First of all, AMPs only apply to
current recipients of CPF LIFE monthly payouts. If you haven't started CPF LIFE payouts yet then there are no AMPs. (I'm excluding classic Retirement Sum Scheme participants for purposes of this discussion.)
OK, with that background, the announcement says that RA top ups and inflows from November, 2021 (this month onward) will feed into higher CPF LIFE payouts, not AMPs. Members currently receiving AMPs can still get those particular AMPs that are already in progress. But any dollars added from November 1 (two days ago as I write this, which is all I meant by "retroactive") cannot be paid out as AMPs.
That's my best understanding at this point in time based on what has been published.
That's OK. It's "advanced CPF hackery" that's probably quite silly and really not worth spending time worrying about.
This "sweep" only really matters if your 55th birthday sweep didn't result in a Retirement Account funded to the FRS. Most people reading this forum hopefully will have RAs funded to the FRS on their 55th birthdays.
For those that don't, there's a second sweep that occurs. It used to occur at age 65, and now it'll occur just before CPF LIFE payouts start which could be as late as age 70. I think the government's logic is that plenty of people in this category are still working after their 65th birthdays and still have compulsory contributions streaming into their OA/SA/MA. So a later sweep will sweep more principal dollars into their RAs. All bonus interest is still paid into their RAs.
On average this'll result in better funded RAs and thus higher CPF LIFE payouts.
But you're quite right that RA pays 4.0% interest (plus receives all bonus interest), and OA pays 2.5% interest. So the compulsory dollars landing in OA are going to trail behind RA. If you start CPF LIFE payouts at age 65 this won't matter -- the sweep still occurs at the same time. It also doesn't matter among those CPF members who perform "manual" sweeps (transfers from SA/OA, in that order, to their RAs). You can still do that, and hopefully you do it if/when it makes sense. And I think the government is probably correct that the people with "underfunded" RAs (i.e. subject to a second sweep) are probably still working if they aren't starting CPF LIFE payouts at age 65, so deferring the second sweep to payout start will sweep up more dollars, even if those dollars aren't all working as hard as early as they could be. The higher principal outruns the lower interest paid on OA, basically.
It makes logical sense to me. On balance it seems like an improvement, but further improvements are probably possible.
Wow, great question!
Yes, SA flows directly into retirement (RA, CPF LIFE) -- you're quite right about that. So if the sole goal is more/better retirement income security, then SA wins. If your spouse is never going to have compulsory contributions (or highly unlikely to have), then MA overflow considerations and mechanics really never enter into the picture. So I think you would prioritize SA. And you don't necessarily have to limit SA top ups to the $8,000 tax relief limit. If you can afford more then I would probably try hard to get her SA up at least to $60,000 as quickly as possible, and assuming her OA and MA are zero. The reason is that the first $60,000 earns 5.0% interest (4.0% plus bonus interest), and that's
really attractive these days.
Bear in mind there are many homemakers spouses that do NOT make you (the other spouse who's making the top up) qualify for tax relief. IRAS's $4,000 income limit is quite strictly defined and includes much more than Singapore taxable income. Check IRAS's Web site for details.
Starting January 1, 2022, you can deposit as much as you want into anybody's MA subject only to the Basic Healthcare Sum (BHS) limit. Before 2022 the CPF Annual Limit also applies, and it applies to the recipient. Let's suppose for example your spouse's MA is currently zero and she will end up with zero contributions to CPF in 2021 that count against the CPF Annual Limit.
If you wish you could deposit $37,740 (the whole CPF Annual Limit) directly into her MA today.
This year (2021) only the recipient qualifies for tax relief when there are Voluntary Contributions to MA. There is no separate limit to this tax relief, so in this example your wife would qualify for $37,740 of tax relief. (But since presumably she's in the zero percent tax bracket in Singapore, it's moot. Zero of zero is still zero.) Starting next year (2022) the giver qualifies for MA-related tax relief, if anybody does. And the tax relief will be limited to $8,000 (self) and another $8,000 (eligible family member recipients) with each $8,000 applied to MA+SA+RA (the total).
It's still a little confusing perhaps, so if you're still confused ask a follow up question.
That's right. AMPs are being phased out, except for two groups: (1) classic RSS participants (who can still top up their RAs and get their classic RSS payout bumps), and (2) people already receiving CPF LIFE payouts
and AMPs. Group 2 cannot increase/add to their existing AMPs, but they keep receiving existing AMP streams. Group 1 only includes members born before 1958 who have not opted for CPF LIFE.
The younger portion of Group 1 can still opt for CPF LIFE as late as about age 79.9 if they wish -- and they might want to now! There's a little more incentive to opt for CPF LIFE given another, separate rule change: the CPF Board will start automatically paying out their residual SA and OA balances once they exhaust their RAs. Some people in Group 1 might not like that (for bequest reasons perhaps), but if they switch to CPF LIFE then SA/OA automatic payouts don't happen. Even if the CPF LIFE payout is $1/month, oddly enough that's enough to stop SA/OA automatic payouts. Go figure.
But the deadline to enroll in CPF LIFE is about age 79.9 or maybe 79.8.
