THE ONLINE CITIZEN
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The CPF Minimum Sum (MS) is the amount a member
has to set aside in his or her Retirement Account (RA) for
retirement needs. The RA is set up when a member reaches 55 years
of age, drawing from savings in the Ordinary and Special accounts
(OA and SA respectively). During retirement, the savings accrued in
the RA will then be disbursed monthly to the retiree.
At present, the MS is set at
$117,000. It will rise to $123,000 with effect from 1
July, as reported in the news recently. CPF
members are allowed to pledge property that was bought with CPF
funds toward the MS, with the value pledged capped at 50 per cent
of the MS.
According to the CPF’s web site,
the property pledge for the CPF MS
at age 55, has been changed to the following: “If you are unable to
set aside your full Minimum Sum in cash, your property, bought with
your CPF savings, will be automatically pledged for up to half of
the Minimum Sum”.
The important thing to note with
this rule is that if the shortfall is less than half of the MS (or
$58,500, at the current level), the remaining value of the property
($58,500 less the MS shortfall) becomes irrelevant.
This is different from a previous
“property pledge” rule, as seen in this 2003
CPF Board press release, which allows members to
choose to pledge their property for up to half the MS.
Under this rule, members who are
unable to meet the MS are allowed to pledge their property for up
to the full 50 per cent of the MS – rather than just making up for
the shortfall. Therefore, if their MS shortfall is less than the 50
per cent of the required amount, the remainder from the property
pledge would translate into funds available for withdrawal.
Here’s an illustration. Currently,
in the example given in the new CPF
booklet “Reaching 55”, a person with $100,000 in
the CPF Ordinary (OA) and Special Accounts (SA) can withdraw 30 per
cent, which is $30,000.[1]
Under the new “property pledge”
rule, the MS shortfall of $47,000 (current MS of $117,000 less the
$70,000 retained in the RA) will automatically be pledged with
property.
Under the old “property
pledge”rule, this person would have been able to pledge the full 50
per cent of the MS, which is $58,500. This means he or she would be
able to withdraw $41,500 (from the $100,000 in his or her OA and
SA, less $58,500), as compared to just $30,000 under the new
rule.
Another implication of this new
rule will take effect in 2013. For members who turn 55 on or after
1 January 2013, the CPF cash balance can only be withdrawn after
setting aside both the CPF MS and Medisave Minimum Sum. If this is
not met, they can withdraw only $5,000 from their CPF account,
regardless of any property pledge.
With the MS in 2013 being likely to
be $135,000, assuming the current rate of increase of $6,000 per
year remains constant, there may be more people who will face an MS
shortfall when they turn 55.
Furthermore, since February 2009 ,
property sale proceeds must be retained in the
RA if there is a shortfall in the MS. In some
cases, where the member’s MS shortfall is too great, the property
sale proceeds retained may be even more than 50 per cent of the MS.
Part or even all of the net sale proceeds may not be available for
the member to buy another property.
The view that one’s HDB flat is an
asset enhancement – something one can monetised for retirement –
may increasingly become less valid, with the MS increasing every
year.
Given all the significance this
“property pledge” rule change has on CPF members, it should be
asked as to why there was no announcement made in Parliament or to
the media?
To be sure, even the previous CPF
booklet “Reaching 55” (attached) covering the period 1 July 2009 to
30 June 2010 showed the new “property pledge” rule.
So when exactly was this rule
changed?
__________________
By Leong
Sze Hian