Separating fact from fallacy about Central Provident Fund (CPF)
By Christopher Tan, Published The Sunday Times, 3 Dec 2017
Like me, you might have recently received messages or read rumours circulating on social media about your Central Provident Fund (CPF) savings. When I saw these messages posted all over Facebook, I knew I had to clarify them as they were not completely true. Let me touch on two of these messages.
The first message claims that when you die, your nominees will not receive your CPF savings in cash. Instead, it said your CPF savings will be deposited into your nominees' Medisave Accounts instead. This is not true.
Part of the message or rumour on CPF nominees goes like this:
"Everybody please note that when we kick the bucket, all our balance CPF money will not be automatically deposited into our nominated NOK (next of kin) bank account in CASH.
"CPF board will instead send all your balance CPF money to your nominated NOK CPF MEDISAVE ACCOUNT. There is a separate form to be filled if cash or cheque is required. So better know this.... Die die they don't give to NOK the CASH."
The second message relates to CPF refunds from property purchases using CPF savings.
Part of the message goes like this:
"Recently, I was asked by CPF Board to return the total amount I used my CPF money plus interest when I sold my apartment. I was shocked and asked CPF staff why I need to return my money when I am already 66 years old, they said it is a new rule regardless of your age.
"Why should I pay interest for my own money and why should I return my money when CPF had released my fund when I reached 55 years old? Please let your friends and family members know of such hidden and unreasonable CPF rules which will affect the seniors."
Unfortunately, both messages contain half-truths and the tone of voice used might generate public mistrust in the CPF system. So allow me to clarify them.
CPF NOMINATION
When it comes to the distribution of CPF funds upon your demise, the nomination rules are stated clearly on the CPF Board's website.
If you did not make a CPF nomination, your CPF savings will be transferred to the Public Trustee's Office for cash distribution to family members under the Intestate Succession Act or the Inheritance Certificate (for Muslims).
If you do wish to decide how your nominees should receive your CPF funds, you should make a nomination and there are three ways to do it - namely, via cash nomination, the enhanced nomination scheme (ENS) and the special needs savings scheme (SNSS).
The ENS allows you to distribute your CPF funds to your nominees' CPF accounts upon your demise while the SNSS allows parents to nominate their children with special needs to receive the CPF savings due to them on a monthly basis and in cash.
It is administratively more cumbersome to opt for the ENS (you have to go to the CPF Board) and SNSS (you have to fulfil the administrative requirements of the Special Needs Trust Company) than doing a cash nomination.
So, in summary, I don't think it is fair to say that the CPF Board "die die... don't give to NOK the cash".
CPF REFUNDS FROM PROPERTY PURCHASES
As for the issue of CPF refunds from property purchases, it is important to understand that the primary purpose of our CPF savings is to ensure that our basic needs can be met in retirement. Simply put, that means ensuring that we have a house to live in (whether rented or owned) and cash for monthly expenses.
With this overriding purpose in mind, let's look at two possible scenarios when you sell your house that you have paid for using your CPF funds.
SCENARIO 1: SELLING YOUR HOUSE BEFORE AGE 55
In order to ensure that you have sufficient CPF funds set aside at age 55 for your retirement in your Retirement Account (RA), the amount withdrawn to buy your house plus the accrued interest (Ordinary Account interest of 2.5 per cent per annum) that you did not earn because you took the money out to buy your property must be refunded into your Ordinary Account.
You can, of course, buy another house using this same CPF money. But if you sold your property at market value and the sales proceeds, after paying the remaining housing loan, are insufficient for the refund, there is no need to top up with cash.
SCENARIO 2: SELLING YOUR HOUSE AFTER AGE 55
If you have pledged your property to withdraw savings in excess of the Basic Retirement Sum (currently at $83,000), you will have to refund the pledged amount in addition to the amount you withdrew to buy your house plus the accrued interest.
But, after that, part or all of this amount will be transferred to your RA, up to the Full Retirement Sum (currently at $166,000), before you can withdraw the remaining money in the Ordinary Account.
The purpose is to ensure that at your age 65, your annuity CPF Life payout will be sufficient to rent a room to live in and have a monthly income to meet basic expenses.
In a nutshell, this "refunding" rule is to protect your retirement needs. The accrued interest refunded is still your own money and you can still take it out after setting aside enough for retirement. And by the way, this rule is not new and it can be found on the CPF website, and so definitely not hidden!
Over the years, I have noticed many of such messages being circulated. Although they have well-meaning intentions, they will create public mistrust if they remain unverified.
So, the next time you receive such a message, do check for its accuracy before forwarding or circulating it.
The writer is chief executive officer of Providend, a fee-only financial adviser specialising in retirement planning.
By Christopher Tan, Published The Sunday Times, 3 Dec 2017
The first message claims that when you die, your nominees will not receive your CPF savings in cash. Instead, it said your CPF savings will be deposited into your nominees' Medisave Accounts instead. This is not true.
Part of the message or rumour on CPF nominees goes like this:
"Everybody please note that when we kick the bucket, all our balance CPF money will not be automatically deposited into our nominated NOK (next of kin) bank account in CASH.
"CPF board will instead send all your balance CPF money to your nominated NOK CPF MEDISAVE ACCOUNT. There is a separate form to be filled if cash or cheque is required. So better know this.... Die die they don't give to NOK the CASH."
The second message relates to CPF refunds from property purchases using CPF savings.
Part of the message goes like this:
"Recently, I was asked by CPF Board to return the total amount I used my CPF money plus interest when I sold my apartment. I was shocked and asked CPF staff why I need to return my money when I am already 66 years old, they said it is a new rule regardless of your age.
"Why should I pay interest for my own money and why should I return my money when CPF had released my fund when I reached 55 years old? Please let your friends and family members know of such hidden and unreasonable CPF rules which will affect the seniors."
Unfortunately, both messages contain half-truths and the tone of voice used might generate public mistrust in the CPF system. So allow me to clarify them.
CPF NOMINATION
When it comes to the distribution of CPF funds upon your demise, the nomination rules are stated clearly on the CPF Board's website.
If you did not make a CPF nomination, your CPF savings will be transferred to the Public Trustee's Office for cash distribution to family members under the Intestate Succession Act or the Inheritance Certificate (for Muslims).
If you do wish to decide how your nominees should receive your CPF funds, you should make a nomination and there are three ways to do it - namely, via cash nomination, the enhanced nomination scheme (ENS) and the special needs savings scheme (SNSS).
The ENS allows you to distribute your CPF funds to your nominees' CPF accounts upon your demise while the SNSS allows parents to nominate their children with special needs to receive the CPF savings due to them on a monthly basis and in cash.
It is administratively more cumbersome to opt for the ENS (you have to go to the CPF Board) and SNSS (you have to fulfil the administrative requirements of the Special Needs Trust Company) than doing a cash nomination.
So, in summary, I don't think it is fair to say that the CPF Board "die die... don't give to NOK the cash".
CPF REFUNDS FROM PROPERTY PURCHASES
As for the issue of CPF refunds from property purchases, it is important to understand that the primary purpose of our CPF savings is to ensure that our basic needs can be met in retirement. Simply put, that means ensuring that we have a house to live in (whether rented or owned) and cash for monthly expenses.
With this overriding purpose in mind, let's look at two possible scenarios when you sell your house that you have paid for using your CPF funds.
SCENARIO 1: SELLING YOUR HOUSE BEFORE AGE 55
In order to ensure that you have sufficient CPF funds set aside at age 55 for your retirement in your Retirement Account (RA), the amount withdrawn to buy your house plus the accrued interest (Ordinary Account interest of 2.5 per cent per annum) that you did not earn because you took the money out to buy your property must be refunded into your Ordinary Account.
You can, of course, buy another house using this same CPF money. But if you sold your property at market value and the sales proceeds, after paying the remaining housing loan, are insufficient for the refund, there is no need to top up with cash.
SCENARIO 2: SELLING YOUR HOUSE AFTER AGE 55
If you have pledged your property to withdraw savings in excess of the Basic Retirement Sum (currently at $83,000), you will have to refund the pledged amount in addition to the amount you withdrew to buy your house plus the accrued interest.
But, after that, part or all of this amount will be transferred to your RA, up to the Full Retirement Sum (currently at $166,000), before you can withdraw the remaining money in the Ordinary Account.
The purpose is to ensure that at your age 65, your annuity CPF Life payout will be sufficient to rent a room to live in and have a monthly income to meet basic expenses.
In a nutshell, this "refunding" rule is to protect your retirement needs. The accrued interest refunded is still your own money and you can still take it out after setting aside enough for retirement. And by the way, this rule is not new and it can be found on the CPF website, and so definitely not hidden!
Over the years, I have noticed many of such messages being circulated. Although they have well-meaning intentions, they will create public mistrust if they remain unverified.
So, the next time you receive such a message, do check for its accuracy before forwarding or circulating it.
The writer is chief executive officer of Providend, a fee-only financial adviser specialising in retirement planning.
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