Question about CPF Life

[BBCWatcher]

Henry, maybe you ought to practice some meditation or something to calm down.

Let's take this slowly and carefully, OK? While it is unlikely (although not altogether impossible) that she would qualify for tax relief directly with a Retirement Account top-up, somebody else might, such as a child. It would then make financial sense for her to withdraw from SA/OA then top up RA, via that child. In other words, she hands the money to the child, then the child tops up her RA for tax relief (if that qualifies). The child (or other qualified relative) can then share his/her tax savings with her.

I provided the short version, that tax relief could be in the picture here, and then you flew off the handle and didn't think about it. Maybe take a deep breath and think about it, OK? Sometimes the tax relief is direct, and sometimes it's indirect. She may qualify for indirect tax relief, with the help of a relative (who is posting here, after all).

What claw back? Why mention transfer of OA to SA to earn interest back dated to beginning of the month unless you implying she could or should do that transfer?

I was quite clear here I thought, but I'll try again. I know how it works for Special Account top-ups versus transfers, and it may work the same way for Retirement Account top-ups versus transfers -- something to check.

When you make a cash top-up to a Special Account, the interest on the top-up starts from the first of the calendar month after the top-up. For example, if you top up a Special Account on November 15, then you start earning SA interest on that top-up from December 1.

In contrast, when you transfer Ordinary Account funds into your Special Account on November 15, the higher Special Account interest kicks in from November 1, not December 1. You get a whole extra month of higher interest. The transfer is better in this respect.

Is the SA/OA transfer into RA better from an interest point of view than a cash top-up into RA (with neither direct nor indirect tax relief)? "I don't know," and I said I don't know. It's something to check with CPF. But the possible tax relief is more interesting -- and, yes, it is nearly always possible, via a relative.

 

[henrylbh]

Ha ha I expected your response to say more to what is said as if I don't get you. There are remote possibilities and I chose not to say unless asked. Same, she can pass money to her child to top-up her account to claim relief, I also conscientiously chose not to say.

 

[BBCWatcher]

Same, she can pass money to her child to top-up her account to claim relief, I also conscientiously chose not to say.

Why would you choose not to say something that'd be financially helpful? And then fly off the handle when somebody tries to offer some financially helpful advice? That's all very weird.

 

[scheng1]

From what I understand, your mum belong to the cohort that is allowed to withdraw 50% of CPF when they turned age 55, i.e. 50% is transferred from SA and OA to RA and the balance can be withdrawn from age 55. Thereafter, they are allowed to withdraw contributions, including WIS and interest credited to their OA and SA and MA if MA meets the medisave required amount once a year. The once a year withdrawal has since changed to multiple withdrawals during the year. She must have made a standing instruction to withdraw once a year on her birthday when she first started withdrawal. If she is making top-up (to RA), then it does not make sense to withdraw her OA and SA annually. Instead she could transfer whatever OA and SA contributions received monthly to RA every month for best effect.

Yes, you are right, except for the last part. She's not making top-up to RA. We are the ones making top-up to her RA.

1. She's one of the Pioneer Generation.
2. She did withdraw half her CPF to buy private annuity at age 55.
3. When CPF Life rolled out, there was V-Bonus or something to entice them to join CPF Life, so she enrolled.
4. Her RA started from 0 after enrollment in CPF Life. Current RA balance due to her part time work, Workfare, and our top-ups.
5. Topping up her RA is better for a few reasons:
a. tax relief for us
b. her RA CPF interest rate is 6% for the first 30k, and 5% for next 30k
c. her monthly payout from RA is higher and sustainable
d. Should anything happens to us, she would still have CPF payout for the rest of her life.

Just to relate the case of my cousin.

a. He's married with one child, father and mother both over 70, and grandmother is over 90 years old.
b. His father not working, and not on CPF Life. His mother working part time, and not on CPF Life. Both his parents receive less than $400 each from CPF RA.
c. His father has to support his grandmother. His grandmother has no CPF, no saving, and rely on the support of her children who are all retirees already.

If the CPF RA of his parents run out, and the grandmother still alive, my cousin will have to support 3 elders.

 

[JuniorLion]

There is no blanket rule one-size-fits-all solution, which bbcw advocates. It depends on the health and financial situation of the person.

 

[BBCWatcher]

There is no blanket rule one-size-fits-all solution, which bbcw advocates.

Now that's a really strange (and mistaken) characterization of my views, particularly in this thread.

 

[BBCWatcher]

5. Topping up her RA is better for a few reasons:
a. tax relief for us

Bingo, congratulations. Well played.

 

[henrylbh]

Why would you choose not to say something that'd be financially helpful? And then fly off the handle when somebody tries to offer some financially helpful advice? That's all very weird.

I only tackle the one liner 'Unless she's getting tax relief' which is helpful?

The child could still claim tax relief without the mother's withdrawal, if the child taxable income makes it attractive. Based on her age, annual withdrawal is too little as most contributions would end up in MA.

 

[henrylbh]

Hi scheng1 can you find out something I for me.

When you mum withdrew her OA and SA annually, any part of it goes to MA? For earlier cohort, I understand that upon withdrawal, shortfall in Medisave Required Amount must be made good. If any, what's the ratio or percentage goes to MA? Thanks.

 

[maple96]

One interesting thing to note from my mother's CPF statement.

She works part time, and the CPF contribution plus workfare still go into OA, MA and SA.

Yes, if she is above 65, a bigger amt goes to MA, then SA, then OA.

On her birthday month, which happens to be December, OA and SA (including interests) are emptied out. Half go into RA, and half credited into her bank account. So every year, her OA and SA start from 0.

So she/or u made the arrangement (standing instruction) to withdraw her OA/SA on her birthday every year? Why not just leave it to earn interest and for her future use in case u all are not around to take care of her? U prefer to earn higher interest in RA and use the money withdrawn to topup to RA? I have another related question in the next post.

It's quite confusing to see her statement because it has OA, SA, MA and RA. 4 columns instead of 3.

That is better then u can see every movement in each account. U should see one more, CPF Life balance?

Cash Topup is different. It goes directly into RA, and won't be taken out.

What do u mean by “won't be taken out”? U mean she cannot withdraw but it will be given to her as mthly payout?

Pls help clarify some questions in blue above, thanks

 

[maple96]

Yes, you are right, except for the last part. She's not making top-up to RA. We are the ones making top-up to her RA.

1. She's one of the Pioneer Generation.
2. She did withdraw half her CPF to buy private annuity at age 55.
3. When CPF Life rolled out, there was V-Bonus or something to entice them to join CPF Life, so she enrolled.
4. Her RA started from 0 after enrollment in CPF Life. Current RA balance due to her part time work, Workfare, and our top-ups.
5. Topping up her RA is better for a few reasons:
a. tax relief for us
b. her RA CPF interest rate is 6% for the first 30k, and 5% for next 30k
c. her monthly payout from RA is higher and sustainable
d. Should anything happens to us, she would still have CPF payout for the rest of her life.

.

So under CPF Plus Plan, the extra CPF interests (2%) does get credited to her RA, ie reflected in the RA column?

So looks like this is a better plan than the current CPF Life Standard?

Your statement (highlighted in blue above) is incorrect.

It is the combined balances in CPF that earns 6% and 5% respectively, not RA alone

 

[scheng1]

Hi scheng1 can you find out something I for me.

When you mum withdrew her OA and SA annually, any part of it goes to MA? For earlier cohort, I understand that upon withdrawal, shortfall in Medisave Required Amount must be made good. If any, what's the ratio or percentage goes to MA? Thanks.

The sum in OA and SA do not go into MA. Half go to RA and half go to her bank account.

Her monthly contribution and Workfare are distributed to OA, MA and SA.

She belongs to the Pioneer Generation. I'm not sure if the Medisave Required Amount applies to her. Govt top ups her Medisave every year.

 

[scheng1]

So under CPF Plus Plan, the extra CPF interests (2%) does get credited to her RA, ie reflected in the RA column?

So looks like this is a better plan than the current CPF Life Standard?

Your statement (highlighted in blue above) is incorrect.

It is the combined balances in CPF that earns 6% and 5% respectively, not RA alone

Her statement is really confusing. At the end of the year, OA and SA are 0. Interest earned on SA and OA are credited in Nov, and then the entire sum transferred out in Dec.

Interest earned for MA and RA are credited in Dec.

Pls help clarify some questions in blue above, thanks

1. I am not aware of her standing instruction to withdraw the fund yearly. I thought that is automatically done by CPF since she and my ex-boss got the fund on their birthday month. My mum is not educated, so she probably just agreed with the customer service officer and signed the form.

2. CPF Life balance not in statement. There is a note on Bequest which states the amount correct as of end of year. The Bequest includes unused annuity premium and RA.

3. Correct. "won't be taken out" mean she cannot withdraw but it will be given to her as mthly payout. Sorry for the confusion.

 

[maple96]

Her statement is really confusing. At the end of the year, OA and SA are 0. Interest earned on SA and OA are credited in Nov, and then the entire sum transferred out in Dec.

Interest earned for MA and RA are credited in Dec.

Have u tried to calculate to confirm she gets the extra 2% interest credited to RA in Dec? Just do a quick cal = take Jan balance in RA multiply by 4% then add 900 = amt of interest credited in Dec in RA. Does it include 900 (assuming she hits 60k)?

1. I am not aware of her standing instruction to withdraw the fund yearly. I thought that is automatically done by CPF since she and my ex-boss got the fund on their birthday month. My mum is not educated, so she probably just agreed with the customer service officer and signed the form.

Oops, u answered Yes to henry's post on this, that's why I ask again to double confirm. U might want to clarify with CPF but I need u to confirm one more thing on interest above which is key to what your family is doing.

2. CPF Life balance not in statement. There is a note on Bequest which states the amount correct as of end of year. The Bequest includes unused annuity premium and RA.

3. Correct. "won't be taken out" mean she cannot withdraw but it will be given to her as mthly payout. Sorry for the confusion.

Can u confirm my comments above?

 

[maple96]

5. Topping up her RA is better for a few reasons:
a. tax relief for us
b. her RA CPF interest rate is 6% for the first 30k, and 5% for next 30k
c. her monthly payout from RA is higher and sustainable
d. Should anything happens to us, she would still have CPF payout for the rest of her life.
.

If u do not topup her RA, and her combined balances in OA/SA/MA/RA/CPF Life Premium do hit 60k, she still gets the extra interests.

Read extracts from CPF website on how extra interests are calculated below:

Extra Interest
An extra 1% interest per annum is currently paid on the first $60,000 of a member’s combined balances (with up to $20,000 from OA).

Extra interest received on monies in the OA will go into the member’s SA or RA to enhance his or her retirement savings. If a member is above 55 years old and participates in the CPF LIFE scheme, the extra interest will still be earned on his combined balances, which includes the savings used for CPF LIFE.

Additional Extra Interest
For CPF members who are aged 55 and above, an additional 1% interest per annum will be paid on the first $30,000 of their combined balances. This is paid over and above the current extra 1% interest that is earned on the first $60,000 of their combined balances. As a result, CPF members aged 55 and above will earn up to 6% interest per year on their retirement balances.

These additional extra interest received on the OA will go into the member’s RA to enhance his or her retirement savings. If the member has participated in the CPF LIFE scheme, the extra interest will still be earned on his or her combined balances, which includes the savings used for CPF LIFE.

 

[scheng1]

Can u confirm my comments above?

I will not attempt to calculate her RA interest rate to find out the exact rate. It is not as easy as you mention, because there are monthly withdrawals, top ups, plus transfer from OA and SA.

The extra interest definitely is added to RA, because the December interest crediting is only for MA and RA.

The MA interest earned is about 4%. Her opening and closing MA is about the same after deducting the earned interest. The contribution to MA is equal to the amount used for medical.

 

[maple96]

I will not attempt to calculate her RA interest rate to find out the exact rate. It is not as easy as you mention, because there are monthly withdrawals, top ups, plus transfer from OA and SA.

The extra interest definitely is added to RA, because the December interest crediting is only for MA and RA.

The MA interest earned is about 4%. Her opening and closing MA is about the same after deducting the earned interest. The contribution to MA is equal to the amount used for medical.

Ok it is for our own benefit to confirm that the extra 2% interest does get credited to RA and the amt is 900. I am not asking u to calculate any rates.

Alternatively u can write in to CPFB to confirm if u find it too difficult to do an estimate.

Why am I highlighting this point? Plus is an old CPF Life Plan, so I will not know how the current rules apply to it.

Current CPF rules for Standard Plan (which Plus Plan is similar where 100% of RA is transferred to CPF Life Pool) state all extra interest (2%) will be credited to the CPF Life Pool after joining CPF Life, and not to RA. So my concern this rule might apply to your mum's Plus Plan. Meaning one of your objectives of RA topup to earn extra interest in fact dun exist at all!

I also dun understand why CPF wiped out her OA/SA every year and transfer 50% to RA and payout 50% to her. There is no current rules on this. Unless she did not meet the min sum when she join CPF Life? Then will CPF one day wipe out her RA into CPF Life Pool? I would be very concern.

 

[henrylbh]

Pls help clarify some questions in blue above, thanks

Post 65, total contribution is 12.5% - 10.5% MA, 1% SA and 1% OA.

At 55 when she can't wait to withdraw 50% of CPF balance, she must also have signed instruction to withdrawal annually without being aware, as CPF will not do anything unilaterally.

Transferring OA and SA actually doesn't matter much as the amount is not significant. Nevertheless it should be done for slightly better rate or left it as it is instead of withdrawing annually, until needed.

Once amount taken out of RA to the pool (CPF Life), I doubt there is any detail movement of CPF Life. So there will be no 5th column for CPF Life.

 

[henrylbh]

Her statement is really confusing. At the end of the year, OA and SA are 0. Interest earned on SA and OA are credited in Nov, and then the entire sum transferred out in Dec.

Interest earned for MA and RA are credited in Dec.

There is nothing confusing about the the CPF statement. For those 55 and above, there will be additional column showing movement in RA together with those of OA, SA and MA.

Interest on all accounts is calculated on lowest balance in the month and credited at year end only.

But for withdrawal, interest will be calculated up to the month preceding the withdrawal month.

In your mum's case, her withdrawal date in Dec must have been after Nov's contribution has been credited in Dec. Hence at end of Dec, OA and SA will be zero, as she would be given all in OA and SA including Nov's contribution received in Dec plus interest calculated to end Nov.

But .... if her withdrawal is in Dec is BEFORE Nov's contribution got credited in Dec, there will be balance in OA and SA (being Nov's contribution received after withdrawal date) at the end of the year but no interest as the contribution received in Dec is not entitled to interest while accumulated interest to end Nov has been withdrawn.

 

[henrylbh]

The sum in OA and SA do not go into MA. Half go to RA and half go to her bank account.

Her monthly contribution and Workfare are distributed to OA, MA and SA.

She belongs to the Pioneer Generation. I'm not sure if the Medisave Required Amount applies to her. Govt top ups her Medisave every year.

That's not what I like to find out.

Withdrawal at 55 is clear - 50% of total balance. If withdrawn, OA and SA will be zero, leaving balance in MA and new RA (created on day of withdrawal) with 50% transferred from SA and OA. If she continue working post 55, new contributions will continue to flow into OA, SA and MA according to CPF allocation table while RA will remain same until end of year when interest is credited to all 4 accounts.

Please read my post #49 again. What I like to find out is post 55 withdrawals and MRA which affect her cohort until 2016. After 2016, she need not make good shortfall in MA when making withdrawals.