, friends without understanding the consequences.


AK71 said...

Hi TF,

The same goes to our HDB flat (if we are lucky enough to have one). That is a little known fact. :)

Spur said...

If you're >55, you can continue to do RSTU to your RA until it hits ERS. However any RSTU above the FRS doesn't qualify for tax deduction.

At 65, you don't need to use your entire RA for CPF Life. E.g. you can specify using up to your FRS for CPF Life. The rest of your RA just leave it untouched, and you can withdraw from it as & when you like.

This may be useful to those who like to use CPF as their high-yield bank. CPF may did-allow this in future if too many cash-rich oldies behave this way, but for time being is ok.

AK71 said...

Hi Spur,

Thanks for sharing this.

I think that the idea of using the CPF as a bank account is gaining traction amongst the seniors. At least, my parents think like that. ;p

kehyi said...

Spur said: "At 65, you don't need to use your entire RA for CPF Life. E.g. you can specify using up to your FRS for CPF Life. The rest of your RA just leave it untouched, and you can withdraw from it as & when you like."

Where did you see/read this? As far as i know, there is simply no way to withdraw "as & when you like" from RA. Any sum inside RA is committed to retirement payouts, whether under the old Minimum Sum Scheme monthly payouts, or the new CPF Life monthly payouts.

AK71 said...

Hi kehyi,

It is news to me too. When my mom checked with CPFB 2 years ago, she was told that top ups to her RA would not be eligible for any lump sum withdrawal but would contribute to higher monthly payouts when she decides to start receiving.

So, because they want to keep their money closer to them, my parents do VCs to their CPF OA and SA (having maxed out their MA). This way, they use their CPF accounts like a bank account. :)

Laurence N said...

Hi, AK,
I just spoke to the CPF call centre staff regarding leaving some money in my CPF SA at Age 55 and thereafter to enjoy the extra interests. Shockingly, this is not going to happen.
He said that at Age 55, the RA will be created from the money in the SA and then from the OA in that order of priority. After that, each and every subsequent cash withdrawal will be deducted first from the SA until it's empty and then from the OA.
What this means is if we want to make lump sum withdrawal from our OA at Age 55, we must first deplete the SA. And even if we do not make that lump sum withdrawal, most of our CPF money would be stuck in the OA rather than the SA. We are also not allowed to make any cash top up or transfer funds into the SA from Age 55.

AK71 said...

Hi Laurence,

What if we have much more in our SA than the prevailing FRS? ;)

Then, after moving the FRS from the SA to the RA, we would still have quite a bit of money in the SA earning higher interest. This is going to be my situation. I know this because my parents are in the same situation.

I think the CPF call centre staff you spoke to probably thinks that this is more the exception than the norm and it is probably the case. :)

After age 55, if we choose to do top ups, the money goes to our RA and not SA. This is correct.

However, we can still do VC to MA (if we have not hit the limit) and we can still do regular VC to OA, SA and MA. As we age, a bigger proportion of our VC will go to the SA and MA. If you remember, I shared the CPF allocation table recently. ;)

ruby said...

After reading Spur's comment. I am concern as I don't think it is correct. So I decide to email CPFB. This is what I wrote :
-------
1) Do I need to use your entire RA for CPF Life?
2) If no, is it correct to say that I can specify using up to my FRS for CPF Life. The rest of your RA just leave it untouched, and I can withdraw from it anytime?

CPFB replied :

CPF LIFE is mandatory for members who have at least $60,000 in their Retirement Account (RA) when they reach their payout eligibility age (PEA).
 
We will write to you about 1-2 months nearing your PEA of 65, to inform you on the different LIFE plans and the choice you will need to make. You can then choose to join LIFE at any time between age 65 till 70.
 
When you join LIFE, all your RA savings will be committed to the LIFE plan. You cannot choose or indicate the amount you wish to commit to the LIFE plan.
----------

So I think it is always better to confirm with the CPFB whatever you read from other sources else you might get a shock when you reach 65 years old and realized that your assumption is wrong.

Laurence N said...

AK,
Everything mentioned here onwards pertains to 55 (less than 1 year to D-Day) and beyond:
I have much more in OA than in SA. Upon transfer of the FRS, My OA will dwarf the SA. My plan was to deposit the Emergency Fund component into the SA to enjoy the 4% interest (this interest can be withdrawn anytime). On the other hand, I do not want my OA money taken hostage at 2.5% interest.
But in order to withdraw even 1 cent from my OA (to build up my passive income portfolio of blue chips and REITS/Trusts), I will be required to first deplete my SA. So, even though CPFB dangles the 4% (SA) interest rate, I think most retirees would not get to enjoy it as most would choose to withdraw their OA money. If CPF really wants to give us the 4% interest rate, they should let us withdraw from the OA while maintaining some funds in the SA.

MSAPersonalFinance said...

Hi AK71 & Tech Fan,

Is Insurance such as Life Insurance, Endowment Plan and Investment Plan are protected from creditors, including credit card companies, banks, etc even in bankruptcy or divorce as well?

AK71 said...

Hi ruby,

Thanks for sharing this. Information from primary sources is always better than from secondary sources. That is for sure! ;)

AK71 said...

Hi Laurence,

Ah, I see. You are turning 55. Congratulations! :)

I don't think we should say:
"If CPF really wants to give us the 4% interest rate, they should let us withdraw from the OA while maintaining some funds in the SA."

At 55, we are still getting 4% from money that used to be in the SA. The money has just moved into the RA.

In fact, we would be getting 4% to 6% for money in the RA at 55. That is more than what the SA was paying.

The CPF is meant to help us with retirement adequacy and in the current form, it is already doing its job.

If I were the government, I would stop CPF members from using their OA as a savings account to even enjoy the 2.5% interest once they turn 55. That is not the mandate of the CPF. ;p

AK71 said...

Hi MSA,

In bankruptcy, everything the bankrupt owned that could be liquidated to repay lenders will be liquidated. That includes all financial assets.

When it comes to divorce, it is about division of matrimonial assets or assets which were bought during the marriage only. So, if the insurance was bought during marriage, yes, it would be included.

AK71 said...

See:
Know the answer to this question and life will be better.

AK71 said...

Nat Lo:
Hi AK, between spouse, can i say if my hubby meet BRS, he can start transferring his surplus to my SA so it will take longer to meet FRS?
In another word, he can enjoy 7k min sum top up relief till we both meet FRS. is that right?

AK:
Alamak. bu yao hai wo. Please discuss this with your hubby. ;p
"only CPF savings above your FRS could be transferred to your spouse."
At 55, he could pledge the fully paid flat and transfer what is above the BRS. ;)

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