The 55 age trap for housing

[PNGMK]

When you turn 55 CPF grabs the minimum sum of money from your SA and OA (the min sum is quite a lot) and puts it into a Retirement Account. If you have used funds from your OA for housing that debt is still owed to your RA. IF you sell the house/flat you used OA for the funds from the same go into your RA and CANNOT be reused for housing.

This effectively means that if you need your CPF for housing you cannot upgrade or downgrade after 55. Couple that into the 5 year min occupation rule and you really can't swap HDB flats after 50 years of age.

Just something to keep in mind. Fortunately I personally bought very well in a private place (no min occupation period) but I know a few PR's running into this as they get older. (edit - changed homes to HDB flats).

[BBCWatcher]

It's a "trap" only if you haven't planned adequately for retirement. The minimum sum isn't much at all in retirement terms. "Working as designed."

[PNGMK]

IT may not be designed as a trap but it is a very effective one-way door for some people who are now stuck in properties that are not ideal. I am not sure everyone is aware of the subtleties in CPF rules hence my reason to high light it.

If you couple in the "new" taxes for PR's and non citizens (i.e. ABSD) it has become very hard or expensive to upgrade/downgrade or move apartments in Singapore once you're in the market.

[BBCWatcher]

Yes, add that potential problem to the list of problems that a person age 50+ starts to confront if he/she hasn't been saving enough for retirement. Singapore isn't the only place this problem crops up, as it happens.

Basically, if you're in this situation, the government doesn't make it easy to make a lateral property move or to upgrade. However, you can still usually downgrade, i.e. find a less expensive property (usually meaning less space) that you can still afford after funding your CPF minimum sum. And that often makes sense anyway with kids moving out (hopefully) and a shift into "retirement mode." Or, if you prefer, if you've overextended yourself on property relative to more fungible savings, the government "nudges" you to correct that problem.

Individuals in this situation also have the option to terminate their PR status (or even citizenship potentially), sell their properties, leave Singapore for more affordable retirement destinations, and draw down CPF. In general I would prefer they take that last step in the form of an annuity starting at a reasonable 60-something retirement age since it's a good, safe investment and worth holding. Leaving Singapore might be the best option of all in this situation.

[PNGMK]

BBCW: Do you know if it is possible to pay back the CPF monies used for property without actually selling the property associated with the CPF monies? I can't find an answer to this on the CPF website strangely (the advantage is that an individual could remove any CPF claim to sale of the property in the future by repaying any monies used - it's something I've thought about for some time).

One final comment on the property and age scenario - apart from Japan which allows mortgages to be passed onto descendants I see a real problem developing in Australia (and the UK) where young people simply can't get into the property market in time... saving a 10% or 20% downpayment and then taking on a 35 year mortgage needs to happen quickly if they want to be able to pay it off before retirement. Too many people missing out and now trying to buy post 40.... which leaves less than 20 years available for repayment (in Australia and Singapore banks do not extend mortgages past the age of 65 AFAIK).

[Barnsley]

It's a "trap" only if you haven't planned adequately for retirement. The minimum sum isn't much at all in retirement terms. "Working as designed."

[BBCWatcher]

BBCW: Do you know if it is possible to pay back the CPF monies used for property without actually selling the property associated with the CPF monies?

I'm not sure, but even if you cannot you can effectively accomplish the same thing by putting money in escrow (so to speak).

Would it make financial sense to pay back CPF before sale?

One final comment on the property and age scenario....

U.K. lending practices now allow mortgages to extend to age 85.

[sundaymorningstaple]

Depending on where the money is currently, it might, given the triple A rating of CPF funds and the higher interest rates it will draw. The way I understand it, is that once you have MOP'd you don't owe anything on the grants by the government and it only if your HDB is being used as security on your Minimum Sum (held as collateral to be paid when you sell your flat) that you have any lien on the property. You can top up your minimum sum with cash topup (and if they are over a certain amount you cannot claim a tax deduction for the excess) but yes you can top it up and clear any lien on your flat. In fact, as you continue to work and contribute CPF you are continually lowering the amount of that lien. I cannot find anything to the contrary.

https://www.iras.gov.sg/IRASHome/Indivi ... up-Relief/

http://www.hdb.gov.sg/cs/infoweb/reside ... an/payment

A direct answer I couldn't find, but considering that, according the ICA, if you were to give up PR and subsequently want it again, and had withdrawn your CPF when you gave it up initially, you are required to replace all the CPF AND the Interest and any interest that would have accrued since the time the CPF had been withdrawn. Therefore, I would think there is a vehicle somewhere within the hallowed halls of the CPF building on Robinson Road, and affirmative answer to the question. might entail a trip down there where you can be shunted from one desk to another for half a day.

[PNGMK]

SMS, that's exactly my point. I'll take the $100,00 out of a 1.8% interest account and stick it into back into the CPF account earning a fair bit more with security as good as Singapore has.

I've asked the question at cpf.gov.sg. I expect it will be misunderstood many times before I get an answer from CPF that makes sense.

[sundaymorningstaple]

The way I see it is you would have to give back the principle and also the interest that would have accrued on those funds had they been left in situ for that period of time. I don't see CPF having a problem with that, frankly, but I doubt that it's been done that often hence lack of black and white on it. It would be worth an investigation as you never know when I might win the US Powerball.

[PNGMK]

I have a coherent, comprehensive answer in my very first response! I'll cut n paste....
****
You can use cash to voluntarily refund the CPF savings you have used for your property without selling the property.

You can refund the following amount:
a) full principal amount withdrawn towards the property and accrued interest; or
b) full principal amount withdrawn; or
c) part of the principal amount withdrawn

Please check the principal amount withdrawn to date and its accrued interest online:
1. Go to www.cpf.gov.sg and click on "Login Here à"
2. Key your SingPass ID and password
3. You will now see your CPF statement and a column of options on the left hand corner of the screen
4. Click on "My Statement". Scroll down to select "Section C" - "Net Amount Used & Amount Available"
5. Click on "Property"

You will not be able to request a refund of the monies once it is credited as the voluntary refund is irrevocable. However, you can reuse the credited monies in your Ordinary Account for the approved uses under the various CPF Schemes.

If it is a full voluntary refund i.e. (a) full principal amount used and the accrued interest, your monthly repayment from your Ordinary Account (if any) will be terminated. Please note that, if your housing loan is still outstanding and if you decide to use your CPF savings to service the housing loan again in the future, you would need to submit a fresh application to the Board through your lawyers. You will incur legal cost in the process as we need to lodge/register a new CPF charge on the property to secure the new CPF usage before we can release your CPF.

To proceed with the voluntary refund, please complete the Form HSD/VR and let us have your cashier’s order or cheque made payable to ‘Central Provident Fund Board’ before 20th of the month.

Please indicate your name, NRIC number, property address and your PPS file reference on the reverse side of the cashier’s order/cheque. Your PPS reference is reflected in your CPF Property Statement showing the amount used for your private property.

You can post the cashier’s order/cheque together with the HSD/VR Form to:

Central Provident Fund Board
Private Properties Section
238B Thomson Road
#08-00 Tower B Novena Square
Singapore 307685

[PNGMK]

With the 20-20 vision of hindsight I'd just say one thing about CPF; don't mess with it. It's a steady, solid compounding investment. IF you can afford to; don't use it for education or property or investments.

[sundaymorningstaple]

Good poo there PNGMK. Thanks. Wish I had 200K laying around fallow.

[PNGMK]

The issue though is cash is king and once the money is in CPF hands... it's no longer cash and I don't think any of us can predict what will happen in years to come with CPF and PR...

[BBCWatcher]

The issue though is cash is king....

Except when it isn't, and you can't predict that either.

But there's a cost to hoarding this particular "cash," a rather large one. In this case you're trading (retiring) Singapore dollar denominated real estate debt (on which you pay interest -- what's the current rate?) for Singapore dollar denominated retirement fund assets on which a AAA-rated government pays an inflation-adjusted well-above-market interest rate. If you can find a better deal than that, great, but that trade is at least quite tough to beat.