4 Reasons Why Topping-Up Your Loved Ones’ CPF Account Is Better Than Just Giving Them Cash
I didn’t need Moral Education lessons in school to know that giving allowance to my parents once I started earning was the right thing to do. The 好公民 (literally, “Good Citizens”) textbooks for Moral Education classes were in Mandarin, a language I had long decided I was never going to be able to learn or master.
In fact, the only reason I have a cushy writer’s job at all was because my parents spent a significant amount of their savings to get me an Engineering degree I never ended up using. So, yeah, giving them a small allowance? Definitely the moral thing to do. Definitely not because I feel ridiculously guilty or anything.
But you know what? For those of you who give allowance to your parents, how do you do it? A fixed sum of money each month? A supplementary credit card? Here’s a thought that may be worth considering: how about topping up their CPF Retirement Accounts?
“WHAT?! Why on earth would I want to do that?” we hear you say, but hear us out.
Topping-Up the CPF Retirement Account
The CPF Board actually allows you to top up another person’s CPF Account from your Ordinary Account, but the ability is limited only to your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings. If they are below the age of 55, the money goes into their Special Account.
If they are above the age of 55, it’ll go into their Retirement Account. Of course, you can only give what you have, so it has to be any excess above your Full Retirement Sum. There is also a limit to how much you can give them, which means they cannot have more than their Full Retirement Sum in their CPF after the top-up.
But, why is topping up your parents’ CPF Retirement Accounts possibly better than giving them cash in some cases? Here are 4 reasons.
1. CPF Retirement Account gives you better interest rates
Currently, your Ordinary Account (OA) gives you only up to 3.5% per annum in interest. Your parents’ Retirement Accounts, on the other hand, can earn up to 5.0% per annum in interest. From 1 January 2016, CPF members aged 55 and older will earn an additional 1% interest on the first $30,000 of their combined balances. Simply put, an amount of $10,000 can earn up to $350 per year in your Ordinary Account but up to $500 in a Retirement Account. Putting that excess money from your Ordinary Account in a Retirement Account means letting it work harder.
After all, you’re going to be giving it to them anyway, right? Right?! And they are hopefully saving it for retirement, right? Right?!
2. CPF is principal protected
Unlike most other investments, all monies in CPF are principal protected. This means that no matter how bad the economy is doing, you can be sure that the money in CPF is secure. (Unless you’ve used some of it through the CPF Investment Scheme, but that’s another story.) So even if you feel you could be putting your money in some other investment scheme and giving the dividends to your parents as their allowance, there’s no guarantee that your investment in secure, even if it’s claimed that the investment returns are better.
In fact, with the interest rate of the CPF Retirement Account reaching up to 5.0%, you’re probably able to get just as much returns as some simple investment products. And those aren’t principal protected!
Maybe the only other thing that is protected is the Singapore Savings Bond, but that’s a story for another day.
3. CPF LIFE means monthly payouts for life
With the recent move towards CPF LIFE, it now means that your parents, should they be on the scheme, will be able to receive a fixed monthly payments for the rest of their life. This infinitely more convenient than having to set up a standing order with a bank to make regular transfers to their account.
Not only that, it also means that you don’t need to worry about whether you are able to make payments for that month or not. CPF LIFE ensures that your parents will receive a monthly payout based on the amount in their Retirement Accounts for the rest of their life. Paradoxically, this means that even if they have used up all the money in their Retirement Account, they will still continue to get a monthly payout.
4. Enjoy the side benefit of tax reliefs!
As if you needed more reasons to be encouraged to top-up your parents’ CPF Retirement Accounts, you also get tax relief on the amount that you’ve topped-up, up to $7,000 per calendar year. This is on top of any tax relief you enjoy from topping up your own CPF accounts, up to $7,000.
One more thing to note about topping-up the CPF Retirement Account
Of course, the intention of topping-up your parents’ CPF Retirement Accounts is to ensure that they get a regular monthly payout for life. Therefore, your parents will not be able to withdraw the amount you’ve topped-up, whether through paying for investments, insurance or housing, or by withdrawing it by exempting themselves from the Retirement Sum Scheme or CPF LIFE.
So for those of you who think that this is some sneaky way to get access to your CPF, sorry, but they’ve already predicted the possible abuse of the scheme.
Have any of you applied to top up your loved one’s CPF accounts? Share your experiences with us.