Help please! (DPS/SRS/CPFIS)

[paythel]

Wonder what the advice is for these less-discussed bits of SG personal finance?

1. Dependants' Protection Scheme (DPS)
You get signed up for this automatically when you start contributing to CPF. Random internet sources mention the premiums are lower than private providers' (paid in cash) until you hit 40, after which they are substantially higher.

It's basically term life insurance bought with CPF-OA money right?

Even if it's paid though CPF-OA, I'd imagine someone with no dependents should opt-out, just like for life insurance generally?


2. Supplementary Retirement Scheme (SRS)
A tax-advantaged, tax-deferred investment account. From what I can tell, the options are not fantastic, and are largely locally-focused.

If I'm interested only in a low cost global equity position, with maybe a tiny (10%) allocation to the STI, are there any options here that are attractive?

Also, given capital gains aren't taxed normally, but here they effectively will be when you withdraw, under what conditions does this make sense? I'm thinking roughly it would be good so long as the amount you have when you start withdrawals is around 400k, assuming you pay >7% income tax?


3. CPF Investment Scheme (CPFIS)
Option where you can invest your CPF monies, forgoing the guaranteed 2.5-5% interest. Again, the funds available don't seem very attractive. Also, it only seems to make sense if you're talking about doing this with money at 2.5% from CPF-OA (why would you give up a 5% guaranteed return?). And if that's the case, I would think you're holding that CPF-OA money for some near-term use, so putting it in some kind of volatile investment is likely to screw you.

I can't think of any reason to use this. Am I missing anything here? Maybe a great fund I overlooked, or something I'm not considering?

 

[BBCWatcher]

1. Dependants' Protection Scheme (DPS)
It's basically term life insurance bought with CPF-OA money right?

Correct.

Even if it's paid though CPF-OA, I'd imagine someone with no dependents should opt-out, just like for life insurance generally?

Or no near-term expectation of dependents, correct.

2. Supplementary Retirement Scheme (SRS)
A tax-advantaged, tax-deferred investment account. From what I can tell, the options are not fantastic, and are largely locally-focused.

The investment choices represent a decent subset of what Singaporean banks and investment firms generally offer.

If I'm interested only in a low cost global equity position, with maybe a tiny (10%) allocation to the STI, are there any options here that are attractive?

It appears that the best you can currently do is Lion Global's "All Seasons" fund (unit trust), purchased through a zero fee platform that supports SRS such as POEMS. There are two fund variants: 70%/30% equities/bonds, and 30%/70% equities/bonds.

Also, given capital gains aren't taxed normally, but here they effectively will be when you withdraw, under what conditions does this make sense? I'm thinking roughly it would be good so long as the amount you have when you start withdrawals is around 400k, assuming you pay >7% income tax?

The government argues that part doesn't really matter, with some merit. You'd probably want to put the higher yielding stuff outside your SRS for this reason, but you shouldn't twist yourself into a pretzel to do it. Yes, you should use SRS only if you have a reasonable expectation that the tax advantages will end up in your favor, and in my view CPF-related tax reliefs should be higher priority than SRS-related tax reliefs.

3. CPF Investment Scheme (CPFIS)
Option where you can invest your CPF monies, forgoing the guaranteed 2.5-5% interest. Again, the funds available don't seem very attractive. Also, it only seems to make sense if you're talking about doing this with money at 2.5% from CPF-OA (why would you give up a 5% guaranteed return?).

Or 4%, but agreed.

And if that's the case, I would think you're holding that CPF-OA money for some near-term use, so putting it in some kind of volatile investment is likely to screw you.

If you have a sufficiently long time horizon and your Special Account has reached the Full Retirement Sum (i.e. you've done any OA to SA transfers you're going to do), the CPFIS-OA can have some merit. Use UOB for your CPF Investment Account since they seem to have slightly lower costs.

 

[tangent314]

1. Dependants' Protection Scheme (DPS)
You get signed up for this automatically when you start contributing to CPF. Random internet sources mention the premiums are lower than private providers' (paid in cash) until you hit 40, after which they are substantially higher.

Cost of life insurance goes up with age. Term life insurance premiums are level through the term of the policy, so in effect they are making you pay more at the start of the policy so that you pay less at the tail end of the policy. Which of course means they benefit quite a bit if you surrender a term life policy.

If you have access to purchase Aviva MINDEF or MHA GTL, you may want to consider opting out of DPS before reaching 40 and then switching.

2. Supplementary Retirement Scheme (SRS)
A tax-advantaged, tax-deferred investment account. From what I can tell, the options are not fantastic, and are largely locally-focused.

Yes taking into account you can choose to lock in your funds into SA at 4% the options aren't very good. The only thing I see worth using CPFIS for is STI ETF.

 

[paythel]

Fairly answered, thank you both.

The government argues that part doesn't really matter, with some merit. You'd probably want to put the higher yielding stuff outside your SRS for this reason, but you shouldn't twist yourself into a pretzel to do it. Yes, you should use SRS only if you have a reasonable expectation that the tax advantages will end up in your favor, and in my view CPF-related tax reliefs should be higher priority than SRS-related tax reliefs.

Hmm, could you elaborate on what you mean regarding
1) How it doesn't matter
2) Why CPF-related tax relief should be higher priority than SRS-related tax relief

 

[BBCWatcher]

Hmm, could you elaborate on what you mean regarding
1) How it doesn't matter

The government argues that the SRS financial math still works out quite favorably for most people even with significant dividends and capital gains, and the government isn’t wrong. There are some sample calculations in the government’s SRS publications.

2) Why CPF-related tax relief should be higher priority than SRS-related tax relief

Because it’s more attractive overall, and the first available dollars should properly chase the next most attractive offer. As a generalization I rank the government’s popular tax incentive offers to Singaporeans in this order:

1. Child Development Account (i.e. grab all the matching funds)
2. CPF MediSave Account
3. CPF Special Account (and Retirement Account if it’s under the Full Retirement Sum)
4. Supplementary Retirement Scheme

Of course you can do both, or more than one. For example, you might not have a qualifying child (so #1 is out), but you might top up your own MediSave Account for tax relief, top up another $7,000 to your own Special Account and $7,000 to a parent’s Retirement Account, and push $5,000 into your SRS account — as an example. If you’ve got the dollars to chase all those forms of tax relief, and more, fantastic!

 

[mingyang93]

For DPS, it is mostly for working adults to get covered in the event of death or suffering from terminal illness that he/she/their loved ones would have $46k and the coverage ends at 60. So if the certain person do not have a next-of-kin, he/she can choose to opt out but most people usually don't as the premium is not expensive or insignificant.

For SRS, you might be able to look for platforms that tap into AI funds which grants a higher yield.

CPFIS, usually only offers a 2.5% and usually the funds would not perform lower or you ask for an advisor to do the investment for you to get a higher yield without you worrying of it.