CPF SA Shielding hack - RIP (Obsolete)

[sohguanh]

OK, but since you're "double shielded" your RA will presumably be funded at $60,000 (or maybe a bit more) when you turn 55. That's not enough if you then want to make any withdrawals. You'll need substantially more than that in your RA to release all your other funds. It'll need to be at least the Basic Retirement Sum (with property pledge/charge).

Well if you're reasonably sure you're going to die before age 70 then you probably ought to inject as much cash as you possibly can into your RA. That's because it'll earn 4.0% interest (or more) until you die. Your heirs (CPF nominees) will then inherit all of it, including all that lovely interest.

My SA already meet FRS this year and assume I am gainfully employed should be able to meet FRS (as it increase every year) N years later at age 55. I am forced by law to give my nominees the RA monies if I die so why would I want to fund extra on top of what is mandated by law? For them to shiok with my hard earned monies? Maybe you will but not for me. My hard earned monies is to pamper myself not to pamper those who never work and get monies from me when I am dead

 

[dork32]

In the past it might've made sense for some people to "double shield," meaning they also shield their OA balances just before their 55th birthdays. That'd mean their new RA gets funded to $60,000 ($40,000 from SA, $20,000 from OA), and then they'd quickly make a large cash top up to RA to get it up at least to the Full Retirement Sum (and "liquify" their SA and OA but keep those dollars parked for a while). However, given that even ordinary 6 month T-bills are yielding more than OA it's probably not a great idea to shield OA any more. I suppose it depends on your interest rate forecast. You might forecast that OA's 2.5% floor rate will be attractive enough again fairly soon, and for some time. It's up to you, of course.

i really see no point of putting money into oa these days. if you have shielded, it will probably mean that your cpf contribution through employment will be less than 37k. you can do vc.

you can also do property refund.

 

[idwish]

Dont quite get the examples he gave.....Arent the additional amount from OA & SA can be withdrawn at 55 after meeting the BRS so why transfer to SA?

 

[sohguanh]

Dont quite get the examples he gave.....Arent the additional amount from OA & SA can be withdrawn at 55 after meeting the BRS so why transfer to SA?

SA earn 4% interest compounded yearly. So unless you can find better lobang outside of SA then after meeting BRS by all means withdraw out.

 

[dork32]

Dont quite get the examples he gave.....Arent the additional amount from OA & SA can be withdrawn at 55 after meeting the BRS so why transfer to SA?

you are right man, if you dont withdraw you oa and your sa at 55, our garmen will eat all that money away. transfer to sa for what? quick withdraw everything!!

 

[jywy2005]

Some people treat OA and SA as long term FD during the days when interest rates were low.

 

[V_for_Vanilla]

Keep fingers crossed on SA shield. Reported in Zaobao. Can't find any English reports.

https://www.zaobao.com.sg/realtime/singapore/story20221005-1319743

Question raised in parliament but not answered.

 

[vsvs24]

Question raised in parliament but not answered.

Replied in writing.

 

[V_for_Vanilla]

Replied in writing.

I meant the answer did not address the question. At least that's how the news report appears.

 

[reddevil0728]

Keep fingers crossed on SA shield. Reported in Zaobao. Can't find any English reports.

https://www.zaobao.com.sg/realtime/singapore/story20221005-1319743

Can explain the gist?

 

[reddevil0728]

Tan See Leng's written reply on 4 Oct to MP Melvin Yong's query about SA shield. Was asked how common is SA shield and if something will be done about it.

Replied that SA shielding has investment risk and charges and may lose some investment amount. CPF Board is monitoring and will take action when necessary. Says he knows people are doing it to keep more money in SA. 2% of members above 55 did SA shield last year.

Article briefly mention how SA shield works.

Thanks!

curious about their policy/political consideration when they allow this to happen in the first place.

if it’s indeed an undesirable loophole which they didn’t foresee, they would have plugged it way back

 

[Guojing88]

Actually I am beginning to think shielding is overrated, unless your only aim is to leave a large bequest.

Otherwise, you have to eventually draw down on your SA anyway.

Leaving a bigger sum in your OA, by not shielding, may even net you more interest in the long run, due to the way the draw down order is set.

 

[BBCWatcher]

Actually I am beginning to think shielding is overrated, unless your only aim is to leave a large bequest.

Otherwise, you have to eventually draw down on your SA anyway.

Leaving a bigger sum in your OA, by not shielding, may even net you more interest in the long run, due to the way the draw down order is set.

I’m not following you. “SA shielding” generates more interest as long as you leave at least some SA dollars in SA long enough to recoup the interest lost due to the shielding maneuver itself. That doesn’t take long. It also can sometimes allow injection of more overall dollars into CPF, and it allows you to withdraw from OA first (while the SA shield is raised).

 

[Okenba]

Thanks!

curious about their policy/political consideration when they allow this to happen in the first place.

if it’s indeed an undesirable loophole which they didn’t foresee, they would have plugged it way back

I doubt they will close it as they have already acknowledged that they are aware of the issue, but have not come out to say it is wrong or unintended.
Unless they are waiting for someone to screw up their shielding so they can use it as an excuse to shut it down altogether, but that seems unlikely.

On the flip side, shielding means gahmen funds are paying more to the rich (those with large SA), and the poor continue to lose out.

 

[celtosaxon]

I doubt they will close it as they have already acknowledged that they are aware of the issue, but have not come out to say it is wrong or unintended.
Unless they are waiting for someone to screw up their shielding so they can use it as an excuse to shut it down altogether, but that seems unlikely.

On the flip side, shielding means gahmen funds are paying more to the rich (those with large SA), and the poor continue to lose out.

Agreed. You’d have to eliminate CPFIS for SA to close this loophole, because CPFIS investors need the ability to hold on during a market downturn without a forced sale.

And since it can’t be eliminated, they should just allow CPF members to override the default RA funding sequence on amounts above $40,000. People can shield anyway, why not be user-friendly about it?

 

[Guojing88]

I’m not following you. “SA shielding” generates more interest as long as you leave at least some SA dollars in SA long enough to recoup the interest lost due to the shielding maneuver itself. That doesn’t take long. It also can sometimes allow injection of more overall dollars into CPF, and it allows you to withdraw from OA first (while the SA shield is raised).

I think it was St columnist tan oei boon that provided a numerical illustration.

I will provide that later


Read HWZ Forum Rules!

 

[reddevil0728]

I doubt they will close it as they have already acknowledged that they are aware of the issue, but have not come out to say it is wrong or unintended.
Unless they are waiting for someone to screw up their shielding so they can use it as an excuse to shut it down altogether, but that seems unlikely.

On the flip side, shielding means gahmen funds are paying more to the rich (those with large SA), and the poor continue to lose out.

Agreed. You’d have to eliminate CPFIS for SA to close this loophole, because CPFIS investors need the ability to hold on during a market downturn without a forced sale.

And since it can’t be eliminated, they should just allow CPF members to override the default RA funding sequence on amounts above $40,000. People can shield anyway, why not be user-friendly about it?

just curious why they allow it to happen in the first place

 

[celtosaxon]

just curious why they allow it to happen in the first place

Would you propose to keep CPFIS-SA and then at 55 force people to sell their investments (even in a down market) just to fund RA? Not practical.

So you either eliminate CPFIS for SA or increase the $40,000 to FRS… both policy changes would not go down well. Why not allow people to decide how they want to fund their RA, using OA, SA or cash. If you’re worried about the affluent milking SA, then cap it and let the excess spill over to OA.

 

[reddevil0728]

Would you propose to keep CPFIS-SA and then at 55 force people to sell their investments (even in a down market) just to fund RA? Not practical.

So you either eliminate CPFIS for SA or increase the $40,000 to FRS… both policy changes would not go down well. Why not allow people to decide how they want to fund their RA, using OA, SA or cash. If you’re worried about the affluent milking SA, then cap it and let the excess spill over to OA.

i mean they could have just did like u say fund RA with OA first.

 

[kehyi4]

Can explain the gist?

no need to gist, can see the full reply here:
Written Answer by Minister for Manpower to PQ on Special Account Shielding

Answer:

1. We are aware that some members invest their Special Account (SA) savings shortly before age 55 and liquidate it after age 55, to retain more CPF savings in their SA. In 2021, about 2% of CPF members turning 55 invested their SA monies under the CPF Investment Scheme-Special Account (CPFIS-SA) within six months before they turned age 55 and liquidated their investments within six months after they turned age 55. Some of them may have done so to prevent their SA monies from flowing into the Retirement Account at age 55.
2. We would like to reiterate to CPF members that the investment of SA monies comes with costs and investment risks – there are transaction fees involved and members may lose a portion of the amount invested. Financial advisers and insurance brokers who promote this practice without highlighting the costs and investment risks may be guilty of mis-selling, and should be reported to the Monetary Authority of Singapore.
3. We will continue to monitor this trend closely and take action if necessary.