FRS vs ERS

[romeo88]

You're saying it in your own usual gabbing twist; you just want to have the final say or you just want to confuse further? First you say OA doesn't matter, and then you went on to say it does. Wouldn't it be easier to say take the first 20k from OA first, and then the rest of the accounts to make it to 60k, which holds true regardless of the amounts in the accounts ?

Yes, which account to be awarded the additional 1% doesn't matter because the interest goes to a certain account but if OA is the priority and up to 20k, it does matter for certain people when the OA has more than 60k but the rest combined has less than 40k.

And for the part about when LIFE has started, you said nothing.

No, it’s the other way around. If you have $60K in MA+SA+RA, even with nothing in OA, you’re earning maximum bonus interest. OA is only ever counted for bonus interest purposes if MA+SA+RA is less than $60K. If OA is counted in that event, a maximum of $20K of OA is counted toward hitting the $60K.

For example, if you have OA=$70K and MA+SA+RA=$10K, then you’re getting bonus interest only on $30K.

On edit: Yes, I know CPF counts up to $20K in OA “first,” then moves onto MA and SA. That’s more complicated than it needs to be. “Got $60K or more in your MA+SA+RA? Great, you’re definitely earning maximum bonus interest. But if you don’t, then.....” If you do it that way then lots of people don’t even have to look at OA, figure out how the $20K applies, etc. But I didn’t write this part of CPF’s literature.

 

[romeo88]

Maple, what you say about Basic plan is different than what I got when I made a visit to the CPFB office. And about the different treatment for the different plans, could you send the links.

Thanks, Maple.

For a member who has joined CPF LIFE*scheme, the extra interest earned will be paid into his RA (for Basic Plan) or the CPF LIFE Annuity Fund (for Standard and Escalating Plan). Please refer to the*CPF LIFE scheme*for more information on CPF LIFE.

 

[BBCWatcher]

Plenty of people — including in this thread — are confused about CPF’s explanation of how bonus interest works. One major problem is that a lot of people think you need at least $20,000 in your Ordinary Account to max out bonus interest. (No. You can have zero in your OA and still earn maximum bonus interest.) And that’s what happens when starting with a $20K in OA-based explanation; it’s just inherently more confusing.

Here I think CPF could do better in its explanation. There’s an opportunity for a somewhat simpler explanation.

 

[maple96]

Maple, what you say about Basic plan is different than what I got when I made a visit to the CPFB office. And about the different treatment for the different plans, could you send the links.

Thanks, Maple.

Always get a written reply from CPFB. Officers you talk to might not know everything about CPF

Below extracts from CPFB website on CPF Life escalating and basic plans, u can read about standard plan there https://www.cpf.gov.sg/members/FAQ/...group=CPF LIFE&folderid=11663&ajfaqid=2186374


Q What happens if I choose the CPF LIFE Escalating Plan?

A When you join the CPF LIFE Escalating Plan, we will deduct all the savings in your Retirement Account as the annuity premium at the point of policy issuance. The premiums deducted will be paid into the Lifelong Income Fund.
All interest earned on your premiums, including extra interest, will be pooled into the Lifelong Income Fund and factored into your monthly CPF LIFE payouts. You will receive monthly payouts from the Lifelong Income Fund from your payout start age for as long as you live.

The CPF LIFE Escalating Plan has lower initial payouts which will increase by 2% per year. The 2% increase will take place every year in the month that the first payout was made.

As with all CPF LIFE plans, payouts may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual. We will inform you two to three months before we make any adjustments to your monthly payouts.


Q What happens if I choose the CPF LIFE Basic Plan?

A When you join the CPF LIFE Basic Plan, a portion of your Retirement Account (RA) savings will be deducted for the annuity premium. This can range from 10% to 20%, from age 65 to 70. The actual percentage will depend on your age and gender. We will inform you on the amount deducted when your policy is issued. The premium deducted will be paid into the Lifelong Income Fund. The rest of your RA savings will stay in your RA. Both your premium and RA savings will continue to earn interest which will be paid to Lifelong Income Fund and RA respectively.

You will receive monthly payouts first from your RA savings from your payout start age until one month before you reach 90 years old. From 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.

As extra interest is earned on the combined balances in your CPF accounts, including premiums committed to CPF LIFE, up to $60,000, you will experience a gradual decrease in your monthly payouts due to the reduction in extra interest paid to your RA when these balances fall below $60,000. Hence, Basic Plan payouts are not level throughout.

(My comments: If u still have monies in OA/SA/MA which can help u hit 60k, this statement bout gradual decrease in mthly payout does not apply to u)

As with all CPF LIFE plans, payouts may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual. We will inform you two to three months before we make any adjustments to your monthly payouts.

My further comments:

I tried using Ask Jamie for the first time 2 days ago, noticed something different and thought CPFB changed the rules. I dun believe it, so read the above again. Confirmed Extra interest for Escalating and Standard Plans are paid into the CPF LIfe Pool. Ask Jamie state "excluding extra interest" but now I cannot find this part in Ask Jamie - it is a robot and can only answer "canned" questions/answers

Once your are above 55 and "rich" and choose the Basic Plan, just focus on RA and CPF Life for the extra interest. The rest of the CPF accounts only earns normal interest ie, 2.5% (OA), 4% for the rest of the accounts. Dun be "con" by CPFB "up to" language.

If you choose standard plan or escalating plan, u can forget about extra interest for Life

 

[lifeafter41]

The priority of the first 60k afaik has never been properly described by CPFB or not properly phrased (as in most cases for advanced topics). I'm also trying to nail this down, let me try...

Before RA, only 1 additional percent goes for the first 60k, starting from OA, up to 20k, then MA/SA combined to make up to 60k. Anyways, this additional interest is credited to the SA account rather then the respective account where the additional interest is earned. Why MA/SA combined is because they both earn the same interest rate. For most cases, it really doesn't matter the order of the accounts, unless you have lots of OA but not much of SA/MA combined. For example, OA is 60k and MA/SA is 30k, then you'll only get 1% of 20+30k to be credited into SA.

If RA is created, then the additional interest earned will go to RA instead of SA. In addition, the first 30k gets another additional 1%.

If LIFE has started, then the additional interest earned I believe goes to the LIFE pool.

Here's the reference.

Here are some CPFB examples.

Thanks romeo88, maple and bbc.
CPFB should have just used illustrations, it will be easier to digest than trying to explain and not doing too well on it.

 

[lifeafter41]

Always get a written reply from CPFB. Officers you talk to might not know everything about CPF

Below extracts from CPFB website on CPF Life escalating and basic plans, u can read about standard plan there https://www.cpf.gov.sg/members/FAQ/...group=CPF LIFE&folderid=11663&ajfaqid=2186374


Q What happens if I choose the CPF LIFE Escalating Plan?

A When you join the CPF LIFE Escalating Plan, we will deduct all the savings in your Retirement Account as the annuity premium at the point of policy issuance. The premiums deducted will be paid into the Lifelong Income Fund.
All interest earned on your premiums, including extra interest, will be pooled into the Lifelong Income Fund and factored into your monthly CPF LIFE payouts. You will receive monthly payouts from the Lifelong Income Fund from your payout start age for as long as you live.

The CPF LIFE Escalating Plan has lower initial payouts which will increase by 2% per year. The 2% increase will take place every year in the month that the first payout was made.

As with all CPF LIFE plans, payouts may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual. We will inform you two to three months before we make any adjustments to your monthly payouts.


Q What happens if I choose the CPF LIFE Basic Plan?

A When you join the CPF LIFE Basic Plan, a portion of your Retirement Account (RA) savings will be deducted for the annuity premium. This can range from 10% to 20%, from age 65 to 70. The actual percentage will depend on your age and gender. We will inform you on the amount deducted when your policy is issued. The premium deducted will be paid into the Lifelong Income Fund. The rest of your RA savings will stay in your RA. Both your premium and RA savings will continue to earn interest which will be paid to Lifelong Income Fund and RA respectively.

You will receive monthly payouts first from your RA savings from your payout start age until one month before you reach 90 years old. From 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.

As extra interest is earned on the combined balances in your CPF accounts, including premiums committed to CPF LIFE, up to $60,000, you will experience a gradual decrease in your monthly payouts due to the reduction in extra interest paid to your RA when these balances fall below $60,000. Hence, Basic Plan payouts are not level throughout.

(My comments: If u still have monies in OA/SA/MA which can help u hit 60k, this statement bout gradual decrease in mthly payout does not apply to u)

As with all CPF LIFE plans, payouts may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual. We will inform you two to three months before we make any adjustments to your monthly payouts.

My further comments:

I tried using Ask Jamie for the first time 2 days ago, noticed something different and thought CPFB changed the rules. I dun believe it, so read the above again. Confirmed Extra interest for Escalating and Standard Plans are paid into the CPF LIfe Pool. Ask Jamie state "excluding extra interest" but now I cannot find this part in Ask Jamie - it is a robot and can only answer "canned" questions/answers

Once your are above 55 and "rich" and choose the Basic Plan, just focus on RA and CPF Life for the extra interest. The rest of the CPF accounts only earns normal interest ie, 2.5% (OA), 4% for the rest of the accounts. Dun be "con" by CPFB "up to" language.

If you choose standard plan or escalating plan, u can forget about extra interest for Life

Will it make sense to do VC into existing CPF accts.
Against topping RA to ERS?

 

[BBCWatcher]

Will it make sense to do VC into existing CPF accts.
Against topping RA to ERS?

It depends on what you want.

Retirement Account Top Up

If you want higher interest that leads to a higher lifetime retirement income (and a higher residual for your CPF nominees at every age when a residual still exists), then top up your Retirement Account. This top up must fit within the Enhanced Retirement Sum (ERS), and you can continue to top up to the new ERS every January. You can start CPF LIFE payouts as early as age 65 and as late as age 70, or anywhere in between. You can put a lot more money into CPF in one installment as early as your 55th birthday -- it's a much bigger number than your gap (if any) below the CPF Annual Limit, which is a "throttle." (See below.)

"All Three" Account Top Up

This top up must fit within the CPF Annual Limit of $37,740, and if you're still working in Singapore it's possible you'll have zero room below the CPF Annual Limit. You will earn a substantially lower interest rate (because quite a large portion will be deposited into your Ordinary Account, earning 2.5% interest). If your MediSave Account has not reached the Basic Healthcare Sum then some of this "all three" top up will end up in your MediSave Account, and those dollars can only be used for MediSave-qualified, medical-related spending. From age 55+ these dollars (except for MediSave dollars) are available for cash withdrawal partially or fully at any time, although you must withdraw any higher interest earning Special Account dollars first.

Ordinary Account Repayment

You can also repay OA dollars, plus accrued interest, that you used for housing at any time you wish, up to the total principal plus accrued interest. These dollars will earn 2.5% interest, and the same withdrawal order applies (Special Account dollars must be exhausted first before you can withdraw OA dollars).

 

[lifeafter41]

It depends on what you want.

Retirement Account Top Up

If you want higher interest that leads to a higher lifetime retirement income (and a higher residual for your CPF nominees at every age when a residual still exists), then top up your Retirement Account. This top up must fit within the Enhanced Retirement Sum (ERS), and you can continue to top up to the new ERS every January. You can start CPF LIFE payouts as early as age 65 and as late as age 70, or anywhere in between. You can put a lot more money into CPF in one installment as early as your 55th birthday -- it's a much bigger number than your gap (if any) below the CPF Annual Limit, which is a "throttle." (See below.)

"All Three" Account Top Up

This top up must fit within the CPF Annual Limit of $37,740, and if you're still working in Singapore it's possible you'll have zero room below the CPF Annual Limit. You will earn a substantially lower interest rate (because quite a large portion will be deposited into your Ordinary Account, earning 2.5% interest). If your MediSave Account has not reached the Basic Healthcare Sum then some of this "all three" top up will end up in your MediSave Account, and those dollars can only be used for MediSave-qualified, medical-related spending. From age 55+ these dollars (except for MediSave dollars) are available for cash withdrawal partially or fully at any time, although you must withdraw any higher interest earning Special Account dollars first.

Ordinary Account Repayment

You can also repay OA dollars, plus accrued interest, that you used for housing at any time you wish, up to the total principal plus accrued interest. These dollars will earn 2.5% interest, and the same withdrawal order applies (Special Account dollars must be exhausted first before you can withdraw OA dollars).

Hi bbc, thanks for the quick response.
Question is, eg, in 2020, FRS is 181K, while ERS will be 271.5k.
If the RA is not adding interest, wouldn’t it be better to throttle or make lump sum payment to QA(due to housing loan) of 90.5k?

The math just does not work out to top up to ERS.....

 

[BBCWatcher]

Question is, eg, in 2020, FRS is 181K, while ERS will be 271.5k.
If the RA is not adding interest, wouldn’t it be better to throttle or make lump sum payment to QA(due to housing loan) of 90.5k?

The math just does not work out to top up to ERS.....

I replied in another thread, but (briefly) you get the attractive 4% interest (plus bonus interest) -- don't worry about that. It's just that the gobs of interest you get are not counted against you when the ERS is increased, that's all. That's a good thing: it means you can keep topping up each January by the amount of the ERS increase, even if your RA is way above the new ERS already.

That's a great deal. If you want more liquidity (the other top ups to OA and SA), your yield will be much lower. You are very well compensated in the RA top up deal, as long as you are happy with higher future monthly income for life, and a higher residual at every age when there's still a residual. RA/CPF LIFE is not an "on demand" piggybank, but it's very, very attractive if you otherwise have adequate or better liquidity from other assets.

Note that you can do "all of the above" if you can afford it: top up to the ERS within your 55th birthday month and every January thereafter, make other top ups (such as "all three" top ups) if within limits, and take "surplus" CPF LIFE monthly payouts and cycle them back into CPF via "all three" top ups and housing repayments, still within limits.

 

[Merg91]

If my ERS hit the limit $254k this year @55, can I top up voluntarily as it rises to, say, $300k in 2024?
I know cpf is my money.

 

[henrylbh]

If my ERS hit the limit $254k this year @55, can I top up voluntarily as it rises to, say, $300k in 2024?
I know cpf is my money.

Already mentioned that one can keep topping up RA to meet prevailing ERS. Interest not included. And better do before they change the rule

 

[Merg91]

Understand that they have to modify at times.
Have more faith in Singapore govt than the banks /others.

And better do before they change the rule

 

[romeo88]

I'm only interested in Basic plan for obvious reason which we've discussed and concluded previously.

That's the crux of my question, where does the additional interest (1+1%) earned go to, after LIFE has begun. CPFB rep told me it's the LIFE fund, which is the same as what you quoted for the other two plans.

I've done some scenarios for Basic and when additional interests earned is kept in LIFE fund: one of which is ERS at 55, with yearly top-up to max, PEA 65 and 15% of RA is transferred to LIFE fund. If I kick (...) at age 85, the "loss" of interest is some 90k and at age 90, it is a whopping 125k. Numbers speak for itself and this is when earlier I said for my case, I'll rather not have LIFE than to have since without LIFE interest earned stays in my own account.

Q What happens if I choose the CPF LIFE Basic Plan?

A When you join the CPF LIFE Basic Plan, a portion of your Retirement Account (RA) savings will be deducted for the annuity premium. This can range from 10% to 20%, from age 65 to 70. The actual percentage will depend on your age and gender. We will inform you on the amount deducted when your policy is issued. The premium deducted will be paid into the Lifelong Income Fund. The rest of your RA savings will stay in your RA. Both your premium and RA savings will continue to earn interest which will be paid to Lifelong Income Fund and RA respectively.

You will receive monthly payouts first from your RA savings from your payout start age until one month before you reach 90 years old. From 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.

As extra interest is earned on the combined balances in your CPF accounts, including premiums committed to CPF LIFE, up to $60,000, you will experience a gradual decrease in your monthly payouts due to the reduction in extra interest paid to your RA when these balances fall below $60,000. Hence, Basic Plan payouts are not level throughout.

(My comments: If u still have monies in OA/SA/MA which can help u hit 60k, this statement bout gradual decrease in mthly payout does not apply to u)

As with all CPF LIFE plans, payouts may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual. We will inform you two to three months before we make any adjustments to your monthly payouts.

My further comments:

I tried using Ask Jamie for the first time 2 days ago, noticed something different and thought CPFB changed the rules. I dun believe it, so read the above again. Confirmed Extra interest for Escalating and Standard Plans are paid into the CPF LIfe Pool. Ask Jamie state "excluding extra interest" but now I cannot find this part in Ask Jamie - it is a robot and can only answer "canned" questions/answers

Once your are above 55 and "rich" and choose the Basic Plan, just focus on RA and CPF Life for the extra interest. The rest of the CPF accounts only earns normal interest ie, 2.5% (OA), 4% for the rest of the accounts. Dun be "con" by CPFB "up to" language.

If you choose standard plan or escalating plan, u can forget about extra interest for Life

 

[maple96]

I'm only interested in Basic plan for obvious reason which we've discussed and concluded previously.

That's the crux of my question, where does the additional interest (1+1%) earned go to, after LIFE has begun. CPFB rep told me it's the LIFE fund, which is the same as what you quoted for the other two plans.

I've done some scenarios for Basic and when additional interests earned is kept in LIFE fund: one of which is ERS at 55, with yearly top-up to max, PEA 65 and 15% of RA is transferred to LIFE fund. If I kick (...) at age 85, the "loss" of interest is some 90k and at age 90, it is a whopping 125k. Numbers speak for itself and this is when earlier I said for my case, I'll rather not have LIFE than to have since without LIFE interest earned stays in my own account.

So now u know CPFB rep gave u the wrong info? Extra interest will be credited to RA for Basic Plan after CPF Life payout start. For critical questions on CPF rules, always write in, get written confirmation, the team providing answers should be more knowledgeable to provide u with correct answers. Their reputation at stake

Yes I know your situation, so I reserved further comments here. Why do u think CPFB keep telling people to topup CPF? The more in RA, the more interest you earn, the more u will contribute to CPF Life Pool, the more you will lose if u cannot live long enough! But u still gain from the interest earned from 55 to 65 which is more than u will lose, if I remember my prior calculations correctly. But I still dun like losing more.

Why do u think govt approved increasing CPF contribution rates for above 55? So less people can "opt" out of CPF Life at 65, more money into the CPF Life Pool!

You cannot change the past, u can still change the future and the end result. Give me some time to write up for u.

 

[maple96]

I'm only interested in Basic plan for obvious reason which we've discussed and concluded previously.

That's the crux of my question, where does the additional interest (1+1%) earned go to, after LIFE has begun. CPFB rep told me it's the LIFE fund, which is the same as what you quoted for the other two plans.

See below highlighted:

maple96 wrote:

Q What happens if I choose the CPF LIFE Basic Plan?

A When you join the CPF LIFE Basic Plan, a portion of your Retirement Account (RA) savings will be deducted for the annuity premium. This can range from 10% to 20%, from age 65 to 70. The actual percentage will depend on your age and gender. We will inform you on the amount deducted when your policy is issued. The premium deducted will be paid into the Lifelong Income Fund. The rest of your RA savings will stay in your RA. Both your premium and RA savings will continue to earn interest which will be paid to Lifelong Income Fund and RA respectively.

You will receive monthly payouts first from your RA savings from your payout start age until one month before you reach 90 years old. From 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.

As extra interest is earned on the combined balances in your CPF accounts, including premiums committed to CPF LIFE, up to $60,000, you will experience a gradual decrease in your monthly payouts due to the reduction in extra interest paid to your RA when these balances fall below $60,000. Hence, Basic Plan payouts are not level throughout.

(My comments: If u still have monies in OA/SA/MA which can help u hit 60k, this statement bout gradual decrease in mthly payout does not apply to u)

This is a better FAQ:

Q Where will the extra interest be paid to after I join CPF LIFE?

A If you have chosen the CPF LIFE Standard Plan or CPF LIFE Escalating Plan, the extra interest earned will be pooled into the Lifelong Income Fund and factored into your monthly CPF LIFE payouts. By paying the extra interest into the Lifelong Income Fund, you will be able to enjoy a more stable payout for the rest of your life.

If you have chosen the CPF LIFE Basic Plan, we will pay the extra interest earned into your Retirement Account and pay it to you in the year it is earned as part of your monthly CPF LIFE payouts. Your monthly CPF LIFE payouts will not be level throughout as they will reduce gradually when your combined balances fall below $60,000. This is due to less extra interest earned.

 

[henrylbh]

I'm only interested in Basic plan for obvious reason which we've discussed and concluded previously.

That's the crux of my question, where does the additional interest (1+1%) earned go to, after LIFE has begun. CPFB rep told me it's the LIFE fund, which is the same as what you quoted for the other two plans.

I've done some scenarios for Basic and when additional interests earned is kept in LIFE fund: one of which is ERS at 55, with yearly top-up to max, PEA 65 and 15% of RA is transferred to LIFE fund. If I kick (...) at age 85, the "loss" of interest is some 90k and at age 90, it is a whopping 125k. Numbers speak for itself and this is when earlier I said for my case, I'll rather not have LIFE than to have since without LIFE interest earned stays in my own account.

You interested in basic plan and discussed and concluded previously? Yet you still not sure where the extra additional interest will go to?

If you have chosen the CPF LIFE Basic Plan, we will pay the extra interest earned into your Retirement Account and pay it to you in the year it is earned as part of your monthly CPF LIFE payouts.

 

[romeo88]

You are taking the "conclusion" totally out of context. BTW, I'm sure you do know there's no need to commit to any plan until PEA.

Maple already answered. Thanks anyways.

You interested in basic plan and discussed and concluded previously? Yet you still not sure where the extra additional interest will go to?

If you have chosen the CPF LIFE Basic Plan, we will pay the extra interest earned into your Retirement Account and pay it to you in the year it is earned as part of your monthly CPF LIFE payouts.

 

[henrylbh]

So now u know CPFB rep gave u the wrong info? Extra interest will be credited to RA for Basic Plan after CPF Life payout start. For critical questions on CPF rules, always write in, get written confirmation, the team providing answers should be more knowledgeable to provide u with correct answers. Their reputation at stake

Sad to say that if one is sure of the rules, even written confirmation could also be wrong. I got a written reply and I had to point out where the answer could go wrong and they responded ….

We sincerely apologise for the wrong estimated payout given in our reply of 5 Jul 2018. Please ignore the letter dated 5 Jul 2018. You may wish to refer to this letter instead.


The earlier answer was wrong in principle and the estimate was way off.

 

[maple96]

Sad to say that if one is sure of the rules, even written confirmation could also be wrong. I got a written reply and I had to point out where the answer could go wrong and they responded ….

We sincerely apologise for the wrong estimated payout given in our reply of 5 Jul 2018. Please ignore the letter dated 5 Jul 2018. You may wish to refer to this letter instead.


The earlier answer was wrong in principle and the estimate was way off.

Calculation error is not as serious as CPF Policy error s:13:

Do you know when CPFB talk about Risk Pooling in an article posted in their facebook page or anywhere else, they only tell the public that Interest on CPF Life Premium is Pooled. They never tell the Public that extra interest of up to $900 per year is also pooled if you choose Standard or Escalating Plan?

What is their motive?

 

[henrylbh]

You are taking the "conclusion" totally out of context. BTW, I'm sure you do know there's no need to commit to any plan until PEA.

Maple already answered. Thanks anyways.

Though there is no commitment to choose either of the 3 plan till PEA, it appears you intended to go for basic plan when the time comes? You even went to the extend to calculate the estimated loss of interest on the basis that the additional interests earned is kept in LIFE fund.

I only know I am forced to commence payout at age 70. But I may not want to wait that long. Still undecided depending on whether there are further changes till PEA.