Den of The Lion Investor

With regards to unit trusts, CPF monies can only be used to buy funds which are included under the CPF Investment Scheme (CPFIS). The number of funds that can be purchased with money in the Special Account (SA) is much fewer than the number of funds that can be bought using money from the Ordinary Account (OA).

These funds have to meet strict criteria set by the CPF Board to continue remaining in the CPFIS. One of these criteria is that their total expense ratio (TER) has to be lower than a certain stipulated amount.

The following funds have not met this criteria and will no longer be able to accept new CPF monies into the fund:

• LionGlobal Southeast Asia Fund
• Fidelity Asian Special Situations Fund (USD)
• Fidelity European Aggressive Fund (EUR)
• Fidelity South East Asia Fund (USD)
• Fidelity Taiwan Fund (USD)
• Fidelity FPS Global Growth Fund (USD)
• Fidelity Target 2020 Fund (SGD)
• Henderson Global Technology Fund
• Henderson Global Balanced Fund
• Henderson Pacific Dragon Fund
• Henderson European Fund
• Henderson European Property Securities Fund
• Henderson Japanese Equity Fund
• Henderson Global Property Equities Fund
• Henderson Asia-Pacific Property Equities Fund

If you are currently holding any of them with your CPF money, you can still continue to hold them. Just note that you won’t be able to buy more of them very soon.

If you have existing CPF-OA Regular Savings Plan (RSP) arrangements for the above mentioned funds, you might want to make sure they are terminated and select other funds which are still in the CPFIS instead.

Last Sunday, I saw an advertisement in the Sunday Times by the CPF board. Inside this CPF advertisement, the CPF board tells us that we can earn more interest by transferring funds from our Ordinary Account (OA) to the Special Account (SA).

It was mentioned that the SA earns an interest rate that is 1.5% higher than the OA.

Before you decide to do that, do bear in mind the following points:

1. The transfer is irreversible, so you won’t be able to tap the funds for housing and other purposes in the future.
2. Monies in the SA have limited investment options compared to those in the OA. Only selected unit trusts are available and you can’t invest in shares.
3. The OA is pegged to a weighted average of savings deposit and 1 year fixed deposit rates, subject to the CPF guaranteed floor rate of 2.5%..
4. In the past, the rate of SA is pegged to OA+1.5%. Now, the SA rate is pegged to the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus 1%. The average yield of the 10YSGS over one year, from 1 June 2007 to 31 May 2008, plus 1% works out to be 3.65%.
5. The Government will maintain the 4% floor rate for two years (from 1 Jan 08) if the 10YSGS yield plus 1% is below 4%. After two years, the 2.5% floor rate will apply.

What this means is that it is possible for SA to give less than 4% p.a. interest. Here’s the historical yield for the 10YSGS:

• 1998 - 4.48%
• 1999 - 4.56%
• 2000 - 4.09%
• 2001 - 3.97%
• 2002 - 2.55%
• 2003 - 3.75%
• 2004 - 2.58%
• 2005 - 3.21%
• 2006 - 3.05%
• 2007 - 2.68%
• 2008 - 3.17%

Based on the rates, you would have received 3.55%, 3.58% and 3.68% interest in years 2002, 2004 and 2007 respectively. That is just 1% higher than the 2.5% you would have earned in the OA.

Personally, if I have excess funds in the OA and I am many years from retirement, I would rather invest it than move it to the SA since there is a good chance the investment will return more than 3-5%.

On the other hand, a person who is very close to 55 and has excess funds in his or her OA (that he or she doesn’t intend to use) can consider the transfer option for a portion of the funds.

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Question for Lion Investor

Hi,

I like your blog. There is always a write up of the latest events happening in Singapore. As a Singaporean, it is very useful to be updated on all current issues. It provides a one-stop info centre.

Just wanted to check with you: about the current min. CPF sum requirement :
1) assuming I have less than the required min. cpf amt. at age 55
2) I sell my house at age 56 yrs.
3) Will the cpf auto deduct the min. cpf amt. from the sale proceeds?

Assuming:
1) I reach 55 yrs in 5 yrs time.
2) I used $250,000 CPF money to pay for my house, besides the cash portion. The house has been fully paid up.
3) I can sell the house at 1 million dollars.
4) I have $50,000 in OA, $40,000 in Special, $34,000 in medisave.

Appreciate your help on this so that I can plan when to sell my house.

Many thanks!

Elly

My Comments:

Hi Elly, assuming you continue to earn interest from the CPF board (at 2.5/4) and there are no further additions or withdrawals to your CPF accounts, you will have about a total of 144k in OA, SA and Medisave in 5 years time.

About 34k will be set aside in your Medisave as the Medisave Minimum Sum, with the balance 110k in your retirement account (RA).

The CPF minimum sum then will be about 120k, and you can pledge your property for half of this amount. This means you will withdraw 50k cash, keeping 60k cash in your RA. Your pledged property will make up for the other 60k of the CPF minimum sum.

If you sell your house at 56, 60k will need to be returned to the RA to make up for the property pledge. The amount to be refunded will increase due to the accumulated monthly interest on the pledged amount.

If you sell your house before you turn 55, you will need to refund 250k plus accrued interest to CPF. Then when you turn 55, 120k from your OA and SA will need to be set aside for your CPF minimum sum.

Since you will quite easily meet the CPF minimum sum requirement either way, getting a good price on your property might be a more important consideration for you in deciding when is the best time to sell it.

Hope this makes it clear for you.

The CPF board will be organising a talk to provide some tips for homebuyers on the selection of a home and the use of CPF monies for the financing of their home purchase. Details of the talk are as follows:

Programme Highlights:

(Registration starts from 9am)

09.30am - “Selecting A Suitable Home”
10.30am - Tea Break
11:00am -“Buying A Home with Your CPF”
12:00pm - Q&A
12.30pm - End

Date : 26 Jul 2008
Time : 9:00am to 12:30pm
Venue : 79 Robinson Road, Conference Room Basement 1,
Registration Period : 9 Jul 2008 - 23 Jul 2008
Registration Fee : S$10.00
Contact Information : events@cpf.gov.sg

You can register at this link.

The current CPF minimum sum of $99,600 will go up to $106,000 from 1st July this year. This is the amount of CPF monies that you have to set aside before you can withdraw the rest. Upon reaching 55, the minimum sum will be moved to your retirement account, and you will start getting a monthly payout of about $960 from age 64 for the next 20 years.

The Medisave minimum sum will also go up from $28,500 to $29,500 while the cap on the Medisave contribution ceiling will go up from $33,500 to $34,500.

There is also a phasing out of the 50% withdrawal rule for those who are unable to meet the CPF minimum sum. From 1st January 2013, CPF members must meet the CPF and Medisave Minimum Sums first before they can withdraw their remaining Ordinary Account and Special Account balances at age 55.

The complete press release with details of the changes can be found on this page of the CPF website.

Going ahead, you can expect the minimum sum amounts to be revised upwards every year to factor in inflation.

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