CPF SA Shielding hack - RIP (Obsolete)

[BBCWatcher]

The 55th birthday is in first week of Jan ? Really cut too close.

The next T-bill will be auctioned on January 5, 2023. That’s a Thursday. The CPF SA deduction will probably not be recorded until 2 business days later, i.e. Monday, January 9. You’re going to be sweating if this 55th birthday is particularly close to January 9. There’s a slight possibility the bank could screw up your order, and if the birthday is too close then you might not have enough time to recover.

Also bear in mind that January 23 and 24 are public holidays in 2023. Depending on the date of the 55th birthday you might have to maneuver around those public holidays.

 

[BlueRobin]

Thanks to all the well-meaning posts. The person's birthday is not in January, we will have about 4 months to execute the shield. The reason we are going for the next T Bill is that since it is likely(?) to stay above 4%, we are hoping to lower the cost of this shield.

The other options suggested would be considered too. Appreciate all the input.

 

[henrylbh]

They’re not defined, though. We don’t really know what the future SA interest rate will be in the outer months of a 6 month T-bill. It could be 4.00%, 4.15%, 4.37%… No idea right now.

No idea now? Then do nothing about shielding while not knowing what the future SA rate will be?

 

[BBCWatcher]

No idea now? Then do nothing about shielding while not knowing what the future SA rate will be?

As I’ve written before, maybe even in the post you partially quoted, the unit trust-based shielding method is the alternative. SA rate uncertainty is a factor that applies to the T-bill-based shielding method but not to the unit trust-based method. It’s only logical and sensible to incorporate SA rate uncertainty into your assessment of an acceptable T-bill cut-off yield.

Hope you can share the process (eg need to open security account with the bank)…

DBS/POSB no (single form with 2 pages to complete), UOB maybe (possibly with your first order if even then), OCBC unsure.

where is the holding shown (bank IB or CPF portal)…

CPF portal, in the Investment(s) section of the dashboard. May or may not be shown elsewhere.

posting date of CPF deduction when it is done.

Appears to be 2 business days after the auction date, although that might vary a bit.

A lot of info on tbills using OA but not much info about SA.

True, because T-bills aren’t super attractive yet for SA dollars. But there are a few people who run experiments.

 

[henrylbh]

Thanks to all the well-meaning posts. The person's birthday is not in January, we will have about 4 months to execute the shield. The reason we are going for the next T Bill is that since it is likely(?) to stay above 4%, we are hoping to lower the cost of this shield.

The other options suggested would be considered too. Appreciate all the input.

Good for you. You have enough time to decide when to go for Auction. If you can get COY 4.6% before Apr, go all in, never mind that SA may go above 4% for Apr/Jun or remain unchanged. A bird in hand worth 2 in the bush. I will also go all in to shield OA and either cash top up RA or let the matured T-bill using OA to flow to RA to make good the FRS.

 

[BlueRobin]

Good for you. You have enough time to decide when to go for Auction. If you can get COY 4.6% before Apr, go all in, never mind that SA may go above 4% for Apr/Jun or remain unchanged. A bird in hand worth 2 in the bush. I will also go all in to shield OA and either cash top up RA or let the matured T-bill using OA to flow to RA to make good the FRS.

I read that you had done T Bill bidding using OA. May I ask if it is true that the money will only be debited after the auction is successful?

We were thinking of giving ourselves (and the bank) more time to process the manual form by submitting it next week after the T Bill is announced. The initial thought was to go to the bank on 3rd Jan after interests were credited into SA account.

 

[reddevil0728]

I read that you had done T Bill bidding using OA. May I ask if it is true that the money will only be debited after the auction is successful?

Per exp shared in the other threads. yes. previously DBS deduct almost immediately but seems like it has changed

We were thinking of giving ourselves (and the bank) more time to process the manual form by submitting it next week after the T Bill is announced. The initial thought was to go to the bank on 3rd Jan after interests were credited into SA account.

note that application for t-bill with CPF closes earlier. 3rd may be too late. check with bank

 

[henrylbh]

it will still remain as attractive to people who wants defined "losses"

They’re not defined, though. We don’t really know what the future SA interest rate will be in the outer months of a 6 month T-bill. It could be 4.00%, 4.15%, 4.37%… No idea right now.

I assumed reddevil0728 refer to defined 'losses' in using SA.

We don't really know what the future SA interest will be and yet dare you mention UT as an alternative as though the future is more certain than TB and can be defined?

fair enough.

"more defined" than bond fund method then at the time of placing it.

I can categorically said the SA gain and losses can be measured within a reasonable range of outcome and maturity to make an informed choice, be it a certain gain or a measured loss for sole purpose of shielding if I bid at a COY and succeeded, whereas with market uncertainties, UT can never be logically defined, except for the trx cost and fee etc.

As I’ve written before, maybe even in the post you partially quoted, the unit trust-based shielding method is the alternative. SA rate uncertainty is a factor that applies to the T-bill-based shielding method but not to the unit trust-based method. It’s only logical and sensible to incorporate SA rate uncertainty into your assessment of an acceptable T-bill cut-off yield.

If I succeed in bidding at >4.6% and eventually if SA rate goes up to 5% or even 6% in Q2 (bearing in mind I would have gained in Q1), I will know in advance how exactly much I would missed and can tolerate and pay the price for shielding. But with UT, if the market goes bongkus, I may end up with unmeasurable losses.

 

[henrylbh]

I read that you had done T Bill bidding using OA. May I ask if it is true that the money will only be debited after the auction is successful?

We were thinking of giving ourselves (and the bank) more time to process the manual form by submitting it next week after the T Bill is announced. The initial thought was to go to the bank on 3rd Jan after interests were credited into SA account.

On 5 Dec I queued about 45 minutes for auction date of 8 Dec. I got a photocopy of the form I submitted with UOB, just in case as the amount involved is not small.

On 9 Dec, a day after auction date, my CPF-OA was deducted with exactly the amount I bid for based on cut-off price for with bank charges. On 10 Dec, I received an SMS from CPF about the deduction to my OA.

On 10 Dec, the credit appeared in my CPFIA.

Subsequently many days later, I received a letter dated 8 Dec from UOB confirming that my bid has been successful.

 

[BBCWatcher]

We don't really know what the future SA interest will be and yet dare you mention UT as an alternative as though the future is more certain than TB and can be defined?

With the unit trust-based shielding method you know with 100% certainty the SA interest rate and can compute exactly how much SA interest you're going to lose. It's ordinarily exactly 1 month of SA interest at the known rate. No more, no less. This part of the equation is certain and known up front.

With the T-bill based shielding method you don't know how much SA interest you're going to lose because the SA interest rate isn't known many months ahead. The T-bill has a minimum tenor of 6 months, so the latter months of SA interest loss are not known. This can be fairly described as "SA rate risk."

With the unit trust-based shielding method you don't know how much you're going to gain or lose while you're holding the unit trust. But the holding period is quite brief (mere days), and you can/should choose a low volatility unit trust to limit this risk.

With the T-bill-based shielding method you don't know whether you're going to get the T-bill or not at a particular bid, but you can specify a minimum T-bill rate that you're willing to accept.

With the unit trust-based method you have much more granular control over the SA withdrawal date and the SA withdrawal amount. With the T-bill-based shielding method you can only choose $1,000 (face value) increments, and the SA withdrawal date can only be approximately every 2 weeks (the T-bill auction schedule). If the cut-off yield is higher than you expect then fewer dollars are withdrawn from your SA, so you may leave more "stranded" dollars than you expect. If you have compulsory contributions streaming into SA it'll be particularly difficult with T-bills alone not to leave excess unshielded dollars.

It's reasonable and logical to take all of these differential risk factors (and the cost of bank queuing for a T-bill bid) into account in deciding whether you should use a T-bill, unit trust, or some of both for SA shielding; when to enter; and (for a T-bill) what bid to place. There's no universally correct answer, and different individuals assess risks differently.

 

[vsvs24]

On 9 Dec, a day after auction date, my CPF-OA was deducted with exactly the amount I bid for with no charges at that time. On 10 Dec, I received an SMS from CPF about the deduction to my OA.

On 10 Dec, the credit appeared in my CPFIA.

The deduction from your OA should not be the same as what you applied. Should be nett of discount.

 

[reddevil0728]

There's no universally correct answer, and different individuals assess risks differently.

glad you finally realised this!

 

[henrylbh]

The deduction from your OA should not be the same as what you applied. Should be nett of discount.

I never say that deduction from OA is the same as the amount I applied for. I said OA was deducted after the auction result is known. Only those blur would think that OA deduction is based on what one applied for and some think OA deduction is made on amount applied on the date of application.

Cut-off price will determined how much OA is deducted based on the amount of successful units applied for or prorata units, if not allocated in full. Based on OA deduction less bank charges divided by COP will give exact number of units one is allocated. In my case, there were charges of exactly $2.14 included in the OA deduction.

Sorry, edited my narration for further clarification.

 

[KeytoFreedom]

Good for you. You have enough time to decide when to go for Auction. If you can get COY 4.6% before Apr, go all in, never mind that SA may go above 4% for Apr/Jun or remain unchanged. A bird in hand worth 2 in the bush. I will also go all in to shield OA and either cash top up RA or let the matured T-bill using OA to flow to RA to make good the FRS.

ok you mean shield the OA by buying TBills...how you gonna shield the SA?


Read HWZ Forum Rules!

 

[reddevil0728]

Only those blur would think that OA deduction is based on what one applied for or that OA deduction is made amount applied on the date of application. Cut-off price will determined how much OA is deducted based on the amount of successful units applied for or prorata units, if not allocated in full.

I think poster was trying to clarify your statement since you said "exactly the amount i bid for"

nothing to do with blur leh.

 

[henrylbh]

With the unit trust-based shielding method you know with 100% certainty the SA interest rate and can compute exactly how much SA interest you're going to lose. It's ordinarily exactly 1 month of SA interest at the known rate. No more, no less. This part of the equation is certain and known up front.

With the T-bill based shielding method you don't know how much SA interest you're going to lose because the SA interest rate isn't known many months ahead. The T-bill has a minimum tenor of 6 months, so the latter months of SA interest loss are not known. This can be fairly described as "SA rate risk."

With the unit trust-based shielding method you don't know how much you're going to gain or lose while you're holding the unit trust. But the holding period is quite brief (mere days), and you can/should choose a low volatility unit trust to limit this risk.

With the T-bill-based shielding method you don't know whether you're going to get the T-bill or not at a particular bid, but you can specify a minimum T-bill rate that you're willing to accept.

With the unit trust-based method you have much more granular control over the SA withdrawal date and the SA withdrawal amount. With the T-bill-based shielding method you can only choose $1,000 (face value) increments, and the SA withdrawal date can only be approximately every 2 weeks (the T-bill auction schedule). If the cut-off yield is higher than you expect then fewer dollars are withdrawn from your SA, so you may leave more "stranded" dollars than you expect. If you have compulsory contributions streaming into SA it'll be particularly difficult with T-bills alone not to leave excess unshielded dollars.

It's reasonable and logical to take all of these differential risk factors (and the cost of bank queuing for a T-bill bid) into account in deciding whether you should use a T-bill, unit trust, or some of both for SA shielding; when to enter; and (for a T-bill) what bid to place. There's no universally correct answer, and different individuals assess risks differently.

No doubt one can choose the amount and when to enter and exit UT. Still there is a risk that the loss may be sour or very sour. If got time or start early, and keep bidding for TB at more than 4.6% for guaranteed profit over prevailing SA rate and hold till maturity. Well and good if SA rate stays unchanged or rise by the earliest in Apr/May that turns calculated profit into loss that is measurable and palatable for shielding. Failing that, then I would venture into UT when close to 55 and just hope the losses would be minimal in shielding SA.

With TB opiton, one can choose to bid more than the amount available in SA including timed incoming contributions, if any. Eg, with 300k less 40k leaving available balance of 260k, you can bid more than 260k by ensuring the cut-off price will leave minimal amount (less than 1k) above 40k. If the COP is lower leaving more than expected above 40k, count yourself lucky. With UT you can only buy with available amount shown in SA i.e. 260k.

 

[henrylbh]

ok you mean shield the OA by buying TBills...how you gonna shield the SA?


Read HWZ Forum Rules!

We are talking about shielding SA but one can go one step further to shield OA from going into RA when there is opportunity for OA in TB earning higher than RA rate of interest (for the time being). Of course, there a time limit for OA to earn more before it is pulled into RA on maturity to make good FRS. Lust caution, RA rate may or may not over take TB rate, but the earliest rise may be in Apr/Jun

 

[henrylbh]

I think poster was trying to clarify your statement since you said "exactly the amount i bid for"

nothing to do with blur leh.

I don't mean the respondent is blur but others may misconstrue what I wrote initially (now amended) like those having idea that amount bid will be deducted from OA on date of application instead of after auction result is known. Consequently some blur refrain from TB thinking they will lose OA interest and application fee if their bids are not successful.

 

[vsvs24]

With TB opiton, one can choose to bid more than the amount available in SA including timed incoming contributions, if any. Eg, with 300k less 40k leaving available balance of 260k, you can bid more than 260k by ensuring the cut-off price will leave minimal amount (less than 1k) above 40k. If the COP is lower leaving more than expected above 40k, count yourself lucky. With UT you can only buy with available amount shown in SA i.e. 260k.

Have you or anyone tried this ? ie applying for tbill more than investible amount from OA or SA although nett of discount is within investible amount.

A bit risky to do this. DBS form has a clause on penalty charge if there is insufficient funds. I presume no one knows for sure how they define insufficient funds until someone kena.

Better to be cautious and just apply based on investible amount then do a second round for the discount amount and any incoming contribution

 

[fr33d0m]

No doubt one can choose the amount and when to enter and exit UT. Still there is a risk that the loss may be sour or very sour. If got time or start early, and keep bidding for TB at more than 4.6% for guaranteed profit over prevailing SA rate and hold till maturity. Well and good if SA rate stays unchanged or rise by the earliest in Apr/May that turns calculated profit into loss that is measurable and palatable for shielding. Failing that, then I would venture into UT when close to 55 and just hope the losses would be minimal in shielding SA.

With TB opiton, one can choose to bid more than the amount available in SA including timed incoming contributions, if any. Eg, with 300k less 40k leaving available balance of 260k, you can bid more than 260k by ensuring the cut-off price will leave minimal amount (less than 1k) above 40k. If the COP is lower leaving more than expected above 40k, count yourself lucky. With UT you can only buy with available amount shown in SA i.e. 260k.

There is limit on the amount eligible for investment. And any top up and interest earned on top up can’t be invested. The max allowed is amount -40 k. So you have no way to invest more than 260k if only 300k in SA.