atans1

CPF changes: Rob Peter to Pay Paul and worse

In CPF on 10/10/2017 at 4:43 am

When I read earlier this month about the changes proposed to make it easier to transfer CPF payments to parents or grandparents in the constructive, nation-building media,  I tot of the old English saying “Rob Peter to Pay Paul”.


Rob Peter to Pay Paul

To use resources that legitimately belong to or are needed by one party in order to satisfy a legitimate need of another party, especially within the same organization or group; to solve a problem in a way that makes another problem worse, producing no net gain.

https://en.wiktionary.org/wiki/rob_Peter_to_pay_Paul

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To recap, changes to the Central Provident Fund (CPF) Act have been proposed to lower the minimum amount that members must have in their own CPF accounts before making transfers to their parents or grandparents.

At present, CPF members must have the prevailing Full Retirement Sum – which is $166,000 for CPF members aged 55 this year – before they can transfer extra savings to their parents’ or grandparents’ accounts. Members aged above 55 need to meet the retirement sum specified for their cohort.

The changes proposed by the Ministry of Manpower (MoM) will allow CPF members to make such transfers if they have at least the Basic Retirement Sum – which is half the full sum – and a sufficient property pledge or charge to make up the rest of the full sum.

But if you transfer your CPF to your parents’ or grandparents’ CPF, you could be solving a problem (their need for money) in a way that creates another problem (your retirement needs) worse. Ownself sabo ownself.

Worse the PAP administration will be laughing all the way to the bank if yr parents or grandparents die earlier than expected and they are on CPL Life, not the old CPF Retirement Sum Scheme. The bequest should be much lower compared to if they opted-in to CPF Life.

Uncle Leong explained it well in a TRE article:

Since the minimum amount that you need to keep in your own CPF, in order to do the transfer has been reduced from $166,000 to $83,000 if you are able to pledge say your HDB flat – with the recent confirmation that the value of HDB flats may decline to zero at the end of the 99-year lease – will you have enough for your own retirement?

Whilst you may be tempted to top-up your parents and/or grandparents’ CPF because as long as they are age 65 and over – they can immediately take monthly payouts.

This is akin to turning your own CPF to cash which your parents/grandparents can use, and arguably your cashflows may improve because you may not need to give them as much cash as you are doing now.

However, under the old CPF Retirement Sum Scheme (RSS) – the monthly payout that your parents/grandparents may be able to withdraw, may be much lesser than if they opt-in to the CPF Life Scheme.

However, the downside may be that if they die early – like within the next five to 20 years – the bequest may be much lower compared to if they had not opted-in to CPF Life.

Let me illustrate this with an example.

If you transfer $123,000 to your mother who is age 65 (date of birth 1.9.1952) – the CPF Life Estimator calculator shows a monthly payout of $654 – $691 and very low bequests of $40,658 – $45,124 at age 75 and $0 – $5,859 at age 80 under the Standard Plan, compared to getting the actual balance in your Retirement Account upon death under the old RSS.

In contrast to the very low bequests under CPF Life above – the actual balance upon death under the old RSS is estimated to be $93,851, $73,272 and $47,254, at age 75, 80 and 85, respectively.

 

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  1. Writing is on the wall: Payout age will be raised to 68 from current 65.

    More good jobs for those in their 60s. Hohoho!!!

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