By Leong Sze Hian
I refer to the report “Govt to explore ways to increase use of CPF for buying HDB flats” (Channel News Asia, Mar 27).
One possible implication or policy change may be this: cash profits from the sale of HDB flats may have to be kept in one’s CPF account, and cannot be cashed out.
The possible implications of such a change may be as follows:-
- HDB prices may crash when people realise that no cash profits can be made
- Home buyers may prefer private property compared to HDB flats
- Those who subscribed to the asset enhancement policy may find that they have put all their eggs into one basket (HDB), and can no longer be monetised before retirement
Will HDB flat-owners only be able to monetise their HDB flat at age 55, 65?
What portion of the cash profits from the sale of HDB flats will be locked up in the CPF? All? 50 per cent? Will interest that would otherwise have been earned from the cash utilised be allowed to be cashed out?
At the current rate of increase of $15,500 per annum for the CPF Minimum Sum and Medisave Required Amount, the total at age 55 is projected to be $197,000, $352,000 and $507,000, in 2013, 2023 and 2033 respectively.
So, if you sell your HDB flat, but have less than $352,000 when you turn 55 in 2023, does it mean that you can only draw $5,000 at age 55 (unless you have property to pledge for up to half the Minimum Sum), with the balance payable as a monthly life annuity from age 65 under the CPF Life scheme?
Five things to note
With the recent CPF changes and the expected changes, there are 5 things that you may need to know before you turn 55.
ONE:
Upon reaching 55, if your CPF Special Account (SA) plus property pledge, is insufficient to meet your CPF Minimum Sum (MS), which is currently $117,000, your CPF Ordinary Account (OA) balance will be transferred to your CPF Retirement Account (RA) to make-up for the MS shortfall.
What this means is that you may no longer be able to use your OA balance to pay for your home mortgage.
So, if you are affected by this policy, use your entire OA balance to re-pay your mortgage before you turn 55.
TWO:
If you plan to downgrade to a smaller flat, the sales proceeds (CPF utilised and accrued interest) of your flat will also be transferred to your RA, if you have a MS shortfall.
What this means is that after setting aside the MS, you may have less available from your flat sale proceeds to pay for your smaller downgrade flat.
So, if you want to downgrade, do it before 55.
THREE:
Upon reaching 55, your OA and SA that is transferred to your RA to meet the MS, can no longer be invested.
So, if you want to invest your OA and SA, do it before 55. (note: first $20,000 of OA and $40,000 of SA cannot be invested.)
FOUR:
For those age 55 and younger from 2013 onwards, CPF Life will be compulsory.
So, if you plan to migrate, give up your Singapore citizenship, and want to withdraw your entire CPF as a lump sum, you should try to do so before 55.
Otherwise, only the surrender value of your CPF Life (depending on which of the 4 plans you choose) may be given to you. If you plan to migrate, choose the CPF Life Basic plan as it gives the lowest monthly annuity payout with the highest residue value.
FIVE:
When the OA is transferred to the RA to meet the MS at age 55, the OA also can no longer be used to pay for one’s own or children’s tertiary education fees.
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To all who complain about “PR/New citizens” drive HDB prices up, HDB should not be for profit and so on… here is your retribution. Thanks to that new proposal the HDB market will crash and while you be able to buy cheaper, you will never profit from it :-)
PAP is getting OUTRAGEOUS…! They are taking away the LAST possible avenue for people to resolve their financial problems. This is getting TOO MUCH…
I tell you, even a Domessticated Dog can & will bite back when cornered.
This will be another incentive for Singaporeans to emigrate overseas.
Give up your citizenship and withdraw all your CPF after you have sold your flat.
Better still, vote for change.
Yes I might just get to see Housing Crash after all!!! This is going to be so entertaining!
Oops. I almost forgot.
Thanks Mr Leong for the financial advice regarding CPF. I found it useful.
GOD Bless you.
Actually, I don’t get how would the hdb prices crash…..lower supply of HDB since less people will want to sell but young couples/singles above 35/PRs/Foreigners who needs to rent flats still contribute to the increasing demand. Land Cost would always be factored into new flats which means as land gets less scarce, prices of flats will still continue to rise. Resale will be harder to come by, meaning under the table COV would continue which actually might increase the actual cost of HDB
The PAP have really lost it from the “good, better, bestest” to the Vivian for delivering food to needy Singaporean. I’m really lost for words. If any believes them it must be only their own party people, but I think some of them are really feeling the heat and ashamed too. Met a retired banker last night. He said probably all the info going to the top has been filtered and only the good things presented to them. Isn’t this the case of the last election. I really do not know what to think anymore of the PAP. I think too they really can’t sweeten the ground anymore as the taste in the mouth is really too bitter to wash off.
The prices of house had run away…. now cars too are running away I dont know what is going to happen NEXT
@LOL. I am not know your age group but back in 1996, a lot of people say the same thing as you. They do not know how the property prices will drop in Singapore because land is scarce. Many rush to buy property at sky high prices (back then) and in 1997 the market crashed! The property market stayed soft from 1997 to 2006 (9 years). Many got “burned”.
You may say that with the prices now proves that if you have holding power, the property prices are now higher than before. However I see that the property prices rise because of the demand way outstrips the supply and there a bubble of speculation forming. The “one-off” opening of floodgates to allow foreigners to come in resulted in a good run for property prices. However when the supply catches up and with economic cycles getting shorter (time between recessions); the next plunge may be looming.
A real example, my good friend bought his house at $880k in 1996. After the market plunged, the property price hover around $500k to 600k for many years. Last week he got a valuation of $930k. Wow, $50k profits after 14 years and imagine the huge bank interest incurred. My advice, shed the thought that property prices in Singapore will always keep going up. Buy within your means and choose the house wisely. The prices are way too high now.
I would like to know if this only affect the owner occupying the HDB flat, what about the owner of private property,are they affected by the new policy?
Another great article by Leong.
It is evident by now that the govt is using CPF life as a masked estate tax on ordinary Singaporeans, when they had remove that tax from the rich.
Also, if you check out last year’s monthly payout for CPF life for 60K and this year’s, you will be surprised (maybe not) that the projected payout for this year is less than last year’s.
The answer why is self evident.
They are using this technique to clear up the balance sheet of the govt failed investment overseas.
There is no doubts about it.
I just hope to see singaporeans stomp the papies govt one day soon, better if some lives of those running and barking dogs are being taken by whatever mean then the rest will just shut up and LL. I just pray hard, yes very hard to the day to come.
The motive behind this coming CPF ruling is….PAP govt want to get rid of older sgian by squeezing them high and dry…ultimately forcing them to migrate as the only way to take out all their CPF saving instead of lying in CPF cum Temasek pockets.
Older sgian gone…new migrant (FTs) are welcome to replace them…. very shrewd thinking from our clever MIWs. We sgian voted them in to screw our asshole.
Keep up the good work PAP……see how long you buggers can last?
Hi Seow,
Thanks for the advice.
Your point on HDB prices going down, will never happen, cos
they control the valuation and the pricing of new flats.
No way prices will go down, with demand and PAP’s FT policy.
The real reason for this holding of cash in CPF is going to happen,ie
Govt has lost too much in Temasek and GIC.
They need the funding, where else to touch, but CPF.(a large sum as well, billions)
If they want to control HDB prices, there are other means. eg: like reducing CPF amt for HDB housing usage.
They can increase the levy for resale pruchases, introduce levies for PR’s and many other mechanisms.
It can never be to control HDB prices.
They are making it seem like as if it is for the HDB flat prices.
This policy, if implemented will eventually see Singaporeans being unable to enjoy their own retirement fund.
They have been using HDB and CPF to roll and re-roll their pet fundings, that one will be amazed, if it came to light.
No wonder Ong Teng Cheong complained and they have a puppet to guard the reserves now.
The elections coming and i think most (66.6%) deserve what they get and will get in the future.
several new ‘foreign talent’ colleagues i know of recently commented how lucky singaporeans are to have a clean and good gonmin.
i said, wow you just came here not too long know so much already? how did you get to know?
they replied, “from the newspaper”.
I am sure this article may not reach the masses via the newsapapers?
From an accounting POV, HDB is never an asset. An asset is one that generates owner’s equity but in Singapore, our HDB it is forever cashflow outgoings. The initial monthly mortgages with interest expense over 30 years period. Even with buying direct from government, there is yearly depreciating charges because of the limited “so called” 99 years lease which till date none HDB has fully lived out. Even when we have fully financed our mortgages, there will be upgarding projects and the eventual end/point block programs.
The minimum sum was introduced in the 90s when the losses from SuZhou was revealed.
Also, if you pledge your property with minimum sum, u will not be able to leave your property to your son/daughters.
It is all a scam to screw you and your hard work.
Seow, you are the most wise. Yes it’s unreal that property prices are so high, those sensible property agents are saying so. The crash is likely to happen with the next downturn. Jurong Island projects are slowing down or stopped and no big projects are coming on stream. The government are letting the property prices rise because they add up to the GDP figures just like the car prices now. It too good to be true. So buyers beware, buy within your means, there could be another round of job cuts, DBS economist are predicting 60 K cuts this year, crystal ball but just take care. At the end of the day, we have a choice to make our lives and the lives of our children better, choose wisely at the vote. I’m not part of the 66% that voted for the PAP.
The best thing to do is to kick the PAP out in the next GE. Then we Singaporean will no longer have to suffer under their arrogant rule.
the HKers in the 90s also thought they could make a living from selling property.
Even people like terisa (now in the nanny show on TV) only have 1 property now.
Watch your back when it comes to property.
Best way to deal with this? Don’t buy a HDB flat. Vote with your wallet. Getting a HDB flat is not a must-do thing in life. You people should be smart enough to know of the alternatives to getting a HDB flat. Why feed more money to an organization that still refuses to come clean on building costs?
Luckily I try to keep CPF contribution as minimal as possible since I can control it as a boss :)
Pay myself minimal wage.. but let the company profits be taxed at corporate instead. That way, I don’t contribute CPF :)
I always laughed when people tell me how much they have in CPF. So what. Money you can’t touch is not your money.
the issues are not just about the hdb flat:
it is the fact that the returns from the CPF is way too low.
2.5% is not high for the long duration that we are passing monies to these pigs.
Mr Lee,just because of 60 cases of ‘beach homers’,you come out with this equation?
Damn confused. It makes no sense to me that it is my savings but I am being told what to do with it, and even worse, told I cannot have it. Heh?
In this way HDB/MBT can shut our mouths to the complains of HDB price hikes & perhaps slow down our sentiments against them. I guessed its all came too late.
The roots of the cause were from HDB/MBT that they do not have a proper protocol to limit PRs to buy HDB flats which in turn being heavily abused by them at large.
Great number influx of foreigners into Singapore is proportional to the time HDB prices started rocketing high here.
I just got to know an Indonesian foreigner whom just obtained his PR after he first started working in Singapore for 2 just months.
Its the WORST & FAILED policy that HDB/MBT has implemented so far in hope to engaged on the huge influx of ‘RICH’ PRs here to fill up their past ‘unwanted’ units.
Even Grace Fu had proven us that PRs are the main contribution to the recent price hikes. That greatly contradicts MBT & other MIW’s justifications against our ground sentiments.
I do not know what to say anymore!
//Charles
As if property prices rose because too much CPF monies were thrown at the HDB?
If that was the case, then allowing CPF monies to be taken out is the solution.
The real culprit is the rules allowing people to put only 10% downpayment and selling after 1 year.
Of course, letting 1 million PRs in in 1 year is major of major factors driving prices up.
Allowing CPF monies to be withdrawn is not responsible for the ramp up in prices.
For one, it removes the availability of capital for the property/hdb purchase.
What the government is trying to do is simply to protect Singaporeans and ensure that they have sufficient funds when they retired. This is a Government that looks decades ahead with a heart for its people.
There are too many Singaporeans who sold their flats and squandered away the sale proceeds within a short period of time. Thereafter, they would appear in front of their MPs to beg for rental flats.
If this is not stopped in time, the Government will face with an unworkable situation in 20, 30 years’ time.
@My Views, protect you by locking your money in CPF? You must be kidding!
I am tired of a government that is forever telling us what to do and what is good for us, when we are actually paying their salaries and should instead, be telling them what to do for us.
We just want our money back, when it due to us. Please do not conjure up fancy schemes to hold on to our money just because the government coffers are depleted from the failed investment gambles in Temasek and GIC, using our money.
//my views
//The Minimum Sum was set at $80,000 when the system first started in Year 2003.
minimum sum was 20K then 40K in 90s.
//my views
// it will be capped at $120,000 in Year 2013.
go and check the website cpf, it is not 120k in 2013.
it was meant to be when it was 1st announced.
then they change it again and again.
//my views
//What the government is trying to do is simply to protect Singaporeans and ensure that they have sufficient funds when they retired.
as if their planning is sufficient?
as if it was not to cover their own investment losses?
as if the return rate they give you is sufficient? might as well buy an insurance policy and put in 1k a month from 18 onwards. you end up with a lot more monies that what you have in the cpf -housing loan scheme.
their medisave scheme is another cover up scheme to cheat you of your savings. once doctor know how much you have in your cpf, they charge whatever they want.
//my views
//There are too many Singaporeans who sold their flats and squandered away the sale proceeds within a short period of time. Thereafter, they would appear in front of their MPs to beg for rental flats.
the number of govt cock ups in 2007-2010 is bigger than the number of people who sold their flats and lost their monies on chinese women, who were let in by lax govt rules.
as lhl was not doing this to cover up losses by his wife and his father.
//my views
//Thereafter, they would appear in front of their MPs to beg for rental flats.
I knew the earlier press statements on building of rental flats is a scam.
They are not going to do it.
As if rental flats is the best place to live in the world so that they need to beg an Mp for it.
If your hdb flat is so good, who wants to sell.
Let me tell you this: if you think stopping people from selling will help cover up your wife’s losses in TH/GIC, you think again.
People might just decide to end their lives like they did in 2006. Then you will be in the same problem again.
A Comment said — The CPF money saved belongs to the rightful citizens who, will utilise their
money upon their retirement, as they deemed fit. We do not need a nanny government to tell us what we should do with our own money.
I think even with the best of intentions, the PAP government must resist the temptation to micro-manage money belonging to its citizens. Some may squander it – no doubt. But it makes the majority feel that BIG BROTHER is getting tooooo closeeee for comfort and dictating every detail of their lives.
The CPF Life is too good to resist and many were already enticed.
I hope they know what they are in for. Good Luck to them.
//old man
yeah right, CPF life is too good to resist that the govt has to impose it on people with 40K at 55 under the new 60K at 65 rule.
What a joke!
I am impressed by PAP for this new rule proposed if not approved already, at a time before the election. It demonstrates how confident they are and how well they read the ground sentiments.
#New Era,
If every Singaporeans migrate in order to cash out their CPF, what will happen to Singapore; a country with only PRs and foreigners and their ruling elites the only Singaporean left, how interesting?
They may even come up with new regulation to prevent you to cash out you CPF in one lump sum when you migrate. They may pay you in monthly instalments when you migrate, this is their last card to prevent a run down on the liquidity ratio of CPF for withdrawal. The liquidity in our CPF must be very low now that they are trying all ways and means to top up and slow withdrawals.
Thanks to the Majority, we have the Policies.
Majority, you have done a great deed.
I will remember you.
Many who turned 55 are getting smarter by leaving only the minimum sum required by purchasing annuity from insurance companies rather than leave with CPF Life which does not guarantee the monthly payout in any one year.
They have even gone to the extent of withdrawing every cent on their birthday so that they can do what they want with their money and are not interested in the 4% interest.
The only thing left is the minimum amount required in Medisave.
Everyone should do that before their money go up in smoke.
so far, the policies are there made possible by the Majority’s decision.
Locking-in capital gain in CPF is a good idea if it only applies to PR. This will stop them from speculating in public housing.
You guys can continue talking and reasoning why tis n tat here till the cow comes home. Do you people ever wonder if our entire cpf savings are still around or not? or its already an empty vault, who can confirm when even our dear mr president said “I dunno”???? Don’t be shocked to death when the papies collapsed and all their shits start to surface.
No logic in Singapore. what’s the point of contributing to CPF when in the end you can’t even see it?