CPF CHANGES: EASIER TO TRANSFER $ TO ELDERS NOW BUT DO WE HAVE ENOUGH FOR OURSELVES?

I refer to the article “Changes proposed to ease CPF transfers to parents, grandparents” (Straits Times, Oct 3).

It states that “More people may soon be able to help their elders save for retirement.

Changes to the Central Provident Fund (CPF) Act have been proposed in Parliament to lower the minimum amount that members must have in their own CPF accounts before making transfers to their parents and grandparents.

Currently, CPF members must meet the prevailing Full Retirement Sum – which is $166,000 for CPF members aged 55 this year – before they can transfer extra savings to their parents’ or grandparents’ accounts.

Members aged above 55 need to meet the retirement sum specified for their cohort.

The changes proposed by the Ministry of Manpower (MOM) yesterday will allow CPF members to make such transfers if they have at least the Basic Retirement Sum – which is half the full sum – and a sufficient property pledge or charge to make up the rest of the full sum.”

As to “The ministry said in a press statement that the aim is to improve the retirement adequacy of CPF members” – it may instead have the reverse effect for some members.

Allow me to explain. If you transfer your CPF to your parents and/or grandparents’ CPF – it may mean that you will have less CPF for yourself.

Since the minimum amount that you need to keep in your own CPF, in order to do the transfer has been reduced from $166,000 to $83,000 if you are able to pledge say your HDB flat – with the recent confirmation that the value of HDB flats may decline to zero at the end of the 99-year lease – will you have enough for your own retirement?

Whilst you may be tempted to top-up your parents and/or grandparents’ CPF because as long as they are age 65 and over – they can immediately take monthly payouts.

This is akin to turning your own CPF to cash which your parents/grandparents can use, and arguably your cashflows may improve because you may not need to give them as much cash as you are doing now.

However, under the old CPF Retirement Sum Scheme (RSS) – the monthly payout that your parents/grandparents may be able to withdraw, may be much lesser than if they opt-in to the CPF Life Scheme.

However, the downside may be that if they die early – like within the next five to 20 years – the bequest may be much lower compared to if they had not opted-in to CPF Life.

Let me illustrate this with an example.

If you transfer $123,000 to your mother who is age 65 (date of birth 1.9.1952) – the CPF Life Estimator calculator shows a monthly payout of $654 – $691 and very low bequests of $40,658 – $45,124 at age 75 and $0 – $5,859 at age 80 under the Standard Plan, compared to getting the actual balance in your Retirement Account upon death under the old RSS.

In contrast to the very low bequests under CPF Life above – the actual balance upon death under the old RSS is estimated to be $93,851, $73,272 and $47,254, at age 75, 80 and 85, respectively.

 

With regard to “Last year, the threshold to make transfers to a spouse’s CPF account was lowered to the basic sum, instead of the full sum” – will the reduced threshold be extended to parents-in-law and grandparents-in-law too, since you can now also transfer your CPF to top-up theirs?

Leong Sze Hian
A.S.S. Contributor

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