FRS vs ERS

[maple96]

Hi guys, would like to hear from cpf gurus what are the pros and cons and rules related to cash top up to RA ERS? Especially keen to know about withdrawal before 65 as would only be participating in Basic plan at PEA 65 as am most keen to leave bequest for my immediate family. In short can ERS work as a high interest on demand savings account ? 55 next month. Aware of shield already.

Above is the originating question, resulting in various replies below. So we are talking about after 55.

You can't make top up to OA only. (it is possible but it is better to VC to 3 accounts so some monies go to SA to earn higher interest. Assuming the person has VC limits. I reserve futher comments)

Can only VC to OA, SA and MA according to allocation table, subject to annual limit.

Repaying housing only goes to OA.

Instead of repaying housing, I rather reserve the cash to VC every year, unless the annual VC is very limited.

Or use cash to top up RA when you turn 55 next year? To ERS, if you like and got chance to withdraw as much as half of FRS is needed.

You can also do a VC solely to MA (tax deductible for recipient only if the topup (a) is below BHS. This topup amt (b) must also be within the available VC limit. Only the lower amt (a vs b) is tax deductible). If your MA is above BHS, then it overflow to your SA/OA. (it will overflow to OA for above 55)

Note that VC to the 3 accounts (ie OA, SA and MA) is not tax deductible.

Your comment is correct if this person do not have MC, only VC, or this person is not interested in tax relief at all (ie no income). Otherwise see comments in red.

I will continue to VC to MA to max, now that the govt is considering increasing the limits for usage (today's papers)

 

[Value.Matrix]

Above is the originating question, resulting in various replies below. So we are talking about after 55.






Your comment is correct if this person do not have MC, only VC, or this person is not interested in tax relief at all (ie no income). Otherwise see comments in red.

I will continue to VC to MA to max, now that the govt is considering increasing the limits for usage (today's papers)

Interesting.

VC to 3 Accounts have tax relief for self employed (up to 37% assessable income).

 

[henrylbh]

You can also do a VC solely to MA (tax deductible for recipient only). If your MA is above BHS, then it overflow to your SA/OA.

Note that VC to the 3 accounts (ie OA, SA and MA) is not tax deductible.

He did not ask about MA which is stuck to the end of life.

He wants to know whether can top up OA and also FRS to ERS and hope to treat the top up as withdrawable on demand before 65.

 

[henrylbh]

Interesting.

VC to 3 Accounts have tax relief for self employed (up to 37% assessable income).

Provided he has trade income to match. Otherwise it is just normal out of pocket voluntary contribution.

 

[SKenny]

Interesting.

VC to 3 Accounts have tax relief for self employed (up to 37% assessable income).

It is the other way around. VC to MA has tax relief, while VC to all 3 accounts don't.

 

[SKenny]

He did not ask about MA which is stuck to the end of life.

He wants to know whether can top up OA and also FRS to ERS and hope to treat the top up as withdrawable on demand before 65.

errr... actually doing a VC solely to MA which at at BHS will do actually what he was asking., ie everything goes to OA.

Original question;

That’s the reason why now will plan for top up towards OA, or repayments of housing. Or voluntary top up instead, subject to the annual limit.

 

[maple96]

Alot of deviations in your discussions. Some talking self employed, the other talking employed, read carefully and differentiate, then all answers are correct

 

[henrylbh]

It is the other way around. VC to MA has tax relief, while VC to all 3 accounts don't.

You commented with understanding what he said

Self-employed can VC and claim tax relief, provided ....

 

[maple96]

You can also do a VC solely to MA (tax deductible for recipient only). If your MA is above BHS, then it overflow to your SA/OA.

Note that VC to the 3 accounts (ie OA, SA and MA) is not tax deductible.

Today's Straits Times, soneone feedback and I summarise the proposal raised:

CPFB should not "force" overflow from MA BHS to other accounts before 65, as this will "force" self employed to continue to contribute to MA. Overflow "accounting" for MA should only occur from 65.

( I quote your post since it is talking about MA overflow accounting to share ST article)

 

[BBCWatcher]

Today's Straits Times, soneone feedback and I summarise the proposal raised:

CPFB should not "force" overflow from MA BHS to other accounts before 65, as this will "force" self employed to continue to contribute to MA. Overflow "accounting" for MA should only occur from 65.

OK, "be careful what you wish for."

I have another idea. How about if self-employed individuals are required to contribute to their Special Accounts? Let's suppose a self-employed individual is age 40 and earns $6,000/month of income (contributory basis). Right now that individual is required to contribute $540/month (9%) into MediSave, and all of that is eligible for tax relief. How about also making the Special Account portion compulsory, which would be another 7% ($420/month) at this age, also fully eligible for tax relief? Optionally, if this individual would like to contribute to all three accounts per the standard contribution and allocation rates for his/her age, also still fully eligible for tax relief, that's fine.

Self-employed individuals have been largely exempted from CPF contributions since (best guess) historically a lot of them were shopkeepers. In theory anyway, they could sell their shops (or other small businesses) and support their retirements from that pool of wealth. In reality, that was never broadly true, and it's especially not true now when so many more small businesses are virtual...and virtually or actually worthless.

Before you slam my idea as "terrible" (if that's your inclination), think about it for a moment. It'd be pretty wonderful, actually. Everybody else is capped at $7,000 per year of tax relief for directed Special Account contributions. My suggestion means a self-employed person (in this particular age range example) would direct up to another $5,040 per year (up to $12,040 total per year) into his/her Special Account all with tax relief, without the lower yielding OA leg being compulsory. And since the OA portion is still available, still with tax relief (for self-employed), and still eligible for transfer to SA, that's all good, too. An individual who is so inclined would be able to slam quite a lot of money into his/her Special Account, all without the OA "drag," at least not until compulsory MediSave contributions "double spill over."

....But no, somebody in The Straits Times wants to lobby for less from their government.

 

[maple96]

OK, "be careful what you wish for."

I have another idea. How about if self-employed individuals are required to contribute to their Special Accounts? Let's suppose a self-employed individual is age 40 and earns $6,000/month of income (contributory basis). Right now that individual is required to contribute $540/month (9%) into MediSave, and all of that is eligible for tax relief. How about also making the Special Account portion compulsory, which would be another 7% ($420/month) at this age, also fully eligible for tax relief? Optionally, if this individual would like to contribute to all three accounts per the standard contribution and allocation rates for his/her age, also still fully eligible for tax relief, that's fine.

Self-employed individuals have been largely exempted from CPF contributions since (best guess) historically a lot of them were shopkeepers. In theory anyway, they could sell their shops (or other small businesses) and support their retirements from that pool of wealth. In reality, that was never broadly true, and it's especially not true now when so many more small businesses are virtual...and virtually or actually worthless.

Before you slam my idea as "terrible" (if that's your inclination), think about it for a moment. It'd be pretty wonderful, actually. Everybody else is capped at $7,000 per year of tax relief for directed Special Account contributions. My suggestion means a self-employed person (in this particular age range example) would direct up to another $5,040 per year (up to $12,040 total per year) into his/her Special Account all with tax relief, without the lower yielding OA leg being compulsory. And since the OA portion is still available, still with tax relief (for self-employed), and still eligible for transfer to SA, that's all good, too. An individual who is so inclined would be able to slam quite a lot of money into his/her Special Account, all without the OA "drag," at least not until compulsory MediSave contributions "double spill over."

....But no, somebody in The Straits Times wants to lobby for less from their government.

Be careful what u write

U should reply to his feedback, not just rant here, as it will be published in national papers for CPFB to provide a written reply, more effective right

 

[maple96]

Today's Straits Times, soneone feedback and I summarise the proposal raised:

CPFB should not "force" overflow from MA BHS to other accounts before 65, as this will "force" self employed to continue to contribute to MA. Overflow "accounting" for MA should only occur from 65.

( I quote your post since it is talking about MA overflow accounting to share ST article)

After some thinking, this is another CPFB rule to make the rich richer! Who can hit BHS just based on salary/working contribution? Who are able to keep topping up MA to earn tax relief and push it above BHS for it to overflow into SA and make them richer at 55 with the SA Hack?

With increasing healthcare cost and mandatory medishield life with high premiums (including isp), more monies will be needed in MA. High premiums is one result of medishield life involving risk pooling to fund those with pre-existing conditions. So monies should be kept in MA until 65 BHS is hit before overflow accounting should apply. It continues to earn 4%, better than overflowing into OA at 2.5%.

Obviously the rich CPFB/MOM/MOH people created this rule to benefit, who else! It all leads to the SA Hack!

I would want to write to Straits Times to get my feedback published, but I know for sure it will be rejected

Now I will wait for CPFB to reply to the ST Forum

 

[henrylbh]

For self-employed or sole proprietor or partnership, contribution to medisave is compulsory based on annual net trade income, regardless of whether MA has reached limit. Amount in excess of BHS will just flow into SA/OA. So I am not sure whether the writer is myopic

 

[maple96]

For self-employed or sole proprietor or partnership, contribution to medisave is compulsory based on annual net trade income, regardless of whether MA has reached limit. Amount in excess of BHS will just flow into SA/OA. So I am not sure whether the writer is myopic

I believe he raised a very good point, why overflow MA to SA/OA every end of year and when BHS increase at beginning of year, u have to “topup” again (if u want to earn max interest and tax relief for others, self employed forced to contribution). Every year all over again?

If u go back to the starting point, ie rationale why self employed are required to make mandatory medisave contribution, he is right.

Govt thinks it is most important for self employed to meet the BHS because of increasing healthcare cost, so only make MA contribution compulsory. Since they set BHS, means when u hit, u do not need to contribute anymore. But make u contribute just to overflow it to SA/OA, and earn less interest if it goes to OA for them . Dun make sense right?

So I agree, overflow accounting should be removed until 65. (If u continue to MC or VC 3 accounts, whether employed or self employed, the MA portion will still go to SA/OA if BHS met. This should not be considered overflow accounting, it goes to other accounts because u already meet BHS. But if u VC MA only (for employed), it should go MA. For self employed maybe exempted. Whereas year end interest should continue to be credited to MA above BHS. Just one way to implement his suggestion.)

 

[henrylbh]

I believe he raised a very good point, why overflow MA to SA/OA every end of year and when BHS increase at beginning of year, u have to “topup” again (if u want to earn max interest and tax relief for others, self employed forced to contribution). Every year all over again?

The limit on BHS in MA applies to both employed and self-employed and both have to start all over again when excess for the year will be transferred out at the beginning of next year.

For self-employed I see no issue as they still need to contribute MA based on trade income, regardless of whether there is a gap (when excess is transferred out) or no gap (when excess remained in MA). But, to allow self employed excess to remain in MA would not be fair to or in sync with rules applied to the employed.

 

[SBC]

BHS will rise by $2800 next year. How about FRS?
Any news yet?

 

[lifeafter41]

BHS will rise by $2800 next year. How about FRS?
Any news yet?

It’s already set at 181k for 2020 if I recall correctly.

 

[SBC]

It’s already set at 181k for 2020 if I recall correctly.

Yap, saw it. Is $181k.

Thanks

 

[iMac]

If FRS = 2x BRS and ERS = 3x BRS

How come at 65, those chosen FRS is not getting twice payout as much those BRS ?

And those ERS is not getting payout triple those BRS ?

 

[SKenny]

If FRS = 2x BRS and ERS = 3x BRS

How come at 65, those chosen FRS is not getting twice payout as much those BRS ?

And those ERS is not getting payout triple those BRS ?

Due to the staggered interest rate in our CPF accounts. It ranges from 6% to 2.5%. The lower tier enjoys a higher rate (upto 6%).

https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-interest-rates