CPF 'meets retirement needs of majority': CEO

If it tried to cater to high income earners, that would cause problems for others

The CPF scheme would run into problems if it sought to provide for the full retirement needs of everyone, rich or poor, the man in charge of running it has said.

As it now stands, the Central Provident Fund scheme 'fully meets the retirement needs of the people who are below middle income', the fund's chief executive, Mr Yee Ping Yi, said in an interview with The Straits Times.

That means the bottom 40 per cent of wage earners.

It also 'substantially meets' the needs of middle-income earners, which means its retirement coverage extends to about 60 per cent of wage earners.

NOT FEASIBLE

'If you want to design something to literally meet all the needs of all workers of all income groups, you'll need a much higher Minimum Sum, higher income ceiling, then probably fewer people at age 55 can withdraw anything.'

CPF Board chief executive Yee Ping Yi

On CPF returns, inflation, CPF Life

Can CPF returns beat inflation to help members save for retirement?

 

CPF interest rates have done relatively well. From 2001 to 2010, the nominal return on CPF cash balances for Special, Medisave and Retirement Account balances was 4.1 per cent, while the average inflation rate was only 1.6 per cent.

A large proportion of CPF savings of Singaporeans is also invested in housing, which is a hedge against inflation. A typical 55-year old earner would have experienced a total rate of return of 4 to 6 per cent in real terms every year on average, taking into account CPF savings spent on his house. He can also monetise his house to enhance his retirement income, such as renting out a room.

CPF Life seems to offer lower payouts than the Minimum Sum Scheme (MSS), especially for females who are expected to live longer. How useful is CPF Life, then?

 

When the MSS was introduced 25 years ago, not many people were expected to live past 85.
Today, Singapore has overtaken many developed countries in terms of longevity, including the UK, where males and females who turn 55 in 2013 are expected to live to 86 and 89 respectively, which means that about half of them live even longer. So Singaporeans turning 55 in 2013 can generally expect to outlive their Minimum Sum payouts.

It is important to compare how much the member receives over his or her lifetime when comparing payouts of the MSS, which last about 20 years, with CPF Life, where payouts are for life. As with any annuity product, members who live longer will benefit more from CPF Life, and those with shorter lives will only get a little less than under the MSS.

A female member with a balance of $90,000 who outlives two-thirds of the other females of her cohort will receive at least 30 per cent more in total under the Standard Plan, compared to what she would receive under the MSS.

A female member who just outlives one-third of her cohort would receive about 7 per cent less under the Standard Plan, compared with the MSS.

Get smart on property financing

JUST mention "property financing" and some people start to get a headache, especially those who do not like to look at or crunch numbers.

Fret not, we share with you some tips in this article that will help you get savvy on property financing, including the latest rules and finer details.

Property cooling measures - how do they affect your housing loan?

If you have an existing housing loan, for the next property you purchase, you can get a maximum of only 60 per cent financing, which means you will need to come up with at least 40 per cent of the purchase price yourself including at least 10 per cent cash.

If you have an existing property which uses Central Provident Fund (CPF) savings, when you purchase a second property and wish to use your CPF, you need to set aside the CPF Minimum Sum Cash Component, which currently stands at $65,500. This CPF Minimum Sum Cash Component is made up of balances in your CPF Ordinary Account and CPF Special Account.

Here's an example.

If you have $50,000 in your CPF Ordinary Account and $30,000 in your CPF Special Account totalling $80,000, how much CPF savings can you use to purchase your second property? You need to deduct the CPF Minimum Sum Cash Component (currently at $65,500 and revised upwards annually on July 1 of each year). In this example, the maximum CPF savings you can use for the purchase of your second property is $14,500, not the full $50,000 balance in your CPF Ordinary Account.

However, if you have an existing property which is fully paid up, you can still get the maximum 80 per cent financing on your next property purchase. This is regardless of how many properties you currently own, as the maximum 60 per cent financing applies only to people with at least one existing property loan.

Thus, some clients with a very low housing loan outstanding on their existing home will choose to pay off the existing loan in order to qualify for the 80 per cent financing for their next property purchase.

If you are looking at property as an investment and are in no hurry to invest, do not rush to pay off your existing property loan because there is a possibility that this maximum 60 per cent financing rule might be abolished when the property market turns sluggish. If history serves as any guide, in May 1996, a slew of property cooling measures were announced, but these were removed when the property market corrected significantly a few years later.

Taking housing loans on home purchase vs property investment: any difference?

If you ask most people, they will probably tell you that they want to borrow as little money as possible for property purchase, and if they can afford it, they will pay off their housing loan as soon as possible. Is there a difference in taking housing loan on home purchase vs property investment?

For a home purchase, I would suggest taking the maximum financing approved by the bank, which is currently 80 per cent for the first property purchase, even if you can afford to borrow less. Why?

Because to me, I see a housing loan instalment as a form of "rental replacement", because if you decide not to buy a property for own use, you would have to pay rent. So taking a lower loan, in a way, is similar to paying rent in advance, which does not make sense.

Furthermore, a housing loan is the cheapest loan you can ever get; currently the interest rates are about 1.2 per cent - less than half of the 2.5 per cent that CPF pays you.

So for a home purchase, it is okay to take the maximum 80 per cent financing and as for the loan period, this should tie in with your intended retirement age. If you intend to retire at age 60, then the loan should be fully paid off by age 60 and not 70, for example.

You should also only buy a home that you can comfortably afford by making sure that your housing loan instalment does not exceed 35 per cent of your gross income. For a home purchase, you can consider using two thirds of your CPF Ordinary Account contribution and top up in cash payment any excess amount.

Why not use up all of your CPF Ordinary Account contribution? The reason is we must remember that the primary objective of our CPF is to build a retirement nest egg and thus, we should try not to use up all of our CPF Ordinary Account savings for property financing.

For property investment, even prior to the current loan-to-value limits taking effect and when you could take 80 per cent financing, for prudence's sake, you might want to limit maximum financing to 70 per cent of the property price.

By doing so, even if property prices fall, you minimise the risk that the bank would ask you to top up money. For instance, if you take 80 per cent financing and if property prices fall by 30 per cent, the bank might ask you to top up 10 per cent. However, if you take 70 per cent loan, this is unlikely to happen.

Should you apply for a loan for a property that will receive Temporary Occupation Permit (TOP) three years from now? 

If you buy a property under construction, you can choose to apply for a housing loan later rather than at the point of purchase.

However, you should consider applying for a loan now because firstly, property prices can move up or down and banks would only grant financing based on latest valuation figures.

In the event that property prices fall when the property is completed and the valuation falls, you might fail to get the quantum of financing you need.

Furthermore, there might also be changes to your income and financial situation, which might affect loan approval.

Thus, it is advisable for you to apply for a housing loan at the point of property purchase rather than to wait.

Would interest rates remain low for housing loans?

Singapore Interbank Offered Rate (Sibor) is the average market interest rate banks pay when they borrow from or lend to one another in the interbank market.

The three-month Sibor is used by banks as a gauge of interest rate trends. Thus, If you want to know the trend of interest rates on housing loans, you should keep a close watch on the movement of the three-month Sibor.
Currently, the three-month Sibor is at about 0.39 per cent and may remain low for the next six to 12 months if US interest rates stay low.

However, interest rates do not stay at low levels forever.

Thus, if you are worried about the possibility of interest rates moving up in 2013 and beyond, you might want to choose a housing loan package with fixed interest rates for the next three years, or a Sibor-pegged package that has a "cap" on interest rates for the next few years.

If you plan to sell your property within the next two to three years, then you might want to consider home loan packages with a shorter penalty period or with zero penalty period instead.

There are frequent changes to packages offered by banks and at any one time, there might be over 113 different packages offered by 16 major financial institutions in Singapore.

Thus, you may wish to consider engaging the services of an independent mortgage broker who can provide you with unbiased analysis and comparison of all home loan packages from all banks.

Typically, the service is provided to you free as banks would pay them a fee separately.

Contact us here to have your housing loan needs addressed now.
 

CPF Life plans to be simplified

Singaporeans can look forward to a simpler choice between two plans that will provide them with a stream of retirement income for life.

This is because of major changes to the Central Provident Fund (CPF) system announced in Parliament yesterday.

The four existing plans in the CPF Life scheme, which caters to elderly people, will be collapsed into just two.

Individuals who turn 55 after Jan 1 next year and with at least $40,000 in their Retirement Accounts will get to choose between a new Basic Plan and a Standard Plan.

Under the Standard Plan, people will get higher monthly payouts but bequeath a smaller sum to their beneficiaries when they die. The new plan combines features of the existing Plus and Balanced plans.

The Basic plan, which tweaks aspects of another existing plan, offers slightly lower monthly payouts but a bigger bequest.

The current Income plan, which gives the highest monthly payout but leaves no bequest, will be scrapped, as less than 3per cent of CPF members who opted into CPF Life chose the plan.

Moreover, many members who chose this plan - about 30 per cent - later changed their minds about leaving no bequest.

Payouts under the two new plans will start only when the individual reaches age 65, in line with the existing plans.

Deputy Prime Minister Tharman Shanmugaratnam, who announced the changes, cited public feedback showing that it took significant effort to understand and choose between the four existing CPF Life plans.

He added that Singaporeans now live much longer and that a growing proportion of retirees will outlive their CPF savings if they stayed on the Minimum Sum Scheme.

The Minimum Sum Scheme gives payouts for a limited period of just over 20 years.

About half of the Singaporeans aged 65 today are expected to live past 85, with one third of them likely to live beyond 90. In the future, those who reach 65 are expected to live even longer.

"CPF Life is therefore both an important and timely evolution of the Minimum Sum Scheme," said Mr Tharman.

He added that the changes will "provide simplicity, but retain the best features of the existing plans" while giving the public a "meaningful choice".

Mr Seng Han Thong, an MP for Ang Mo Kio GRC, asked about the popularity of the four existing CPF Life schemes.

Mr Tharman said most people chose the Plus and Balanced plans. About 90 per cent of the 73,000 people who have signed up for CPF Life since its launch in September 2009 chose either of those two plans, he added.

The new Standard Plan will be the default CPF Life scheme for individuals who do not make a selection when they hit 55.

Policyholders of the four existing CPF Life plans can stay with their chosen plans. They have until Dec 31 next year to switch to the new plans if they wish.

Men aged 55 with $40,000 of savings in their Retirement Accounts can get $380 a month for life under the Standard Plan, or $350 under the Basic Plan.

Mr Tharman stressed that the CPF system is "principally aimed at serving" the middle- and lower-income groups.

"It is not the purpose of the CPF to cater fully to the needs of better-off Singaporeans."

CPF members to enjoy 12% savings on HPS premiums

SINGAPORE: From January 2012, HDB homeowners will be paying lower premiums for the Home Protection Scheme (HPS).

Announcing this on his Facebook Page, Minister of State for Manpower and National Development Tan Chuan-Jin said the move will benefit 80 per cent of CPF (Central Provident Fund) members who are currently paying these annual premiums.

They will enjoy an average discount of about 12 per cent.

For example, a male member, aged 36 years old, who is servicing a S$150,000-housing loan from the Housing and Development Board for 25 years will pay a premium of S$195.30, instead of S$223.05 when he joins the scheme from 1 January.

That is a discount of 12 per cent.

Members who join the HPS scheme on or after 1 January will get to enjoy the new rates. Existing members paying annual HPS premiums will pay the lower premiums when they renew or adjust their HPS coverage on or after 1 January.

The HPS is a mortgage-reducing insurance scheme and has been around since 1981.

It protects CPF members and their families from losing their homes, should the CPF member become permanently incapacitated or pass away before their home loans are paid up. The key objective of HPS is to provide home protection to as many CPF members as possible.

Premiums can be paid from a member's CPF Ordinary Account savings.

The CPF Act was also recently amended to allow for the portability of HPS cover to a newly acquired property, meaning that CPF Board will waive the requirement of good health if the member's previous property was under HPS.

Mr Tan said he was glad this adjustment had been made.

He added: "It is important to keep HPS sustainable and affordable to members for the long term. While I hope that we will never ever need to file a claim from HPS, it is assuring to know that our family members are protected against losing their homes, should anything unfortunate happens to us."

It's not too late to reduce your taxes

ECONOMIC uncertainty and market turmoil may be making a lot of people nervous, but there's one thing that's still within our control: income taxes.

Don't take an approach to your taxes akin to a rudderless ship sailing uncontrollably into troubled waters.

As 2011 draws to a close, consider the following tax tips that are still available to you by Dec 31, 2011 to reduce your tax bill for the Year of Assessment 2012, which covers income earned in 2011.

These tax tips are general in nature.

You should review your own situation with a qualified tax adviser to see if it applies to you.

Claim applicable reliefs

Some types of tax relief are automatically granted and will appear in your tax return. Examples include earned income relief, NSman relief, topping up of your Central Provident Fund (CPF) account and contributions made to the Supplementary Retirement Scheme (SRS). You need not put in a claim for these when you file your tax return.

However, there are other tax reliefs which the Inland Revenue Authority of Singapore (IRAS) will grant only if claimed for each year. You should consider if you qualify and make a claim if you do.

For instance, if you are a Singapore resident these would include spouse relief, child relief, parent relief and foreign maid levy relief for working women.

Both male and female taxpayers can claim for spouse relief if they are married, and if their wife or husband does not have annual income exceeding $4,000 in a year.

In addition, if you undertook educational courses, you can also claim a tax relief for fees incurred of up to $5,500 per year. Other reliefs to claim include the CPF top-up, CPF contributions for the self-employed, and contributions to the SRS.

Consider participating in the SRS if you have not done so. SRS is a voluntary retirement savings scheme and all you need to do is open an account with any one of the three SRS operators (DBS, OCBC and UOB) and make a contribution by Dec 31, 2011.

A cash contribution to your SRS account can help you enjoy a tax relief for the year in which you or your employer makes. However, take note that this is currently capped at $12,750 for Singaporeans and permanent residents, and $29,750 for foreigners.

Donation to approved charities

You can also claim tax deduction for cash donations made to an approved Institution of Public Character (IPC) or a Qualifying Grant-making Philanthropic Organisation. Besides cash, donations to IPCs can be in the form of Singapore-listed shares, unit trusts that are ready to trade in Singapore, as well as land and buildings.

The tax deduction for the Year of Assessment 2012 will be equal to 2.5 times the amount of donations made by Dec 31, 2011. If the tax deduction for the donation is more than the donor's income for the year, the donor is allowed to carry forward the un-utilised deductions for a maximum of five years.

From Jan 1, 2011, all IPCs are required to use the e-Submission of Donation to transmit tax-deductible donation information to IRAS. Individual donors therefore no longer need to claim for a tax deduction when they file their income tax returns as it will be granted automatically.

Donors are required to provide their Tax Reference Numbers (NRIC No/FIN) to IPCs for their transmission of this information to the tax authority. The IRAS no longer accepts claims for this tax deduction based on donation receipts.

Rental income from property

Owners of rental property should note that while the rental income is taxable, rental expenses to offset the rental income can be claimed.

There are different types of allowable deductible rental expenses. Some common examples include mortgage interest on the loan borrowed to purchase the property. Others include property tax, maintenance fees paid to the Management Corporation, fire insurance and general repairs or maintenance such as painting and pest control services.

For your first property you are renting out for the first time, certain expenses incurred to secure the first tenant are not allowable. Examples include any commission paid to the property agent as well as advertising and legal costs. Expenses incurred for securing subsequent tenants are deductible.

For any subsequent properties that you rent out, your property agent's commission, advertising and legal expenses are deductible against the rental income from these properties. This is even if incurred for securing the first tenant of the subsequent property. The cost incurred to renew a lease or secure the subsequent tenant is also deductible.

If you own several rental properties, rental losses from one property can be used to offset the income from another property.

Where the final amount from all the rental properties is a loss, you cannot offset the loss against income from other sources. You may, however transfer the loss to your spouse if he or she has positive rental income to absorb the loss.

Not Ordinarily Resident Scheme

If you are a non-resident of Singapore for three consecutive years before the year you become a Singapore resident, you can apply for the Not Ordinarily Resident (NOR) status for a five-year period commencing with the first year of residency.

What an NOR status means is that if you spend at least 90 days outside Singapore for business and your employment income is at least $160,000, you can apply for the concession of time-apportionment of employment income.

This means that you would not be taxed on the portion of employment income corresponding to the number of business days spent outside Singapore, subject to a minimum floor tax rate of 10 per cent. This tax rate is therefore the minimum you should expect.

If you qualify as an NOR taxpayer and meet this criteria, you should review your travel schedule to determine if you can apply for this time-apportionment concession.

Tax deduction for angel investors

You may also wish to consider the Angel Investors Tax Deduction Scheme, introduced in 2010, if applicable. This incentive applies to approved angel investors committing at least $100,000 in qualifying investment to a qualifying start-up in a given year.

The scheme was introduced to encourage eligible individuals to invest in start-up companies by providing them a tax relief for their efforts at providing management expertise, building business networks and so on. Investments have to be made during the period from March 1, 2010 to March 31, 2015 (both dates inclusive).

Approved investors can enjoy a tax deduction at the end of a two-year holding period equal to 50 per cent of their investment. The tax deduction will be subject to a cap of $500,000 of investments in each Year of Assessment.

To become an approved investor, you have to apply to Spring Singapore, which can also provide interested investors with more details about the scheme and its qualifying conditions.

Effective at tax planning requires that you stay abreast of any changes to the tax laws and regulations which may affect you. Alternatively, speak to a tax adviser to determine whether there are any changes or tax deductions besides those discussed which you can capitalise upon.

New CPF savings scheme for parents with special needs children

SINGAPORE - A new Special Needs Savings Scheme (SNSS) to be implemented in early 2012 will allow parents to nominate their children to receive monthly payouts from their CPF accounts after they have passed on.

Under SNSS, parents can arrange for a monthly stream of income - of whose quantum they can decide starting from a minimum amount of $250 - to their special needs children after their death.

SNSS, which requires no administrative charge and no minimum balance during sign up, is useful for parents who do not have substantial savings outside of their CPFs.

CPF interest rates will continue to be paid on the funds nominated to SNSS nominees, and the extra 1 per cent interest will be paid on the first $60,000 of the combined balance of the nominated monies and the child's own savings.

To start the scheme, a participating parent's CPF savings upon his death must be sufficient to support a year's worth of payouts - in other words, a balance of $3,000 for a monthly payout of $250. Otherwise, the deceased parent's CPF savings will be disbursed as a lump sum.

To be eligible for the scheme, the parent, and child with disabilities have to be Singaporeans or Permanent Residents. The child has to be attending or has attended a Special Education (SPED) school, or who requires assistance in at least one Activity of Daily Living (ADL) - which includes dressing, feeding, going to the toilet, and moving about.

SNSS will complement the existing Special Needs Trust Company (SNTC), which is a trust arrangement and care plan set up by parents. SNTC requires a minimum of $5,000 cash upon start-up.

Parents can top up the trust account any time with cash or nominate the trust they set up under SNTC as a beneficiary of their insurance policies or CPF savings.

Small percentage of S'poreans use CPF for parents' medical fees

Less than five per cent of Singaporeans with Central Provident Fund (CPF) accounts used these funds to pay for their parents' healthcare expenses in 2010.

Health Minister Gan Kim Yong revealed these figures in Parliament on Friday, in response to a parliamentary question by Non-Constituency Member Gerald Giam, who had asked for these figures.

Mr Gan said in 2010, there were around two million working Singaporeans with CPF accounts, and among them 80,000 used their CPF to pay for their parents' medical fees. If older CPF members were excluded from the figures, the proportion would be slightly higher.

Singaporeans withdrew $732 million from their Medisave accounts in 2010, of which 18 per cent was used to pay for their parents' treatment.

BG Tan urges Singaporeans to plan for retirement early

Instead of sipping coffee at their favourite breakfast joints, more than 500 Singaporeans spent their Sunday morning getting tips on how to plan for retirement.

The audience, many of whom were reaching 55 years of age, were attending talks organised by the Central Provident Fund (CPF). Topics covered included managing healthcare and housing costs.

Minister of State for Manpower and National Development Tan Chuan-Jin was the guest of honour at the event, which was held at the NTUC auditorium at Marina Boulevard.

Many among the audience nodded and listened intently as BG (NS) Tan urged them not to overstretch their finances and to prepare for uncertainties such as changes in income levels.

The minister also launched two initiatives: The 'Are You Ready' website (www.areyouready.com.sg) to help people assess their readiness to retire; and the Minimum Sum Topping-Up campaign, where Singaporeans who top up their or their loved ones' CPF accounts before December 15 stand to win prizes worth up to $4,000.

"Are You Ready" to retire?

SINGAPORE: The Central Provident Fund (CPF) Board has launched a campaign "Are You Ready" to help Singaporeans kickstart their retirement planning.

It will help to educate them on financial literacy with a checklist of four themes - cash flow, heath care, housing and retirement.

Speaking at the launch of the campaign on Sunday, Minister of State for Manpower and National Development Tan Chuan-Jin noted that some Singaporeans are already ensuring that they have enough savings.

He said records from the CPF Board showed that about 60 per cent of members do not make withdrawals when they reach the age of 55.

Brigadier-General Tan also said that many CPF members have been voluntarily making top-ups for their loved ones through the Minimum Sum Topping-up Scheme.

Over the past five years, the number of these transactions has gone up by 36 per cent while the top-up amount has grown by 33 per cent.

Last year, there were about 30,000 minimum sum top-up transactions, amounting to S$250 million.

CPF Special, Medisave & Retirement Accounts to remain unchanged at 4%

The Special, MediSave and Retirement Accounts (SMRA) will remain unchanged at four per cent for another year, the Central Provident Fund (CPF) Board revealed on Friday.

This is because of the heightened uncertainty in the global economy and continued low interest rate environment, the CPF Board explained.

The rate of four per cent has been in place since 2008.

It's been extended twice before, once in 2010 and again in 2011, due to the unfavourable global economic conditions and exceptionally low interest rate environment back then.

Investing with your CPF

YOUNG adults already in the workforce will no doubt be familiar with their CPF (Central Provident Fund) accounts, into which a portion of their monthly salary is automatically squirrelled away, along with a percentage contribution from their employers.

Having surveyed the gamut of asset classes and investment vehicles over the last few months, the Young Investors' Forum takes a look this week at how young working adults can think about investing their CPF savings for the future.

While the prospect of retirement may still be far from the minds of energetic go-getters just scaling the lower rungs of their career ladders, it is only prudent to start preparing for that future today.

Know your CPF

The government bills the CPF as a 'comprehensive social security plan'. Meant to provide working Singaporeans financial security in their old age, the scheme covers retirement, healthcare, home ownership, family protection and asset enhancement.

These aims are met by mandatory monthly sums of money working Singaporeans and their employers channel into each individual's three CPF accounts:

• The Ordinary Account (OA), which is where the bulk of your monthly contribution goes if you're under 35, and stores monies which can be used to buy property and insurance policies, make financial investments or pay for your own or your children's education.


• The Special Account (SA) is to accumulate funds for old age and contingencies, which can be used to invest in retirement-related financial products.


• The Medisave Account's (MA) savings are meant for hospitalisation expenses and approved medical insurance plans.

While entrepreneurs and the self-employed need not contribute to the Ordinary and Special Accounts, they must contribute to the Medisave Account if their yearly net trade income exceeds $6,000.

Without you choosing to invest, CPF savings in all these accounts will earn interest. Funds in the OA earn an interest rate based on the 12-month fixed deposit and month-end savings rates at major local banks, but the CPF Act guarantees a minimum risk-free interest of 2.5 per cent.

For the Special, Medisave (SMA) and Retirement Accounts, which earn an interest rate equal to the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus one per cent, the government announced last September that it would keep an interest rate floor of 4 per cent till this December.

Also, the first $60,000 you have across your CPF accounts - with up to $20,000 coming from your OA - earns an extra one per cent interest.

Hence, one possible way to grow your CPF savings is to transfer monies from your OA into your SA, to take advantage of the higher interest rate that uninvested savings in the SA earn. But such a move is irreversible, as fund transfers in the opposite direction are not allowed.

CPF Investment Scheme

As long as you are at least 18 years old, are not bankrupt and have more than $20,000 in your OA or more than $40,000 in your SA, you can tap the CPF Investment Scheme (CPFIS) to grow that 'retirement nest egg'.

The CPF Board runs two separate investment schemes for the OA and the SA, allowing for your CPF savings to be put to work via a wide range of instruments, in the hope of reaping a return above the prevailing interest rate.

The ultimate aim, of course, is still to accumulate wealth for retirement, so any profits made from these investments are still subject to the standard CPF withdrawal rules.

If losses are incurred on your CPF investments, you need not top up the accounts from which the investments were made, but your retirement savings would have shrunk.

Financial planners posit that, as a rule of thumb, a person needs about 70 per cent of his last annual income to keep up his current lifestyle in retirement. CPF savings are meant to cover basic retirement needs and may not meet a person's other lifestyle needs - one key motivation for private savings and investments.

Also worth considering before you decide to start investing your CPF savings are any financial obligations that would require payment from a CPF account. For instance, whether you need to use your OA to make monthly housing payments will help you decide how much of your savings you are willing to channel into investments.

Getting started
 
The CPFIS's range of investment options include fixed deposits, bonds, annuities, endowment insurance policies, investment-linked insurance products, unit trusts and exchange traded funds (ETFs).

What is available to you under the CPFIS-OA and the CPFIS-SA differ, since the two accounts are meant to help accumulate savings for different purposes.

So, while OA funds can be invested in fund management accounts, shares, property funds, corporate bonds and gold or gold products, SA savings cannot.

Other restrictions you should be aware of before investing your CPF savings include the fact that you may only invest in unit trusts, exchange traded funds and fund management accounts approved by the CPF Board.

And CPF savings can only be used to purchase common shares, Reits and corporate bonds issued by companies incorporated in Singapore and traded on the Singapore Exchange (SGX).

Also, you can put a maximum of only 35 per cent of your investible savings into shares, Reits and corporate bonds, while the cap on gold (including gold ETFs and other gold products) is 10 per cent.


More details on restrictions and possible charges you may incur from the CPFIS and the other financial intermediaries are available at www.cpf.gov.sg, where you can also calculate how much of your investible CPF savings you have at the moment.

If you intend to use funds from your OA, you will need to apply for a CPF Investment Account with any one of the CPFIS agent banks: DBS, OCBC and UOB. Do note that you can have only one CPF Investment Account at any one time.

Such an account is not needed if you intend to invest from your SA, in which case you can approach investment product providers directly.

Naturally, all the usual caution urged with regard to investing in general will apply to investments made using your CPF savings too.

Any investor must consider his investment time horizon, asset allocation, the risks and returns of each product, and diversification across his portfolio, before committing to an investment - even ones made under the CPFIS.

'No one can guarantee that investments under the CPF Investment Scheme will always be profitable,' the CPF Board states on its website.

'CPF members have to decide for themselves how to invest their savings, and what risks to accept, and exercise prudence and care in investing their CPF savings to ensure their financial well-being after retirement.'

'If they are not confident of investing on their own, they should leave their money in their CPF account which earns interest and is risk-free,' it adds.

CPF interest rate for Ordinary Account stays at 2.5%

SINGAPORE: The Central Provident Fund (CPF) Board said members will continue to receive an interest rate of 2.5 per cent on their Ordinary Account savings from 1 October 2011 to 31 December 2011.

This is despite the computed CPF interest rate, derived from the major local banks' interest rates from 1 May 2011 to 31 July 2011, working out to 0.36 per cent per annum.

Members will also continue to receive an extra 1 per cent interest on the first $60,000 of their combined balances, with up to $20,000 from the Ordinary Account.

The extra interest from the Ordinary Account will go into the member's Special or Retirement Account to enhance retirement savings.

Please check if it is as accordance to your retirement plan through this article.