cpf Special account shielding

[chopra]

ok closed

THANKS.

 

[tangent314]

Instead of using T-Bills which could be a headache trying to find a bank staff that knows how to get it done, it may be preferred to use Poems or DollarDex platform to purchase the following Unit Trust through CPFIS-SA: Nikko AM Shenton Short Term Bond Fund (S$)

You should probably set the account up and do a test purchase of $1000 a few months before 55 to make sure everything is in order, before making the full purchase a few days before 55th birthday.

CPF will transfer the remaining $40k of SA and OA up to the FRS into your RA. You will need to manually transfer more OA into RA to reach ERS.

You may want to cash out all your remaining OA before you sell back the Unit Trust into your SA, as you will be unable to retrieve your OA after without first cashing out your SA.

 

[Mecisteus]

If it is me, I will rather just go for some unit trusts instead of t-bills.

I can execute the purchase myself.

 

[ocs_woodlands]

I will say it once..

As someone who did decoupling for my HDB flat in 2014, I can tell you that the more this is discussed and done, the sooner this lobang will be closed....

so if you are below 55, for your own sake, keep quiet about it..

 

[chopra]

ok closed
10char

 

[terence2112]

Actually not sure why this is considered a hack/loophole or whatever one wpuld call it. Because the truth of the matter is, the user is able to acquire the Requisited Retirement sum (which is the purpose of CPF in the first place) through careful planning or TOP up.

That’s the whole point of CPF isn’t it.

 

[maple96]

Q Will I run the risk of unknowingly breaching CPF laws while trading or investing under the CPF Investment Scheme?

A As long as your intention is to invest for the medium to long term, and you did not siphon out any CPF savings by receiving cash for your investment transactions whether through manipulated transaction prices or cash rebates, it is unlikely that you will breach the CPF laws for manipulative transactions.

 

[terence2112]

Q Will I run the risk of unknowingly breaching CPF laws while trading or investing under the CPF Investment Scheme?

A As long as your intention is to invest for the medium to long term, and you did not siphon out any CPF savings by receiving cash for your investment transactions whether through manipulated transaction prices or cash rebates, it is unlikely that you will breach the CPF laws for manipulative transactions.

I think this FAQ is provided from a illegal trading perspective. Like I said, if one manage to accumulate to the required Retirement Sum, it’s highly unlikely anything will happen.

 

[maple96]

I think this FAQ is provided from a illegal trading perspective. Like I said, if one manage to accumulate to the required Retirement Sum, it’s highly unlikely anything will happen.

U dun see my point, CPFB can always change the rules in future, eg if u did not invest for the medium to long term, your SA investments will be refunded to OA if majority of RA funds are from OA

 

[madtari]

It's considered a hack because it allows u to retain more SA (rather than using OA) for ur RA, and thereafter when u flow back ur SA, it can earn higher interest of 4% instead of OA's 2.5%. Do u need us to be this explicit?

Actually not sure why this is considered a hack/loophole or whatever one wpuld call it. Because the truth of the matter is, the user is able to acquire the Requisited Retirement sum (which is the purpose of CPF in the first place) through careful planning or TOP up.

That’s the whole point of CPF isn’t it.

 

[terence2112]

U dun see my point, CPFB can always change the rules in future, eg if u did not invest for the medium to long term, your SA investments will be refunded to OA if majority of RA funds are from OA

Agree on the part that rules can change anytime. Funds in the SA is for the RA while OA is not. Problem with 9 out of 10 Singaporean’s here is that their SA is not enough, hence the “need” to take from the OA, and the need is to fulfill the Retirement Sum.

We could agree to disagree, but as Long as one has the Retirememt Sum, it is likely to be sufficient.

 

[chopra]

tangent: noted on cashing out OA first. probably she wont do that as she is cash rich.

create two liquidable ATMs of minimal 2.5%pa yield

 

[terminalv]

Instead of using T-Bills which could be a headache trying to find a bank staff that knows how to get it done, it may be preferred to use Poems or DollarDex platform to purchase the following Unit Trust through CPFIS-SA: Nikko AM Shenton Short Term Bond Fund (S$)

You should probably set the account up and do a test purchase of $1000 a few months before 55 to make sure everything is in order, before making the full purchase a few days before 55th birthday.

CPF will transfer the remaining $40k of SA and OA up to the FRS into your RA. You will need to manually transfer more OA into RA to reach ERS.

You may want to cash out all your remaining OA before you sell back the Unit Trust into your SA, as you will be unable to retrieve your OA after without first cashing out your SA.

Hi experts, I have a question about the part in bold.

I wasn't aware that after RA is set up and funded, and if you still have funds in OA and also in SA (from lowering the shield), when you want to withdraw cash, you have to withdraw first from SA, and after it's depleted, then you can withdraw from OA. Is my understanding correct?

If so, as tangent314 advised, the wise thing to do seems indeed to deplete OA first before lowering the shield to return funds to SA? This is because it is easier to find investments with risk-return characteristics close to OA's 2.5%, compared to finding anything close to SA's 4%?

Just want to check if this reasoning and course of action is correct.

Appreciate any views!

 

[terminalv]

are u sure u can do it yourself? No CPFIS-SA account?

Yes, you can do it yourself.

To invest using SA funds, no need to set up anything special other than brokerage account, unlike investing with OA funds. So when buying unit trust from, say, FSMone, just indicate the source of fund to be CPFIS-SA, and the arrangement will be done back end.

 

[BBCWatcher]

You’re certainly not required to withdraw funds, and OA’s 2.5% interest rate is still rather good. It’s still a nice yielding government bond, effectively. There’s also the CPF Investment Scheme, so if you want to invest OA funds in something else besides traditional OA, there are choices.

But yes, if you need to withdraw funds (because you actually need the money on your 55th birthday), you’d make that withdrawal from OA funds just before lowering your SA shield.

In fact, there’s an interesting “laundering” technique that could apply here. Let’s suppose in the calendar year when you turn 55 that your compulsory contributions (employer plus employee) will total $20,000. The CPF Annual Limit is $37,740, so you determine (with high confidence) that you have $17,740 of breathing room below the CPF Annual Limit. In that case it’d probably make sense to withdraw $17,740 of OA funds (or more) and then immediately redeposit $17,740 using a voluntary “all three” top up. A portion of that $17,740 would then land in your Special Account, some in your MediSave Account (if it hasn’t reached the Basic Healthcare Sum), and some in your Ordinary Account. That beats 2.5% interest, because some of those dollars will earn 4%. That’d be a nice hack-within-a-hack if you have such an opportunity.

 

[terminalv]

You’re certainly not required to withdraw funds, and OA’s 2.5% interest rate is still rather good. It’s still a nice yielding government bond, effectively. There’s also the CPF Investment Scheme, so if you want to invest OA funds in something else besides traditional OA, there are choices.

But yes, if you need to withdraw funds (because you actually need the money on your 55th birthday), you’d make that withdrawal from OA funds just before lowering your SA shield.

Thanks BBCWatcher for the explanation and the hack-in-hack!

What if a person doesn't need the OA funds on his 55th birthday, but wants to plan for contingency that maybe a few years later, say at 58, something comes up and he needs money from his CPF.

For such a contingency, would it be better to have cashed out OA at 55 and invested proceeds in, say, MBH? MBH has risk-return characteristics close enough to OA, and can be liquidated if contingency arises, leaving SA intact.

If he had not cashed out OA at 55, the only option at 58 would be to draw down SA first, losing the 4% ATM forever.

Does this make sense?

 

[BBCWatcher]

What if a person doesn't need the OA funds on his 55th birthday, but wants to plan for contingency that maybe a few years later, say at 58, something comes up and he needs money from his CPF.

For such a contingency, would it be better to have cashed out OA at 55 and invested proceeds in, say, MBH? MBH has risk-return characteristics close enough to OA, and can be liquidated if contingency arises, leaving SA intact.

If he had not cashed out OA at 55, the only option at 58 would be to draw down SA first, losing the 4% ATM forever.

That’s one option, to withdraw funds just before lowering the shield. Another possible option is to raise a shield again just before withdrawing funds. (You don’t want to do this too often because you lose a minimum of one month of interest with SA shielding.) Either way there’s a cost, and you just have to evaluate which is better — take a “smart guess,” basically.

 

[maple96]

In fact, there’s an interesting “laundering” technique that could apply here. Let’s suppose in the calendar year when you turn 55 that your compulsory contributions (employer plus employee) will total $20,000. The CPF Annual Limit is $37,740, so you determine (with high confidence) that you have $17,740 of breathing room below the CPF Annual Limit. In that case it’d probably make sense to withdraw $17,740 of OA funds (or more) and then immediately redeposit $17,740 using a voluntary “all three” top up. A portion of that $17,740 would then land in your Special Account, some in your MediSave Account (if it hasn’t reached the Basic Healthcare Sum), and some in your Ordinary Account. That beats 2.5% interest, because some of those dollars will earn 4%. That’d be a nice hack-within-a-hack if you have such an opportunity.

Another Stupid Trick/Hack?

If u have 200k in SA and MA at BHS when u hit 55 in Sept 2019 (eg), and u blindly attempt the above suggested “hack”, without checking your “math-odology” or fail your maths, u will “lose money”!

 

[BBCWatcher]

Another Stupid Trick/Hack?

You really are quite rude.

Please take another look at what I wrote. Hint: The Special Account shield is in place, still raised. The SA balance is zero when the RA is created. The immediate withdrawal would come only from OA, and the "all three" redeposit would, in some portion, go into SA. See it now? Good.

 

[terminalv]

That’s one option, to withdraw funds just before lowering the shield. Another possible option is to raise a shield again just before withdrawing funds. (You don’t want to do this too often because you lose a minimum of one month of interest with SA shielding.) Either way there’s a cost, and you just have to evaluate which is better — take a “smart guess,” basically.

I didn't realize it's possible to raise shield even after 55. This way makes sense too. Will evaluate.

Thanks BBCWatcher for sharing your knowledge!