CPF SA Shielding hack - RIP (Obsolete)

[henrylbh]

I think ppl are more upset at the removal of their CPF bank account (anytime withdrawal) that earns 4%pa that they assumed would last forever.
Not so much about post 55yo peeps who continue to work.

A big injury follows by a small injury, just make it worst, unless you are dead and further blows mean nothing.

 

[BBCWatcher]

Shielding has been blown out of proportion. The fact is that for people who hit FRS at age 55, if they continue to work, their SA interest has been reduced from 4% to 2.5% at the age when they precisely need higher CPF interest.

If they continue to work they've got cashflow to handle current living expenses, plus they've got the option to add dollars to their Retirement Accounts where the higher interest rate is still paid.

I don't think the "true" interest reduction is the gap between 4.0% and 2.5%, not currently. There's a reasonable argument it's currently about 40 basis points (the gap between 4.0% and the current ~3.6% yield on 6 month T-bills). And if you have OA dollars "trapped" behind SA (yes, typically) then your blended SA+OA rate is below 4.0%. Currently you (age 55+ CPF member) could just shove that all into a 6 month T-bill and be earning the same. Make a ladder of T-bills and you have some pretty good liquidity.

I'm not necessarily suggesting T-bills, but as a point of comparison it's reasonable.

If Govt only wanted to target SA shield, they could have made some rules to disallow shielding once you hit a certain age, instead of a blanket policy that affects 1/2 of Singaporeans (could be higher in a few years time).

Closing the CPF Investment Scheme (SA) to new participants, or to participants age 50 and older, probably would've worked.

If there is no abuse of SA at 55, all of us would still continue to have SA for life!

I don't think that's a given. The government has been progressively shifting the retirement leg of CPF from a cash balance-based approach (which doesn't work once people start living long enough) to a life annuity-based approach. Closing Special Accounts at age 55 seems consistent with this progressive shift.

Yea sure not many people, less than half, have FRS at 55. That means all of SA plus OA at 55 are not enough to meet FRS. So how many of these folks can effectively shield SA when they don't have much and first 40k cannot touch. Whatever they have, if any, to shield cpf SA as a high liquid, interest rate account is ill conceived as all SA will go to RA, when unshielded.

SA "shielding" can still have value below the Full Retirement Sum, even a lot of value. I recently illustrated such an example either upthread or in another thread. Of course you need more than $40,000 of SA dollars before your 55th birthday (and some SA dollars that are not attributable to cash top ups and interest on those top ups), otherwise you don't have any SA dollars that you can shield. But this isn't (wasn't) an above-FRS-level only thing.

 

[henrylbh]

SA "shielding" can still have value below the Full Retirement Sum, even a lot of value. I recently illustrated such an example either upthread or in another thread. Of course you need more than $40,000 of SA dollars before your 55th birthday (and some SA dollars that are not attributable to cash top ups and interest on those top ups), otherwise you don't have any SA dollars that you can shield. But this isn't (wasn't) an above-FRS-level only thing.

If you have nothing more to add, don't just say and say out of ordinary course. Of course, anyone without or less than FRS at 55 can still shield.

If SA and OA collectively unable to meet FRS, how much SA can that person have of any value, not to say a lot of value? And he can only shield SA just before 55 and till end of this year and what he shield and unshield will go to RA in 2025. So what can he gain from shielding and unshielding before end of this year? He should be more concerned how he can meet FRS at 55.

 

[RedsYWNA]

If they have hit FRS, why do they precisely need higher interest now?

If you look at the SA allocation from 55-65 yo, it will probably only crease by $15k/yr at max contribution.
At 4%pa, the SA earned from 55-65yo would be about $200k.
At 2.5%pa, the SA earned from 55-65yo would be about $185k.
Not sure how critical that $15k is going to be.

I think ppl are more upset at the removal of their CPF bank account (anytime withdrawal) that earns 4%pa that they assumed would last forever.
Not so much about post 55yo peeps who continue to work.

This method of calculation assumes that there's no excess SA at age 55 (assuming no shielding done, and amount transferred to SA is full FRS). When in reality, the excess SA at age 55 could be S$100k or more.

 

[QinWei]

 

[dork32]

If there is no abuse of SA at 55, all of us would still continue to have SA for life!

Who started it ? Internal leakage, then it starts to spread, authorities know and still dun take action cos they claim they are right (they think investing SA involves risk, so risk takers should be rewarded haha), then it was beyond control (maybe after TBills came, where is the risk?), then take the most drastic action to close SA!

There are many ways to solve the problem, but choose one which dun tell you there is a loophole that needs to be patched!

it is lorna that saboed everyone.

1. She posted an article on straits times on how to do shielding
2. she went to dbs and do a video on shielding.

our minister all read state's times. our minister all sarpork dbs

 

[aurvandil]

Although not everyone understands the math, I think there is an instinctive understanding that CPF Life is disadvantageous to them.

The best analogy to describe it is to think of it as gambling in a casino. The government is the casino and has stacked the odds in their favor. Unlike a casino, you are forced to play with them. While there is a chance you might win by living to 90 years or more, the odds are such you will more likely lose. What's worse is the government reserves the right to change the payouts at their discretion. If too many people live to 90 years, there is nothing to stop them from changing the way in which payouts are made. They recently did this with Medishield with respect to cancer. The optimum chocie is therefore to avoid playing with them as much as legally possible (i.e. BRS).

CPF SA shielding was a hack. The real life benefit however is actually overstated. To fully enjoy the "magic of compounding", you must not only have the minimum sums on hand at retirement. You must also have sufficient funds outside of CPF so that you do not have to draw on the amount in the SA during your entire retirement. Assuming a life exepctancy of 85, this means you must enough spare cash/passive income outside of your CPF SA to last you for 10 years (55 years to 65 year) to (55 years to 85 years) 30 years depending on the shielding compounding strategy you want to pursue. I wonder how many in Singapore actually have this type of liquidity.

If you did, you are probably financially well well off with access to financial instruments that can do a lot better than 4%.

 

[RedsYWNA]

CPF SA shielding was a hack. The real life benefit however is actually overstated. To fully enjoy the "magic of compounding", you must not only have the minimum sums on hand at retirement. You must also have sufficient funds outside of CPF so that you do not have to draw on the amount in the SA during your entire retirement. Assuming a life exepctancy of 85, this means you must enough spare cash/passive income outside of your CPF SA to last you for 10 years (55 years to 65 year) to (55 years to 85 years) 30 years depending on the shielding compounding strategy you want to pursue. I wonder how many in Singapore actually have this type of liquidity.

If you did, you are probably financially well well off with access to financial instruments that can do a lot better than 4%.

CPF SA forms part of a strategy that works similar to a self-operated target date / lifecycle fund.

At 55 and beyond, if you need some bonds, I am not convinced there are a lot of choices to earn 4% (in SGD) over 30-40 years, for the middle class with excess SA/FRS hit. Can you suggest a few liquid bonds funds/ETFs for the middle class to consider that surpasses 4% comfortably?

For the rich, of cos they have access to much more liquid bonds and hedging strategies.

 

[aurvandil]

CPF SA forms part of a strategy that works similar to a self-operated target date / lifecycle fund.

At 55 and beyond, if you need some bonds, I am not convinced there are a lot of choices to earn 4% (in SGD) over 30-40 years, for the middle class with excess SA/FRS hit. Can you suggest a few liquid bonds funds/ETFs for the middle class to consider that surpasses 4% comfortably?

For the rich, of cos they have access to much more liquid bonds and hedging strategies.

Most people have an over concentration of their wealth in SGD.Your HDB flat for example is in SGD.

What happens if things go badly in SG and there is a strong depreciation of SGD as part of MAS efforts to stimulate the SG economy?

I would take out and put in US$ denominated assets as part of diversification. Assuming a 10 year time frame, 10 year Treasuries are earning 4.295%. With such high yields, the classic 40% SPY 60% 10 year Treasury portfolio will likely outperform the 4% CPF SGD SA strategy over 10 years.

 

[RedsYWNA]

Most people have an over concentration of their wealth in SGD.
Your HDB flat for example is in SGD.
What happens if things go badly in SG and there is a strong depreciation of SGD as part of MAS efforts to stimulate the SG economy?

I would take out and put in US$ denominated assets.
Assuming a 10 year time frame, 10 year Treasuries are earning 4.295%.
The classic 40% SPY 60% 10 year Treasury portfolio will likely outperform the 4% CPF SGD SA strategy over 10 years.

The 10 year SGS are at 3% range, so evidently the market sees a gradual appreciation of the SGD to cover for the 1+% gap with US treasuries.

Instead of 40-60, I believe the (110 - age) coupled with the 4% withdrawal rules is a more tried-and-tested approach, with empirical data.

 

[vaxvms]

the rich dun care
the poor bo chap

sandwich class ice cream ~~~~~~~~~~

 

[aurvandil]

The 10 year SGS are at 3% range, so evidently the market sees a gradual appreciation of the SGD to cover for the 1+% gap with US treasuries.

Instead of 40-60, I believe the (110 - age) coupled with the 4% withdrawal rules is a more tried-and-tested approach, with empirical data.

We are on a managed float. The moment we hit a recession, depreciating the SGD is one of the goto MAS policy tools to stimulate the economy.

 

[s0crates]

I think the 2021 statistics showed that about 40% of CPF members fund their Retirement Accounts at least to the FRS when they turn 55. Another 7% reach the FRS by 65. So about half. I’d call about half “many people.”

Individuals should never have expected “SA shielding” to remain an available option. That wasn’t/isn’t a reasonable expectation. If it’s available, great, but “don’t count on it.”

Why wasn't it reasonable? This is a good example of giving excuses for the government.

I really don't understand why so many people try to argue and defend the government. All of us are tax payers here. We entrust our retirement to the government, and as an individual we should fight for the best outcome for ourselves.

Beyond the ERS increase, how is the SA closure in our best interest as an individual? Will the interest loss from those who are richer go back to those with smaller balance?

Tell us one thing - do you truly and honestly believe that SA Shielding was not a loophole but something that was intended?

I don't know which is worse - a government that can't forsee contradiction/loophole around richer, old cpf members having a liquid, high yielding account, or they have an intent to get people to do CPF OA to SA transfers/RSTUs to later on somewhat "trap" them to choosing between OA and RA.

Mind you, a lot of ministers are old, high earning indivisuals with huge CPF balances and past 55. They should see the loophole YEARS AGO.

Whether they are stupid or have ill intent idk.

Firstly, who or why you think people are making excuses MIW?

Yea sure not many people, less than half, have FRS at 55. That means all of SA plus OA at 55 are not enough to meet FRS. So how many of these folks can effectively shield SA when they don't have much and first 40k cannot touch. Whatever they have, if any, to shield cpf SA as a high liquid, interest rate account is ill conceived as all SA will go to RA, when unshielded.

Lots of folks and "thought leaders" from the press.

https://www.todayonline.com/singapore/budget-2024-cpf-special-account-shielding-hack-experts-2364316

All these bloggers saying it make sense from policy stand point, without highlighting how it hurts people and government trust, that to me is making excuses for government.

Like I say - can't our ministers look at their own cpf SA balances years ago and realise the liquid high yielding cpf SA balance is an issue?

You can still shield and meet FRS if you pledge property. That was one of the options that I would be keen to explore at 55 in the future. Shield my SA, only take on BRS although I have clearly a outsized cpf balance, sell my SA investments, transfer out my OA balances by closing cpfis account, leaving behind only a 4% yielding account.

 

[RedsYWNA]

We are on a managed float. The moment we hit a recession, depreciating the SGD is one of the goto MAS policy tools to stimulate the economy.

Between say MBH or 10 Y USD treasuries, I believe the 10 year treasuries pose the bigger risk on balance, assuming we intend to retire in SG.

 

[aurvandil]

Between say MBH or 10 Y USD treasuries, I believe the 10 year treasuries pose the bigger risk on balance, assuming we intend to retire in SG.

I am a strong advocate of rental arbitrage in neighboring low cost countries as a means to have a better retirement.

 

[Nofear40]

https://www.todayonline.com/singapo...?cid=internal_sharetool_iphone_28022024_today

 

[snowcrabramyeon]

Yea sure, not many people have the FRS amount in their CPF balance, but that doesn't mean those folks can't intentionally shield that SA, only contribute to BRS, sell their SA investments, and use cpf SA as a high liquid, interest rate account.

So, do you truly and honestly believe that the SA Shielding was not a loophole but something that was intended?

If, like almost everybody else who did SA Shielding, you agree that it was a loophole, then you should expect the loophole to be closed sooner or later and that the intended retirement account is RA and not SA.

 

[fr33d0m]

Although not everyone understands the math, I think there is an instinctive understanding that CPF Life is disadvantageous to them.

The best analogy to describe it is to think of it as gambling in a casino. The government is the casino and has stacked the odds in their favor. Unlike a casino, you are forced to play with them. While there is a chance you might win by living to 90 years or more, the odds are such you will more likely lose. What's worse is the government reserves the right to change the payouts at their discretion. If too many people live to 90 years, there is nothing to stop them from changing the way in which payouts are made. They recently did this with Medishield with respect to cancer. The optimum chocie is therefore to avoid playing with them as much as legally possible (i.e. BRS).

CPF SA shielding was a hack. The real life benefit however is actually overstated. To fully enjoy the "magic of compounding", you must not only have the minimum sums on hand at retirement. You must also have sufficient funds outside of CPF so that you do not have to draw on the amount in the SA during your entire retirement. Assuming a life exepctancy of 85, this means you must enough spare cash/passive income outside of your CPF SA to last you for 10 years (55 years to 65 year) to (55 years to 85 years) 30 years depending on the shielding compounding strategy you want to pursue. I wonder how many in Singapore actually have this type of liquidity.

If you did, you are probably financially well well off with access to financial instruments that can do a lot better than 4%.

Whoever win is not the government, but your fellow Singaporean. So the casino is not close at all.

 

[s0crates]

So, do you truly and honestly believe that the SA Shielding was not a loophole but something that was intended?

If, like almost everybody else who did SA Shielding, you agree that it was a loophole, then you should expect the loophole to be closed sooner or later and that the intended retirement account is RA and not SA.

Seriously, what relevance is my opinion on this?

I don't think it is a loophole. How cpf SA and CPF LIFE function based on current policy is poorly thought out, if they even spend time thinking about it.

If you want to think about loopholes, the biggest loophole is GIC borrowing money cheap from us, making excess returns, then financing our budget while the government, funded by our budget, has the ability to change cpf rules.

Heads should roll.

 

[DevilPlate]

Between say MBH or 10 Y USD treasuries, I believe the 10 year treasuries pose the bigger risk on balance, assuming we intend to retire in SG.

Why not hold both?