Separating Fact From Fallacy About CPF

Last week, I received multiple text messages from my friends with regard to CPF. And when I saw similar messages posted all over Facebook, I knew I had to clarify it. An excerpt of the first message went like this:

“Everybody please note that when we kick the bucket, all our balanced CPF money will not be automatically deposited into our nominated NOK bank account in CASH.

CPF board will instead send all your balanced 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 Next of Kin the CASH.”

The excerpt of the second message went like this:

“Recently, I was asked by the 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 was one that might incite public mistrust on our CPF system. So allow me to clarify them.

Firstly, when it comes to the distribution of CPF monies upon your demise, the rules are stated clearly on the CPF website. If you do 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 wish to decide how your nominees should receive your CPF monies, you should make a nomination and there are 3 ways to do it:

  1. Cash Nomination
  2. Enhanced Nomination Scheme (ENS) Nomination
  3. Special Needs Savings Scheme (SNSS) Nomination

Out of these 3 ways, 2 are cash distribution. The ENS allows you to distribute your CPF monies to your nominees CPF accounts upon your demise whilst 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. And Ironically, it is administratively more cumbersome to do ENS (you have to go down to CPF Board) and SNSS (you have to fulfil the administrative requirements of Special Needs Trust Co.) than doing cash nomination. So, I don’t think it is fair to say that CPF Board “die die don’t give to your NOK cash”.

Secondly, it is important to understand that the primary purpose of our CPF is to ensure we can have a basic retirement. Simply put, that means ensuring that we have a house to stay (whether rent or owned) and cash for monthly expenses in retirement. With this overriding purpose in mind, let’s look at 2 possible scenarios when you sell the house that you have paid for using CPF.

CPF Scenario 1 – Selling Your House Before Age 55

In order to ensure you have sufficient CPF monies to set aside at age 55 for your retirement in your retirement account, amount withdrawn to buy your house plus the accrued interest (Ordinary Account (OA) interest of 2.5% p.a.) that you did not earn because you took the money out to buy your property must be refunded into your OA. 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 is insufficient for the refund, there is no need to top it up with cash.

CPF Scenario 2 – Selling Your House After Age 55

If you have pledged your property to withdraw savings in excess of 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 which, part or all of this amount will be transferred to your RA up to the Full Retirement Sum (currently at $166,000) before taking out the remaining money in OA. The purpose is to ensure that at your age 65, your CPF LIFE payout will be sufficient to rent a room to stay and have a monthly income to meet basic expenses.

In a nutshell, this “refunding” rule is to protect your retirement. 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 is on CPF website and so, definitely not hidden!

Over the years, I noticed many such messages being sent around. Although well-meaning in intentions, these messages if not verified will cause public mistrust. So, the next time you receive, check for its accuracy before resending, lest we contribute to the disunity of our much-loved country.

The writer, Christopher Tan, is Chief Executive Officer of Providend, a Fee-only Wealth Advisory Firm. Besides being financially trained, he is also an Associate Certified Coach with the International Coach Federation. The edited version has been published in The Straits Times on 03 December 2017.

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