The backbone of the Central Provident Fund (CPF) – set up to help Singaporeans and Permanent Residents retire – is the Minimum Sum.

Currently, members who are turning 55 between July 1 this year and June 30 next year have to set aside $155,000 in their Retirement accounts to receive a monthly payout of about $1,200 when they turn 65. Come July next year, the next cohort (those turning 55 between July 1, 2015 to June 30, 2016) will need $161,000. The amount, known as the Minimum Sum, is adjusted annually after taking into account inflation.

This one-size-fits-all approach is currently being reviewed by an advisory panel set up by the Government. In a media interview last week, Manpower Minister Tan Chuan-Jin said that more options may soon be available for members to decide how they want to save for their retirement.

The panel’s first set of recommendations should be ready by January next year, and will also likely look at how to prevent payouts from being eroded by inflation.

Here are five things to know about the Minimum Sum:

1) What forms the Minimum Sum?

When a member turns 55, money from his Special and Ordinary accounts will be transferred into a newly-formed Retirement account. The Retirement account will hold up to $155,000 or whatever the Minimum Sum is for his cohort. Any extra remains in the respective accounts.

The member will now have four accounts: Ordinary, Special, Medisave and Retirement.

2) What happens when members do not have the Minimum Sum?

Even if a member is unable to meet the Minimum Sum, he can still withdraw up to the first $5,000 from his CPF accounts.

He also does not need to top up the shortfall in cash or sell his property. The CPF Board will automatically pledge the property he has bought using his CPF for up to half of the Minimum Sum. The pledge amount is either the amount of CPF used for the property or the Minimum Sum shortfall – whichever is lower.

He will still get monthly payouts when he reaches 65, based on how much cash savings he has in his Retirement account. But his monthly payouts will be lower.

3) When can members start withdrawing from their Retirement account?

Members can start making withdrawals from their CPF when they turn 55. The amount they can withdraw depends on their account balance.

Members turning 55 between July 1 this year and June 30 next year will receive monthly payouts of about $1,200 when they turn 65, provided they have set aside the current Minimum Sum. Those who had not set aside the full amount in cash will receive less.

4) What happens to a member’s money in their Retirement, Ordinary, Medisave and Savings accounts if they do not make any withdrawals?

Money in the Ordinary account earns up to 3.5 per cent per annum. For Special, Medisave and Retirement accounts, the current interest rate is up to 5 per cent each year.

5) Can members be exempted from setting aside the Minimum Sum?

Yes, provided that they have bought life annuity that pays them a sum that matches or is more than their projected monthly retirement payouts. Members can apply to CPF to be exempted.

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