Thursday, May 22, 2014

Queries on CPF minimum sum - Pledging your property

There has been much discussions on the comments section of my previous post: All about CPF minimum sum and CPF life. A reader named NV volunteered to write to CPF with regards to the issue on pledging your property. There was a concern that if you did not meet the minimum sum which is $155,000 from July 2014, then you may not be able to pledge your property to 50% of the MS and withdraw the balance. You can only pledge to make up for the shortfall. 

For example if you have $100,000 in your OA and SA, you can only pledge your property at $55,000 instead of 50% of the MS at $77,500. This is not true and has been verified by the email reply from CPF board below. 




This is the reply from reader NV on the email from CPF:

Hi SG Young Investment,

Received a reply from CPF today. 

Don't mean to sound preachy and windy here. But before going into the details of the reply from CPF, I would suggest readers get themselves updated from time to time as the rules may change and they will not want to be caught off guard at the worst time. If possible, look upon your CPF savings as an additional reserve to draw upon when you retire. Work hard, save, spend below means and get a second income. Understandably, it should be tougher for lower wage workers who will have proportionately more of their savings locked up in CPF and housing. 

From the reply from CPF, and as SG young investment has rightly pointed out in his article, you can apply to pledge your property bought with CPF funds in lieu of the CPF MS (with a limitl) and then apply to withdrawal for the pledged amount. Making this withdrawal will immediately reduce your RA balance and you will have less do draw on for CPF Life. Do think carefully if you really need to take out this amount of cash or leave it in RA to earn the 4% or 5% pa.

Below are the three case examples from CPF's email to me (in brackets are my personal notes). I have also just requested the CPF officer to let me know where I can find the relevant rules on CPF's website and also the CPF Act. If you are interested, it is probably in section 15 of the CPF Act which I have no time to look in detail.

In all the cases, assumed Medisave MS is met and the prevailing CPF MS is $155k. Also assumed that the amount available as property pledge is $100k, so way above 50% of the MS. 


Case 1

Before 55,
OA+SA = $100,000
 
At 55,
OA+SA = $5,000
RA = $95,000
 
Mr A can withdraw $5,000 from his Ordinary Account. Separately, he may also pledge his property to withdraw another $17,500 from his RA. (Property pledge $155k/2 or $77.5k minus MS shortfall topup $60k = $17.5k)
 

Case 2
 
Before 55,
OA+SA = $200,000
 
At 55,
OA+SA = $45,000
RA = $155,000
 
Mr B can withdraw $45,000 from his Ordinary/Special Account. Separately, he may also pledge his property to withdraw another $77,500 from his RA. (no MS shortfall, so can apply for property pledge and withdraw up to $77.5k)



Case 3
 
Before 55,
OA+SA = $60,000
 
At 55,
OA+SA = $5,000
RA = $55,000
 
Mr C can withdraw $5,000 from his Ordinary Account only. (Maximum auto property pledge of $77.5k + RA balance $55k = $132.5k. A MS Shortfall of $22.5k. But can withdraw max $5k under current rules)



What was my reply?

Hi NV,

You have good financial management concepts. Work hard, save, spend below your means is what I propose in my articles too. Its better to live a simple life and be happy. If you want, I'd welcome you to guest post on my blog. Just email me and we can share more :)


The reply from CPF is clear now. It goes to show we can't believe every article that is written out there. The whole CPF saga has generated much confusion. Some ask for higher interest rates but they may not know the implications of higher interest rates. Also, we can have the freedom to transfer money from our OA to SA earlier so we can enjoy the 4% interest instead of just 2.5%. The 1.5% interest will make a big difference over the years. Isn't this getting higher interest by using the system in our favour? .....

Thanks to reader NV for the contributions!   


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Related Posts:
1. All about CPF minimum sum and CPF life

36 comments:

  1. Just to verify if the 4% interest rate apply to SA with no limit.
    Thank you.

    ReplyDelete
    Replies
    1. That's WRONG.
      There is no ceiling for SA. When SA hits the MS, u cannot do transfer or topup but any excess CPF contribution will remain in SA...aka overflow.

      Delete
  2. So what happens if you die at age 80, have pledged your property for 77.5K for the min sum scheme and subsequently your beneficiary sold off the property you had pledged as collateral. How much will CPF claim or will they not claim back at all>

    ReplyDelete
    Replies
    1. Hi,

      I do not know what will happen after death. I do hope we do not have to return the money. There is no information on the CPF website on this information as well.

      Delete
    2. If u pledged 50% MS to your property, your monthly pension will be reduced, until u sell your property and pay back the MS. Else if you did not sell the pledged property till u die, no need pay back,

      Delete
    3. Actually the property pledge form seems to indicate that when you die, the cpf board gets to recover the pledged sum plus interest. Otherwise I think all of us will just pledge property.

      Delete
  3. Hi SG Young Investment,

    On the topic of property pledge in lieu of MS, I have received a reply from CPF regarding my query on the references which i can refer to in CPF's website and the CPF Act.

    Regarding the references made to the CPF website, there is no new information that we have not yet discussed so far. But i did write back to suggest that they can consider to update their booklet on "Reaching 55" to have some examples on the withdrawal of CPF funds with a property pledge. Probably it will clear some wrong perception that CPF.


    Below is CPF's reply :

    For more information on pledging, you may refer to http://mycpf.cpf.gov.sg/CPF/Templates/SubPage_Template.aspx?NRMODE=Published&NRORIGINALURL=%2fMembers%2fGen-Info%2fFAQ%2fMinimumSum%2ehtm&NRNODEGUID=%7b478CB45C-3BBD-4E0C-8C90-76EA8E8B78BB%7d&NRCACHEHINT=Guest#MssPropertyPledge

    The portion on the Central Provident Fund Act (Cap. 36) (“CPF Act”) can be found at Sections 15(11B)/15(11C) (whichever is applicable).

    http://statutes.agc.gov.sg/aol/search/display/view.w3p;ident=4b7ea822-d715-45a1-a593-29b8b8b449b7;page=0;query=DocId%3A%22f1b7803c-71dd-4732-b7f0-231fef8142ca%22%20Status%3Apublished%20Depth%3A0;rec=0#pr15-he-

    ReplyDelete
    Replies
    1. Hi NV,

      Thanks again. Actually our manpower minister wrote a post to clarify some of the confusion regarding cpf. You can refer to his post here: http://momsingapore.blogspot.sg/2014/05/the-truth-about-our-cpf-and-minimum-sum.html?m=1

      Delete
  4. Hi SG Young Investment,

    Yeah, I did read the article on that blog and it was helpful in some sense.

    Regarding property pledge in lieu of MS, I still hv some issue where he mentions "...only half of the Minimum Sum must be maintained in cash. The savings above that can be used for housing needs.." So to a layman, from this statement, it may appear that he can only withdraw cash for paying housing loan. Cannot withdraw towards other purposes? Ok, maybe he forgot to mention that.

    Personally, I think the issue on withdrawal of CPF monies with a property pledge in lieu of MS is either under-discussed in the CPF website or not properly communicated (ok, perhaps the readers did not understand what was said) . I spent quite a long time searching through most of the CPF website but could not find a clear statement or flowchart or example to address my doubts. Try googling and you get mixed comments without a clear reference to which page of the CPF website or CPF Act to back up their statements.

    ReplyDelete
    Replies
    1. Hi NV,

      I think he means if you pledge your house, you can either withdraw the pledged amount out in cash or leave it in cpf to pay for housing. This is what I understand from it.

      With regards to the property pledging info not clearly available on cpf website, I think the govt wants to discourage pledging of property if you have already met the MS so that people have enough to retire on.

      Delete
  5. Hi SG Young Investment,

    Yeah, I agree that property pledge should be last resort as it reduces amt available later for withdrawal. Unfortunately, most of cpf members hv their cpf savings channeled into housing. So they may well be likely to face a shortfall anyway.

    Well, with info not clearly available, I dun think the blame of misconception rests squarely on the public shoulders. Then again, is a double edged sword too...tendency for humans to go for easy solution (like property pledge) instead of looking further into the future.

    I am glad that you hv taken up financial planning seriously at a younger age, when a lot of people your age hv tendency to focus most of their efforts on career building. Am sure it will likely to do u more good later. Good luck.

    ReplyDelete
    Replies
    1. Hi NV,

      I can sense you got a passion for financial planning. Haha. The amount of effort you spent on researching about cpf shows it clearly.

      Most people I know spends every cent they earn. It is a problem and I hope to educate the masses on the importance of savings and investing. My parents were savers but they did not invest which resulted their savings diminishing due to inflation. The effects are real and we can't ignore it. Thanks for your encouragement. Good luck to you too. Let's keep in touch and you may guest post on my blog anytime ;)

      Delete
  6. Hi, wonder if these matters have been explored and resolved yet. If half of my minimum sum is from my HDB pledge, does that mean my CPF Life payout at 65 is only half that versus someone else that was based fully on cash? If not, does that means the Govt is financing me on my CPF life payout upfront till I transfer/sell or died. Wow, if everyone were to do that then where is the Govt going to get the money to finance that if most will live to 85 or longer? Sounds like a sweet deal but when everyone enjoys, someone must pay, right? What happened if my HDB lease (99 years) were to run out before I die? Then how? No value in my pledge, no ownership of flat, do I still get my CPF Life payout?
    What is the interest for cashing out to pay back based on? Can CPF be explicit upfront so that we can compute the cost ourself?

    ReplyDelete
    Replies
    1. Hi K3Y,

      Yes effectively if you pledge your property, you'll only get half the payout compared to another person who does not pledge property. The interest for cashing out I'm not sure what its based on. You'll have to check with cpf on that.

      Delete
  7. What if I plan to reverse mortgage fully paid hdb flat worth 400k, can I take withdraw cpf sa since reverse mortgage will buy cpf life?

    ReplyDelete
    Replies
    1. Hi,

      I'm sorry I can't answer your question as I've not read up on reverse mortgage yet. It'll be better to check with CPF directly.

      Delete
    2. reverse mortgage is not an Annuality...u still have to join CPF life. Only if you get an annuality with payout higher or equal to CPF life then exempted

      Delete
  8. hi,

    If we did not meet the minimum sum, our HDB flat will be auto pledged to meet the minimum sum. Does it mean that we will be homeless by the age of 55? I do not quite understand the situation of the auto pledged property and what will be the consequence.how about the ownership? can we opt out from the auto pledge? Please advise the above.

    Thanks a lots.

    ReplyDelete
    Replies
    1. Hi,

      Don't worry about being homeless. When your hdb is auto pledged, it only means that you'll have to return the amount pledged back to your cpf in the event you sell your house. The whole purpose is to make sure people have enough for retirement and not sell their house for profits and take it to spend on luxury items. If you did not sell your house, the auto pledge does not affect you. The ownership of the house will remain unchanged. It doesn't mean it is transferred to the government. There is no way to opt out of the auto pledge.

      Delete
    2. thanks do much for your reply. but how can we check how much the pledge amount is and when is the flat started to auto pledge? I am checking on behalf on my mum.she is turning 55 in coming Nov. she did not meet the minimum sum so i guess her flat will be auto pledges. btw she is still paying for her flat now.

      Delete
  9. Hi,

    I think by logging into your mum's cpf account, you'll be able to see how much cpf she has used for housing. Typically, the pledge amount is equal to the amount she used plus the interest over the years. If you can't find the info, then will have to check with CPF board themself.

    ReplyDelete
  10. Dear SGYI,
    Thanks for the useful article, really appreciate it much.
    1. Just wondering at what age we can choose to transfer our OA money to SA account?
    2. If we do so, can we use our SA money to buy our BTO?
    Thank you!

    ReplyDelete
    Replies
    1. Hi,

      You can start to transfer your OA money to SA anytime. SA monry cannot be used for BTO. It is strictly for retirement. Also, do take note that the transfer is irreversible.

      Delete
    2. Hi,

      You can start to transfer your OA money to SA anytime. SA monry cannot be used for BTO. It is strictly for retirement. Also, do take note that the transfer is irreversible.

      Delete
  11. If i pledge and has meet the MS and join the CPF life. if i want a full payout income 1200 monthly at age 65. what is the amount i must have inside my CPF at age 55? so the rest i can withdrew? what with my CPF investment? I need to sell all and put back into CPF than can take the money when i reach 55?

    if we retired at age 55 and no more fund go into CPF. We will still get payout at age 65 right? is it like a lock up fund of MS and CPF life?

    ReplyDelete
    Replies
    1. Hi Rui Lin,

      If you want a payout income of $1200 monthl at age 65, you'll need to have roughly $155000 in your cpf accounts. You can withdraw any amount that is above the basic retirement sum which is $80600 currently. For CPF investment, when you sell it, it'll go back into your cpf accounts. You can only withdraw the amount above the basic retirement sum.

      Yup, if we retired at 55 without any other contribution to the CPF, we'll still get payout at age 65 base on your amount at age 55. If we continue working, the of course we'll accumulate more and get more payouts also.

      I saw your email which you sent me too. Will reply in awhile.

      Delete
  12. Before 55,
    OA+SA = $60,000

    At 55,
    OA+SA = $5,000
    RA = $55,000

    Mr C can withdraw $5,000 from his Ordinary Account only. (Maximum auto property pledge of $77.5k + RA balance $55k = $132.5k. A MS Shortfall of $22.5k. But can withdraw max $5k under current rules)

    For the above case, since there is still a shortfall after the property pledge, will he/she be able to receive the yearly payout until 85? Or the payout will cease once there's no more in the cpf account?

    ReplyDelete
    Replies
    1. Hi emelyn,

      If he enrolls in CPF life, then the payout will be paid for life till the person pass away. If still under the old minimum sum scheme, then the payout is only for 20 years from payout eligible age. Hope this clarifies. Thanks!

      Delete
  13. Thanks for the clarification, my mum actually has only $17,500 in her RA account, she is 59 this year (born in 1957) so she has to option to continue staying under the min sum scheme or to opt into CPF Life. Would you advise then for her to opt into CPF life since she has so little in her RA account?

    ReplyDelete
    Replies
    1. Hi emelyn,

      If I'm not wrong, the monthly payment for cpf life is lesser than the old min sum scheme as cpf pays for life. I believe there's a cpf calculator which you can check the monthly payments of these 2 schemes to compare before deciding. If there's not much difference on the monthly payments, then its better to go for cpf life.

      Delete
  14. Dear SGYI,

    Very good information you have here. My question is -

    1. i have pledge my flat but i am not going to sell, so in CPF records i have let say for now is $80,500 on paper right?
    2. So, question is, will this $80,500 on paper be earning interest at all? Bearing in mind that i did not sell my property.

    Please let us know.

    Thanks.

    ReplyDelete
    Replies
    1. Hi,

      I suppose you're saying your CPF sum should be $161,000 and you pledge your flat to get $80,500 out and left $80,500 inside your CPF OA? Yes this amount will still be earning interest in your CPF OA account.

      Delete
    2. Hi SGYI,

      My actual situation is as below and i wish to find out before i decide whether should i sell my flat or to keep my flat till i die -

      1. OA = 500
      2. SA = 40000
      3. MA = 47000

      5-rm flat fully paid up (bought at 135k, market price now is 450k therabouts), P+I+Accrued Int = 240k

      i stopped contributing CPF as not working currently.

      So, should i sell and pay back the P+I+ACC Int so that this amount can be part of my MS (which obivously is insufficient)?

      Or, should i just let it auto pledge for half the MS?

      So, if i were to let it auto plegde, will i be getting the CASH drawdown at age 65? i emphasized on CASH is because there was no sales of flat and so no real money going back into the CPF for the pledge, or is the Gov providing the CASH upfront?

      Hope you can help, apologies if i am long winded.

      Thank you and Happy CNY!

      Delete
    3. Hi,

      For your CPF, the MS has been renamed to basic retirement sum, full retirement sum and enhanced retirement sum. The basic retirement sum is the minimum amount which you need to have before you can pledge your property. If you have less than the BRS, then you can't pledge your property at all. The BRS varies according to the age you reach 55 that year.

      Hope this helps.

      Delete
    4. SGYI,

      Thank you very much for clarifying. Appreciated much for your time.

      Delete