CPF top-up

[Mi Amigo]

Having obtained PR status a few months back, I am of course now enrolled in the CPF scheme. Looking that their website I see that I can make additional contributions and I'm considering doing this, given the relatively high rate of interest paid on the Special, Medisave and Ordinary Accounts (compared to leaving the money in the bank anyway). Plus I can potentially use funds in the Ordinary account for other types of investments.

Obviously I realise that any money I put into my CPF account will be locked in until/unless I either reach retirement age, or leave Singapore and elect to withdraw my funds. But given the performance of other pension funds, investments, etc., it seems to me that having some additional money locked away in my CPF accounts wouldn't be a bad option.

As I understand it, I can make additional contributions up to an annual total (mandatory + voluntary) contribution limit of $30,600, and tax relief is claimable on top-ups made up to $7,000 per year.

Has anyone else here looked into this? If so, did you go ahead and make some voluntary contributions? Are there any pitfalls I should be aware of?

Many thanks in advance for any feedback on this.

[zzm9980]

I have two additional questions based off of yours:

1) Do "other investments" include eligible property purchases? Sounds like a decent short-term place to park money for purchases you intend to make if so.

2) If you do give up PR and cash out, wouldn't you need to refund that gained interest?

[Mi Amigo]

I believe the answers to both those questions is yes. But I'll be interested to hear from others on all these points.

Edit: Sorry, I mis-read your questions. I meant to say yes to the first one but no to the second, i.e. I think you can keep the interest.

[sundaymorningstaple]

I have two additional questions based off of yours:

1) Do "other investments" include eligible property purchases? Sounds like a decent short-term place to park money for purchases you intend to make if so.

The only eligible property purchases would be an HDB flat. There are investment funds you can buy as well, but only after setting aside a minimum sum (which is going up every year or so depending on anticipated CGI. These funds are also subject to certain limitations. Most who have invested in the various instruments in the last 10 years have lost money or just broke even.

2) If you do give up PR and cash out, wouldn't you need to refund that gained interest?

No. All interest earned on CPF deposits are yours, even if you give up your PR and cash out. The only codicil is that if you do give up your PR, if you want it back in the future (and that's not guaranteed) you would have to replace ALL the funds withdrawn inclusive of the interest AND including all interest that would have accured had the funds been left in place.

If you give up your PR and don't withdraw the CPF it will continue to accumulate interest until such time as you do. Therefore, even that is not a bad deal if you think about it. It only takes a maximum to have the money refunded and electronically wire transferred to any bank you desire.

[zzm9980]

I have two additional questions based off of yours:

1) Do "other investments" include eligible property purchases? Sounds like a decent short-term place to park money for purchases you intend to make if so.

The only eligible property purchases would be an HDB flat. There are investment funds you can buy as well, but only after setting aside a minimum sum (which is going up every year or so depending on anticipated CGI. These funds are also subject to certain limitations. Most who have invested in the various instruments in the last 10 years have lost money or just broke even.[/color]

I always thought private property (condos) were also allowed with CPF monies, you just didn't get grants and such (which only SCs would get anyway?). Is this the case with limitations? Or am I just completely wrong and you can't use any CPF towards non-HDB property?

[sundaymorningstaple]

My mistake. The rules were changed since I bought my property 13 years ago. That what I get for not refreshing the old brain cells......

http://ask-us.cpf.gov.sg/explorefaq.asp

Q: How can I use my CPF savings to buy a private property?
[ Owning A Property > Private Properties Scheme (PPS) > Use of CPF under PPS ]
A: If you are not an undischarged bankrupt, you may withdraw your CPF savings to:

make direct payment to the property developer or vendor to buy a private property
repay a housing loan to buy the private property
repay a housing loan taken to buy land and construct a house on the land

If you are buying a private property for the first time, please click here for a quick summary of the general procedures involved.

Annex A
1. Check Your Eligibility

Make sure you are permitted by law to buy the property you want.
Non-Singaporeans can buy condominiums and apartments in non-condominium developments. If they wish to buy landed property, they must apply to the Controller of Residential Property for permission.

2. Check Your Financing

(a) Cost of property
The total cost of purchasing a property is approximately 105% of the purchase price, including the stamp and legal fees.
(b) Getting a financier

Decide on your financier. It could be a bank or a finance company. Ask the loan officer to advise you on the alternative funding arrangements you can have. Most CPF members fund their purchase as follows:
Member's CPF savings + Housing Loan + Own Cash = Purchase Price
Once you have decided on your funding arrangement, discuss with the loan officer the amount of CPF savings you would like to use for the property, the amount you need to borrow from the financier, and the amount of cash you have to use.

(c) Quantum of loan

Your financier may grant you a loan of up to 80% of valuation limit (VL) if you do not have any outstanding housing loan at the time of property purchase. Otherwise, the maximum loan you may secure is 60% of the VL. The VL is the lower of the property price or property value at the time of purchase. You would therefore need to ensure that you have enough cash to pay the balance of the purchase price.

3. Buying A Property

It would be good to know the range of property you can afford after checking with your financier. Next, you need to engage a lawyer to advise you on the process of buying a property and later, to handle the legal documentation.

(a) For a completed property
Once you have made an offer to the developer or seller to buy the property, you would be asked to make a cash payment (usually 1% of the purchase price) and sign an Option to Purchase. The Option gives you the exclusive right to buy the property for a limited period. During this time, your lawyer will do a preliminary search on the property.
If you decide to proceed to buy the property, you must exercise (accept) the Option by paying the balance of the cash payment (usually 4% or 9% depending on agreement between seller and buyer) within the period stipulated in the Option. This is to confirm your intention to buy the property.

Your lawyer will advise you on the legal procedures and follow up with the seller's lawyer on the Sale & Purchase Agreement, legal documentation for the use of your CPF savings and housing loan, payment of the balance of the purchase price, etc.

(b) For a property which is still under construction
Once you have selected the property, you will have to make a cash payment (usually 5% of the purchase price) for the Option to Purchase from the developer. The balance of the purchase price will be paid according to the schedule of progress payments set out in the Sale & Purchase Agreement.

As in the case of buying a completed property, your lawyer will advise you on the legal procedures, payments and documentation.
Note: The information in this Annex serves as a guide only. Members should seek advice from their lawyers, financiers or housing agents if they need further clarification.

[Mi Amigo]

Thanks SMS; interesting information. I'm still curious as to whether anyone on here has been tempted to make, or has actually made, voluntary CPF contributions, and if so, how they feel it has worked out for them.

[sundaymorningstaple]

One other thing to take note of....

Your contribution, including voluntary top up contribution are apportioned between the Ordinary, Special & Medisave accounts. Only 53 to 64% of your contributions will actually go into the Ordinary account. The Ordinary account only draws 2.5% Interest while the Special & Medisave accounts draw 4.0%. Additionally, the first 60K (combined total of all three accounts) will draw an additional 1%.

You cannot withdraw any of the sum in the Special account or Medisave accounts (medisave can be used to pay hospital bills, etc.). So for every $1000 you contribute you will only be able to use that which is in the Ordinary account to purchase property.

You cannot designate between the three with the exception of contributions only to Medisave if you are self employed.

[Mi Amigo]

Very valid points, thanks SMS; I found the same information after my earlier posts when I spent some more time browsing round the CPF site. I'm still somewhat tempted to put in an additional $7000 a year and get the tax relief. From a CPF calculator, my own allocations would be as follows:

Ordinary Account $3,033.80
Special Account $1,866.20
Medisave Account $2,100.00
Total: $7,000.00

So I'd get 5% interest on $3966.20 and 3.5% on $3,033.80 (at current rates). Not spectacular when inflation is taken into account, but still better than leaving it in the bank. I wouldn't specifically be looking at the Ordinary Account as a means to buy property (that's not something I'm thinking of doing anyway).

Obviously this would only form a small part of my investment / retirement strategy, i.e. having some funds in a safe area that will at least hold most of their value over time.

I'm still interested to hear whether anyone has actually made additional contributions, or perhaps those who looked at it decided that the restrictions outweighed any benefits?

[sundaymorningstaple]

Actually, in two years I'll start making voluntary contributions once my mortgage is paid off. 90% of my mortgage is being paid by cash due to my age (contribution are insignificant to say the least) but after I finished the mortgage in 19 months, I'll start putting the mortgage payments into their at least up to the maximum allowed. Primarily for the same reason. There isn't a better plan for the first 60K and I reckon for the balance as well if you balance it on risk factor equality. This only works though if you are a PR. If you take up citizenship you are stuck with it being in the special/retirement accounts and medisave accounts. If you are a PR and decide to retire elsewhere, then you get, as mentioned before, the whole lot including the interest.

[Mi Amigo]

Thanks SMS, your info has been very helpful as always.