If a certain opinion editor of a mainstream newspaper is to be believed, no one really cared about the recently announced changes to the CPF Minimum Sum scheme. She would con, I mean, convince you that your reaction to it was “calm acceptance, or indifference”. Put simply, she thinks most of you, after hearing about all these changes just went, “Huh. Okay.”
But the truth is, there are some pretty major changes that will affect how much you get to withdraw from your CPF account once you turn 65. But all the information put out thus far has been rather confusing. So we’ll break it down for you in simple terms and explain what these changes mean.
So how does the CPF Minimum Sum work NOW?
Okay, to make your life easier, let’s talk about how much “simpler” the CPF used to be.
Right now, in 2015, this is what happens to your CPF when you turn 55. Firstly, your Ordinary Account (OA) and your Special Account (SA) are combined into a Retirement Account (RA). If you’re “lucky” enough to have less than $5000 in your RA, you get to withdraw it all. If you have between $5000 and $166,000 in your RA, then you get to withdraw $5000. If you have more than $166,000*, you get to withdraw $5000 and whatever excess you have.
[* based on the CPF Advisory Board Report Executive Summary]
That means, if you turn 55 this year, and only have $100,000 in your Retirement Account today, you will only be allowed to withdraw $5000. And when you turn 65, because the amount in your RA is lower than the Minimum Sum of $161,000, you won’t get to withdraw anything else. Instead, you’ll have to be satisfied with receiving monthly payments of around $900 from your RA.
And that’s why there have been so many complaints about the current CPF scheme. Because even though you have been forced to set aside thousands of dollars of your income over the course of your working life, all you’ve probably seen so far of it before you turn 65 is just $5000. And in retirement, you’re barely receiving enough monthly payments (from your own money!) to live comfortably in a country where the cost of living has been rapidly increasing.
Okay… so what’s different now?
But what do all these changes mean for ME?
Remember how this year, if you had only $100,000 in your Retirement Account, you can only withdraw $5000 when you turn 55? And then when you turn 65, because your Retirement Account is less than you get about $900 payout a month.
When these new changes take effect in 2016, you who turn 55 next year have a choice of pledging their property and opt for the Basic Retirement Sum of $80,500. This means, if you have only $100,000 in your Retirement Account, you can now withdraw $19,500 at age 55. When you turn 65, you have the option to withdraw another 20%, less $5000, of your Retirement Account.
Even assuming you don’t make any further CPF contributions between 55 and 65, that’s still about $19,700 you can withdraw at 65! However, you will only get $580 payout a month.
So, in 2015, those who turn 55 only get to withdraw $5000, and when you turn 65 you get $900 a month.
Those who turn 55 in 2016, you can now withdraw about $39,200 from your CPF upfront, half of that amount at 55 and the other half at 65. However, you’ll only get $580 a month from your CPF after that.
So basically, from 2016 onwards, you now have a choice between getting a tiny ang pao at 55 and then a larger monthly payout, or two larger ang paos at 55 and 65, but a smaller monthly payout after.
Still got questions? So do we. MoneySmart will be discussing exactly what these new changes mean to our CPF in an upcoming article. In the meantime, share your views about the CPF changes with us.