CPF SA Shielding hack - RIP (Obsolete)

[BBCWatcher]

I am deciding if I should let CPF sweep my OA funds into creating my RA or try to keep the funds there for in my OA so that I can invest it. Any views?

Cash is more expensive than OA now and more flexible in the future.

what do you mean cash in more expensive?

Even 6 month T-bills are currently yielding >2.5%. OA only earns 2.5% interest.

In present and similar market conditions I'd use OA dollars to fund a Retirement Account. Even better: a spouse's OA dollars if your spouse is younger. Your OA dollars are at least liquid when you reach age 55. His/her OA dollars are not, so you and your spouse can effectively "unlock" those dollars by transferring them to your new RA. Then you can have whatever private arrangement you want to have with your spouse. For example, you can withdraw OA dollars (before your SA "shield" is lowered) and pay your spouse back, in cash.

 

[BBCWatcher]

Note that you can inject cash back into CPF in at least a few ways:

1. Top up your Retirement Account every time the ERS is raised. (A spouse or other qualified family member transferring OA dollars to your RA is usually a good idea, and vice versa.)
2. Voluntarily Contribute to your MediSave Account every time the balance falls below the Basic Healthcare Sum. (This VC is eligible for tax relief.)
3. Make an "all three account" Voluntary Contribution (VC3A). Your VC3A must fit within the CPF Annual Limit. If you are self-employed a VC3A is eligible for tax relief.
4. Repaying OA dollars used for housing and education, plus accrued interest.

Option #4 is the least attractive option in interest rate terms.

 

[celtosaxon]

Why need to shield OA?

You don’t need to shield anything you do not wish to. Personally, I would not bother for OA, but I will for SA.

 

[dork32]

Even 6 month T-bills are currently yielding >2.5%. OA only earns 2.5% interest.

In present and similar market conditions I'd use OA dollars to fund a Retirement Account. Even better: a spouse's OA dollars if your spouse is younger. Your OA dollars are at least liquid when you reach age 55. His/her OA dollars are not, so you and your spouse can effectively "unlock" those dollars by transferring them to your new RA. Then you can have whatever private arrangement you want to have with your spouse. For example, you can withdraw OA dollars (before your SA "shield" is lowered) and pay your spouse back, in cash.

of course, oa's 2.5% is not attactive now. it is foolish to go for that 2.5%. But is tbills going to stay so high forever. will it drop below2.5% again as it had been most of the time? if you use 300k in your oa for your ra, you may not be able to get all of it back into the oa if oa becomes attractive again.

if your investment alternative to oa is tbills, you could shield your oa and keep it intact. you can then use the oa to buy tbills. if tbills become unattractive, just leave it in the oa.

if your investment alternative requires cash, then forget about shielding. take your oa out to buy whatever investment you want.

 

[peacefulday]

Note that you can inject cash back into CPF in at least a few ways:

1. Top up your Retirement Account every time the ERS is raised. (A spouse or other qualified family member transferring OA dollars to your RA is usually a good idea, and vice versa.)
2. Voluntarily Contribute to your MediSave Account every time the balance falls below the Basic Healthcare Sum. (This VC is eligible for tax relief.)
3. Make an "all three account" Voluntary Contribution (VC3A). Your VC3A must fit within the CPF Annual Limit. If you are self-employed a VC3A is eligible for tax relief.
4. Repaying OA dollars used for housing and education, plus accrued interest.

Option #4 is the least attractive option in interest rate terms.

can a retiree consider himself as a 'self-employed' to do vc3a and get tax relief for his rental income?

 

[BBCWatcher]

can a retiree consider himself as a 'self-employed' to do vc3a and get tax relief for his rental income?

Such a person wouldn't be fully retired then. IRAS's definition of "self-employed" is available here.

 

[bigrooster]

Sharing my own SA shielding experience via FSMOne investing in Nikko AM Shenton Short Term Bond SGD fund :

21-Apr (Thu) Buy @1.57203
22-Apr (Fri) CPF-SA deducted

27-Apr (Wed) Sell @1.57332
29-Apr (Fri) CPF-SA credited

Take note that using FSMone, cutoff time is 3pm to be treated as same day order.

At the point of purchase or sale, the actual price is not known yet.

Eg if you buy or sell on Wed before 3pm, you only know the price of Mon. After 5pm on Wed, the Tue price is released. You will only know the price of your purchase or sale after 5pm on Thu.

This is why you can't control to say sell at a price to totally avoid capital loss.

I plan to use the purchase of Nikko AM Shenton Short Term Bond Fund (SGD) as part of my CPF SA shielding strategy.

The above fund price is only know on T+2. Assuming I issue the Buy order before 3pm on a business day (T). Price is determined at the end of T+2 and made known only on T+3. I would like to know on which day my CPFSA is deducted for the buy amount? Assuming T+1 is a business day, @kranjipioneer experience, the fund deduction is on T+1?

I am using either POEMS or DBS to place orders. Thanks.

 

[karakorum1999]

SA shielded already. Planning how much of OA to shield.
I suppose my question is really, should I top up RA to ERS using cash or OA?

Using OA to top up RA from FRS to ERS would allow the top-up to earn interest for that month, whereas cash top ups don’t. If that’s relevant/important for you…

 

[vsvs24]

Using OA to top up RA from FRS to ERS would allow the top-up to earn interest for that month, whereas cash top ups don’t. If that’s relevant/important for you…

How do they calculate interest for the month of transfer FROM OA to RA ?

 

[highsulphur]

How do they calculate interest for the month of transfer FROM OA to RA ?

No interest for both account for the transfered amount for the month of transfer since taking lowest balance for the month

 

[reddevil0728]

No interest for both account for the transfered amount for the month of transfer since taking lowest balance for the month

No eh… not exactly…


When will the top-ups received in my CPF Special/Retirement Account start to earn interest?
If you receive a cash top-up this month, it will start earning interest in the next month.
For CPF transfers of existing CPF savings, you will start earning interest in your account from this month. However, if the CPF savings are fresh injections, it will start earning interest in your account from the next month.

https://www.cpf.gov.sg/member/faq/g...ps-start-to-earn-interest-in-my-special-retir

 

[karakorum1999]

How do they calculate interest for the month of transfer FROM OA to RA ?

Interest given based on RA i.e. 4%.
This is what I got a few years ago, so can’t say if it applies currently (though my guess is yes).
But can take reference from those who transfers from OA to SA - do they earn SA interest for that month? If so, the same principle applies.
Also, if such transfers lose interest (i.e. no interest for that month for the funds transferred based on minimum balance) it would disincentivise such transfers (to SA or RA) for retirement planning (something CPF would likely avoid).

 

[BBCWatcher]

No interest for both account for the transfered amount for the month of transfer since taking lowest balance for the month

That's incorrect. Please read on...

Interest given based on RA i.e. 4%.

That's incorrect too but for a different reason. MA/SA/RA are currently earning 4.08%.

The CPF Board provides the answer here. When you transfer existing OA savings to SA or RA then you start earning SA/RA interest from the 1st day of the same month the transfer occurred. Here's an example:

January 31 (11:59 PM): OA balance is $89,000
February 12: you transfer $64,000 from OA to your RA.
February 29 (11:59 PM; it's a leap year this year): OA balance is $25,000.

Result: OA interest (2.5% p.a.) is earned on $89,000 for January and $25,000 for February. The $64,000 you transferred starts earning 4.08% p.a. (current rate) in your RA in February (the month of transfer).

I think the CPF Board worded their answer the way they did because it's possible to repay OA in February (or have some compulsory contribution dollars flowing into OA) then make a transfer to SA or RA. If you do that you won't start earning SA or RA interest on that particular money in February because those are fresh funds.

What I don't know is whether a transfer of existing funds from someone else's OA to your SA or RA starts earning SA/RA interest from the 1st day of the same month the transfer occurred. The CPF Board's answer seems open to that possibility, but I think it'd need someone to confirm from personal experience. I might be able to check that, but it won't be today.

 

[~sabaisabai~]

I plan to use the purchase of Nikko AM Shenton Short Term Bond Fund (SGD) as part of my CPF SA shielding strategy.

The above fund price is only know on T+2. Assuming I issue the Buy order before 3pm on a business day (T). Price is determined at the end of T+2 and made known only on T+3. I would like to know on which day my CPFSA is deducted for the buy amount? Assuming T+1 is a business day, @kranjipioneer experience, the fund deduction is on T+1?

I am using either POEMS or DBS to place orders. Thanks.

when you going to shield? this year?

 

[bigrooster]

Your birthday not at beginning or end of the month right ?

Beginning.

That's why the timing a bit tight.

 

[kickass22]

If can't make it in time and incur 2 mths interest loss, see if shielding by tbill is better.

Is it better to shield using T-Bill if birthday start or ending or the month?

 

[dork32]

Is it better to shield using T-Bill if birthday start or ending or the month?

if you are using the tbills, there is no difference provided you plan properly.

if you are using unit trust, birthdays on the 1st of the month may lose out

 

[BBCWatcher]

Is it better to shield using T-Bill if birthday start or ending or the month?

Maybe, maybe not. It depends on the T-bill rate you can get. When your 55th birthday falls near the “edge” of the calendar month (either edge) the cost of “shielding“ SA dollars using a bond unit trust might be 2 months of lost SA interest instead of 1. The cost of shielding using a 6 month T-bill is always 7 months of lost SA interest. (A few T-bills cost 8 months of lost SA interest. Don’t choose those!) So, is the T-bill rate high enough to earn the equivalent of 5 months of SA interest (the difference between 7 and 2)? That’s the basic question, and that’s just a math question that you need to compute.

Note that T-bills are issued in $1,000 face value increments, and they’re issued about every 2 weeks. So it’s difficult or impossible to sweep up all the SA dollars that can be shielded using T-bills alone. You will still probably want to use a bond unit trust to sweep up “stray” SA dollars even if you use T-bills for shielding and even if the unit trust-based method involves 2 months of SA interest loss for you.

Let’s try an example. Let’s suppose the SA interest rate is 4.08% p.a. (as now) and that you can buy a 6 month T-bill for $982. (That is, you pay $982 and get back $1,000 after 6 months — and with 7 months of lost SA interest.) Here’s the computation for 5 months of SA interest at 4.08% on $982:

$982 * (5/12) * 4.08% = $16.69

$16.69 is less than the $18 you get with the 6 month T-bill, so in this case the T-bill is the winner for someone with a birthday falling too close to the edge of the calendar month. (Although the bond unit trust can still be used to shield “stray” dollars.) Now let’s look at whether this same T-bill would be better than a bond unit trust for someone who only needs to lose 1 month of SA interest with bond unit trust-based shielding:

$982 * (6/12) * 4.08% = $20.03

And the answer is no. $20.03 (the lost SA interest minus 1 month of lost SA interest) is greater than $18 (the interest earned on the T-bill). And it’s not a tiny difference, so in this case you’re better off using the unit trust-based method even if the bond unit trust wobbles a bit in the few days you’re holding it.

It’s a little more complicated since the 4.08% SA rate in this example is above the floor rate and likely to change starting April 1, but that’s the basic idea.

 

[bigrooster]

If can't make it in time and incur 2 mths interest loss, see if shielding by tbill is better.

I am likely to use a mix of T-Bill and Nikko AM Shenton Short Term Bond Fund to do the shielding. I find using an Excel spreadsheet to play around with the variables (apportionment between T-bill and unit trust, expected T-bill cut-off yield, bond fund potential gain/loss, CPF SA interest rate) and mix helps.

Will likely do a partial shielding first using T-Bill 5-6 months before birthday; then do UT shielding 1 month before birthday to (1) test the turnaround time, starting with $1k minimum initial investment (for my platform), and (2) empty the remaining SA balance sans the $40k.

I tried contacting the banks and Philips Capital to ask about the turnaround times and debiting dates, but most of them are totally not helpful at all. The best way is to read Money Mind and then test it out ourselves.

 

[reddevil0728]

Tbh maybe should take a step back and assess whether it’s necessary to over complicate shielding?

yes the ideal situation is, you lose the least when shielding.

but how about taking a bit more of the broad brush approach and not over think it.

look at which approach is the easiest. Just be comfortable with the opportunity foregone.

because in the grand scheme of things, the benefit of shielding is going to outweigh the loses from the act of shielding