Saving $1m through CPF

Saving $1m through CPF http://str.sg/4p5U

PUBLISHED

SEP 4, 2016, 5:00 AM SGT

Losing around $100,000 of hard-earned savings when the share market crashed in the 1998 Asian financial crisis prompted Singtel employee Loo Cheng Chuan to devise a safer way to build a nest egg.

Mr Loo, 44, went about creating a low-risk line of defence by using the Central Provident Fund (CPF), particularly the Special Account, as his investment vehicle.

"It's simply creating a financial safety net by topping up your Special and Medisave Accounts at a young age, as young as possible, and just letting it compound over a long period of time to over half a million dollars," he says. "Combine that with your spouse, you will reach a million dollars at age 65."

Mr Loo explained his "1m65" strategy in a video clip that was shown during the CPF Retirement Planning roadshow at Suntec City on Aug 27.

Mr Loo, who works in the digital business department at Singtel, noted in the clip that he realised that all the instruments offered by the CPF are risk-free and guaranteed by the Government. Even creditors will not be able to touch your nest egg.

Armed with this knowledge, he started topping up his Special and Medisave Accounts from age 30.

He had already bought a four-room flat in Punggol and used some of his Ordinary Account savings to pay the mortgage. Still, he tried his best to transfer the surplus in his Ordinary Account to his Special Account as often as he could.

"In our early 30s, my wife and I worked very hard and we were very thrifty in managing some of our CPF expenses and that led to a full accumulation of our Special and Medisave Accounts," he recalls.

By the time Mr Loo was 34, he had hit the cap of around $120,000 on both accounts.

Assuming the interest rate remains at 4 per cent, his savings and those of his wife in these two accounts could compound to almost $1 million by the time they reach 65, even if they choose to stop working a few years after they turn 34 and contributions to these accounts cease. And if they continue working until retirement, the combined amount would be much higher than $1 million.

However, Mr Loo admits that his strategy is not without downsides.

"It requires you to take money from the Ordinary Account to quickly top up your Special Account - which means you cannot be buying big houses and big condos. And, of course, as an ordinary Singaporean, I aspire to these things. But between looking rich and being rich, I prefer to be rich."

In addition, once you put money into the Special Account, you cannot withdraw it for housing purchases, as it is meant for retirement. This poses some risk and discomfort to people.

The comfort and the peace of mind that he would have $1 million waiting for him in his golden years is so great that Mr Loo has started sharing his experience with his church groups and friends.

"I realise that for a family, a safety net of $1 million is a wonderful sum of money. It brings a lot of security in my life and because of that, my whole life changed, my risk profile changed. I can be a bit more aggressive in some aspects of my life because I have this safety net," he says.

His wife, Madam Lee Bee Yee, 44, is in the personal shopper trade. They have three children, aged 15, 13 and 12.

WHAT A FINANCIAL EXPERT SAYS

Promiseland financial adviser Wilfred Ling says Mr Loo's method of using his CPF to accumulate $1 million is viable.

In fact, he worked out that it is possible for a CPF member to accumulate $1 million before the age of 57 by starting to top up the Special Account from age 25.

He based his calculations on a few assumptions, including a gross monthly income of $2,500, a one-month bonus and a 5 per cent yearly increase in the member's salary. Other assumptions are that the member transfers all his Ordinary Account savings to the Special Account. This means he would have no CPF savings available for housing loans.

Mr Ling also assumed that the CPF rules and interest rates will remain unchanged. "Individuals who wish to lock in their money in CPF for the long term will need to balance the long-term gain of having a large balance in their CPF when they retire, with their short-term needs, such as children's education and general expenses."

He added that this method is particularly useful for people in business as CPF money is protected from creditors.

"I have advised a number of my clients, who are businessmen, to accumulate as much CPF as possible so that in the event of bankruptcy, their retirement nest eggs remain unaffected," Mr Ling said.

A version of this article appeared in the print edition of The Sunday Times on September 04, 2016, with the headline 'Saving $1m through CPF'.

6 little-known facts about the CPF

6 little-known facts about the CPF http://str.sg/4p53

PUBLISHED

SEP 4, 2016, 5:00 AM SGT

With the Central Provident Fund (CPF) enhancements making headlines in recent months, more CPF members are waking up to the fact that there is a viable investment tool in their backyard.

The low-yield environment makes even the Ordinary Account rate of 2.5 per cent appear attractive, not to mention the Retirement Account (for those above 55), which attracts up to 6 per cent interest.

The chatter these days seem to be skewed towards how people can put more into CPF to grow their nest egg, rather than withdrawing.

To recap, the first slew of recommendations by the CPF Advisory Panel was announced early last year. They involve different payout options and the flexibility of deferring payouts up to age 70 so as to receive more cash later. Last month, the last few recommendations, which include a CPF Life escalating payout option, were announced.

Despite the CPF Board's publicity campaign and articles written about the changes, some still find the CPF schemes complex and difficult to understand, judging from queries to The Sunday Times, as well as those posed during the question-and-answer session at the CPF Retirement Planning roadshow on Aug 27.

Here are six little-known facts about the CPF:

1. TOPPING UP YOUR CHILDREN'S CPF ACCOUNTS

Every Singaporean newborn today has a CPF account set up for him or her by the Government for the purpose of receiving the $4,000 Medisave grant.

For children who are Singapore citizens or permanent residents, a CPF account will be automatically created when a first top-up or CPF contribution is received.

Some wealthier CPF members or those with excess cash have opted to use the CPF as a legacy for their children or grandchildren by topping up their Special Accounts the moment they are born.

In fact, you can contribute up to the prevailing Full Retirement Sum (FRS) of $161,000 into the newborn's Special Account in one go, under the Retirement Sum Topping-Up Scheme.

Some members have already done so.

Imagine the power of compounding over 55 years.

Assuming the Special Account's floor interest rate remains at 4 per cent, your initial contributions would compound to some $1.5 million over the next 55 years.

Another way of topping up your children's CPF accounts is to use the Voluntary Contribution Scheme, currently capped at $37,740 a year.

Contributions can be made to the Medisave Account only (up to the Basic Healthcare Sum) or can be split among the Ordinary, Special and Medisave accounts.

However, bear in mind that unlike cash top-ups to other loved ones like spouses, parents and siblings, you do not receive any tax benefit for topping up your child or grandchild's CPF accounts.

Of course, not everyone will be comfortable with locking up funds for 55 years.

Some financial experts recommend that it would be better to invest the same amount in equities and low-cost index funds - given the very long investment horizon that a young child has - which should reap potentially higher returns.

2. CPF AS A FIXED DEPOSIT OR FIXED INCOME ALTERNATIVE

Some CPF members have taken to actively transferring their Ordinary Account savings to the Special Account to earn the higher interest rates.

But if your Special Account balance - including savings withdrawn under the CPF Investment Scheme - has reached the prevailing FRS, you would be unable to do further top-ups.

In the chase for yields, even the Ordinary Account interest rate of 2.5 per cent a year is not to be sniffed at, particularly if you are comparing it with fixed deposit rates which have fallen to paltry levels. Even the average annual returns of some bonds, such as the Singapore Savings Bonds, have dipped below 2 per cent.

Some insurance policies with guaranteed returns and a fixed tenure - usually three to five years - also pale in comparison with the Ordinary Account interest rate.

If you are below 55 and are confident of setting aside the requisite retirement sums at 55, you can consider the Ordinary Account as an alternative fixed deposit instrument but with less liquidity. Because of the lack of liquidity, this works better for those who are close to 55 and/or are confident they have no need for the cash.

For example, if you are 53 years old, you can park your spare cash savings in the Ordinary Account and consider it as a two-year fixed deposit. This is because if you are able to set aside sufficient savings in your Retirement Account, you can withdraw the rest at age 55 or later, whenever the need arises.

And you can still use the Ordinary Account savings for other investments under the CPF Investment Scheme and to purchase properties, after setting aside $20,000 in your Ordinary Account.

3. CASH REFUNDS FOR CPF SAVINGS USED FOR PROPERTY PURCHASES

One way of putting cash into your Ordinary Account is to do so via a full or partial refund of the CPF savings that you had previously withdrawn for property purchases plus the interest accrued on them.

Some members wrongly believed that they could refund the CPF savings used for their properties only upon the sale of these properties.

Even if the properties are unsold, you can make cash refunds by filling out a CPF form and indicating which property you are making the refund for. However, you should note that such cash refunds are irrevocable.

4. ZERO ORDINARY ACCOUNT BALANCE

Some members wanted to know if it is possible to deplete the Ordinary Account to zero when transferring CPF savings from that account to the Special Account, and still earn the higher interest rates.

This question was raised during the CPF Retirement Planning roadshow. Mr Soh Chin Heng, deputy chief executive officer (services) of the CPF Board, responded that it is possible.

For members below 55, when the Ordinary Account has zero balance, the first $60,000 in the Special Account savings will attract 5 per cent while the remaining balance will enjoy 4 per cent interest.

5. CPF WITHDRAWALS

For members who are 55 and older, have the requisite retirement sums in their Retirement Account, and still have balances in both the Ordinary and Special Accounts, withdrawals will be made from the Special Account first before the Ordinary Account.

CPF said that this is because CPF members may still have commitments such as housing, education and investment after turning 55.

The board says: "As Ordinary Account savings can be used for continued participation in schemes after 55, the withdrawal sequence is catered to the needs of the majority of Singaporeans. Nonetheless, members who wish to benefit from CPF attractive interest rates have the option to top up their Retirement Account under the Retirement Sum Topping-Up Scheme."

6. FREQUENCY OF CPF WITHDRAWALS CPF

Members are not restricted to only one withdrawal a year. Members who have withdrawable balances in their CPF accounts may submit an application any time and the Board will assess the application.

The amount of money that the member may withdraw will still be based on the applicable withdrawal rules and it does not change the amount of savings that can be withdrawn by the member.

A version of this article appeared in the print edition of The Sunday Times on September 04, 2016, with the headline '6 Little- known facts about the CPF'.

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With reference to Point 3 on CASH REFUNDS FOR CPF SAVINGS USED FOR PROPERTY PURCHASES, here is more information extracted from financialfreedomgal https://financialfreedomgal.wordpress.com/2016/08/29/cash-refund-of-cpf-savings-used-for-property/

Cash refund of CPF savings used for property

Posted by SKO on AUGUST 29, 2016

When I bought my flat with my spouse, I had utilised a small sum from my CPF Ordinary Account (OA), and to my horror, I have already incurred about $2k in interest. Not happy about this (although it is really my own money).

I wrote to CPF if I could return the principle amount in part of in full,  or in full with the interest incurred, without selling the flat. The reply is positive.

I could repay the principle amount in full OR in part, including the interest incurred.

My only concern was that my Home Protection Scheme would be terminated after I repaid my OA amount. I was assured that it would not.

Hence, I shall proactively return this sum to my OA soon. I was told to use this form to process the refund. Cashier’s order or cheque should be made payable to ‘Central Provident Fund Board’. Name, NRIC, and property address should be indicated on the reverse side of cashier’s order or cheque. The completed form and cheque should be mailed to:

Central Provident Fund Board
Public Housing Section – Bank Loan
238B Thomson Road #08-00 Tower B Novena Square
Singapore 307685

Refund will be credited to my CPF account within 5 working days from receipt of cheque.

The main reason for doing this is that although the sum used for property is not big, the compounded interest is getting higher everyday and I do not want to be the one ‘earning’ this interest. I rather someone pays me the interest.

Before we go and use our cash to invest in risky assets, this might be a better way to use our money.






________________________________________________________________

With reference to Point 3 on CASH REFUNDS FOR CPF SAVINGS USED FOR PROPERTY PURCHASES, here is more information extracted from CPF Board website: https://www.cpf.gov.sg/members/faq/schemes/housing/private-properties-scheme#faq16644

Q	I am not selling my property. Can I make voluntary refund on the housing amount withdrawn? If yes, how do I go about doing it?

A

Yes. You can refund the following amount via a cheque/cashier's order to the Board: a) Full principal amount b) Partial principal amount c) Full principal amount and full accrued interest d) Full accrued interest (You can only refund the accrued interest after you have refunded the full principal amount.) Please complete the Form HSD/VR and prepare a cheque/cashier's order made payable to "CPF Board". On the reverse side of the cheque/cashier's order, please write your name, CPF Account No. and the property address. Mail both the form and the cheque/cashier's order, before 20th of the month if you wish to earn interest on the refunded amount from the following month, to: Central Provident Fund Board Housing Schemes Department  238B Thomson Road #08-00 Tower B Novena Square Singapore 307685 Alternatively, you can deposit the cheque/cashier's order and this form at any CPF service centres. The refund will be credited to your CPF account(s) within five working days from the receipt of your cheque/cashier's order (subject to cheque/cashier's order clearance). If you wish to use your CPF savings to service the outstanding housing loan after making full cash refund, you will need to submit a fresh application, "Application to Use CPF Savings to Purchase Residential Property" to the Board through your lawyers. You will incur legal costs in the process as we need to lodge a new CPF charge on the Property to secure the refund of new CPF savings used for the Property before we allow your CPF savings to be withdrawn for the Property.

Picking suitable IP amid wider choices

Picking suitable IP amid wider choices http://str.sg/ZvBn

Source: The Sunday Times
3 April 2016

The entry of AXA Life Insurance Singapore into the private Integrated Shield Plan (IP) market has widened the scope for consumers - and made it that little bit harder to make your choice.

AXA will offer three IPs from next month, bringing the total to 22, a daunting number when you start looking for a plan that suits you best. About two in three of 3.9 million Singaporeans and permanent residents here have IPs.

IPs are private hospitalisation and surgical plans comprising a basic MediShield component (known as MediShield Life since Nov 1) and an additional private insurance component. They are managed by six private insurers - AIA (HealthShield Gold Max), Aviva (MyShield), AXA (AXA Shield), Great Eastern (Supreme Health), NTUC Income (IncomeShield) and Prudential (PRUshield).

Generally, IPs provide higher protection, covering the B1/A wards of public hospitals and private hospitals. All six insurers will also offer a standard, no-frills IP pegged at public hospital B1 class from May 1.

Having more players raises competition and innovation but also increases the number of choices facing consumers. It can be a mind boggling exercise for an individual to sift through the different features of the Shield plans in the market.

The Sunday Times highlights some differentiating features of the IPs on offer.

AIA SINGAPORE

Females insured with AIA HealthShield Gold Max plans will have their biological babies covered (under the mother's policy) for congenital abnormalities from birth up to two years old, for up to $5,000 per child. The congenital abnormalities benefit is capped at $20,000 per policy.

Another key difference is that AIA offers extra coverage for 30 critical illnesses.

If the policyholder is diagnosed with any one of the 30 critical illnesses, he can enjoy an additional 100 days on top of the existing 100 days for the post-hospitalisation benefit.

OPT FOR AS-CHARGED FEATURE, SAYS EXPERT

There is also an additional claim limit of up to $100,000 per policy year in the event the insured person is diagnosed with a critical illness.

Furthermore, AIA policyholders can sign up to become AIA Vitality members. The wellness programme aims to keep members motivated to stay healthier with rewards such as cashback, discounts on gym membership, travel benefits and preferred rates for health screenings, says AIA chief marketing officer Ho Lee Yen.

AIA HealthShield Gold Max policyholders with the AIA Essential rider will also enjoy premium discounts when they become AIA Vitality members.

AVIVA SINGAPORE

Aviva is the only insurer offering moratorium underwriting, where no health declaration is required. It means that certain pre-existing conditions will be covered after an absence of symptoms, treatments or medication for five years from the time the policy is in force. As there is no underwriting done before inception of cover - which makes the process simpler - applicants obtain coverage sooner.

Mr Daniel Lum, Aviva's director of product and marketing, says conditions apply and not all pre-existing ailments are eligible, but this can be useful for those with less serious pre-existing conditions who want to obtain coverage. Some of the pre-existing conditions that are excluded are heart attack, heart bypass, hypertension, stroke, paralysis, osteoporosis, Aids, any form of cancer except skin cancer, autism, multiple sclerosis, dementia and Alzheimer's.

Other key points of difference of Aviva's MyShield plans include:

•Free child cover for up to 20 years old (age at next birthday) if both parents are covered under the two higher plan options, MyShield Plan 1 or 2.

•Cap on co-insurance to limit the out-of-pocket costs that policyholders have to bear, even if they do not have riders to cover the co-insurance component of their medical bills.

•Additional benefit for major illnesses such as heart attack, major cancer and stroke.

AXA LIFE INSURANCE SINGAPORE

The new kid on the block offers the longest post-hospitalisation cover among the IP insurers at 365 days.

This ensures customers are fully protected for a year upon hospital discharge because recovery from major illnesses such as cancer and stroke may take a long time, says AXA chief marketing officer Kwek-Perroy Li Choo.

Another unique feature is that its Shield Plan A - which covers hospitalisation in private hospitals - has the highest annual limit at $1 million. Its Plan B offers an annual limit of $550,000.

The insurer also offers a letter of guarantee (LOG) service in its plans A and B with the highest limit of $100,000 for private hospitals if customers are approved and referred through AXA's panel of medical specialists, and the highest limit of $15,000 for public hospitals. The LOG helps to waive the upfront deposit required by hospitals.

AXA offers a choice of three additional optional benefits/riders. The Basic Care rider covers the deductible and co-insurance components while the General Care rider includes a daily hospital cash incentive of up to $250 per day and covers ambulance or taxi charges to and from hospital as well as traditional Chinese medicine treatment after discharge. Its Home Care rider includes home nursing services and doctor home visits, post-hospitalisation, as well as costs of stay in an inpatient hospice care institution, subject to limits and conditions.

GREAT EASTERN LIFE (GE)

GE provides cover for 11 pregnancy and childbirth complications, the highest number in the industry. It is also the only insurer to cover pre-hospitalisation specialist's consultation for psychiatric treatment.

To complement its Supreme Health Shield plans, GE offers Total Health - a standalone plan - which provides the highest number of special benefits in the market - nine in total, including two interesting benefits.

One is reimbursement of charges incurred for medical treatment during confinement in an inpatient hospice care institution after hospital discharge, for up to 90 days per policy year. This includes round-the-clock support for terminally ill patients.

The other is the Home Health Care Benefit, which provides up to $100 per day and up to $5,000 per policy year for reimbursement of treatments and medical services provided at home within 30 days after discharge from hospital.

It covers professional fees, including visits made by doctors, qualified nurses and qualified physiotherapists. For example, long-term ailments such as dementia and injuries like fractures may require follow-up home treatment after discharge. This benefit allows the patient to recover at home.

GE chief product officer Lee Swee Kiang noted Ministry of Health data shows a 26 per cent rise from 2006 to 2014 for home care and palliative home care visits.

"To address the health insurance needs of a rapidly ageing population in Singapore, we included these two benefits so that our customers have a choice to receive care in the comfort of their home or in a hospice," he says.

PRUDENTIAL SINGAPORE

To offset inflation in medical costs, Prudential offers a unique "adjustment" feature for the limits customers can claim in a policy year. This is also known as policy year limits.

Ms Angela Hunter, its executive vice-president and chief marketing officer, says: "Medical costs are on the rise due largely to medical inflation and the advancement in medical treatment and technology.

"Given this, it is important that the policy year limit of health policies is pegged to the Consumer Price Index (CPI) to ensure that the level of coverage keeps pace with inflation and the policyholder continues to be sufficiently protected in the long term."

As such, the limits have edged up in recent years and are now at $632,700 for PRUshield A Premier and $379,700 for PRUshield A Plus.

Prudential also offers pre- and post-hospitalisation coverage of up to 180 days before or after hospital confinement or day surgery. This includes expenses incurred for general practitioner consultation resulting in a referral to a specialist as well as follow-up treatment and services like dressings and physiotherapy following hospital discharge.

NTUC INCOME

The Enhanced IncomeShield Preferred plan, which covers stays in private hospitals, is the only IP that provides a prosthesis benefit of up to $10,000 per policy year. This pays for the prosthesis the insured person needs if he has lost a limb or eye resulting from the injury or illness that led to hospitalisation.

Another differentiating feature is Income provides as-charged cover for people who intend to stay in B2 and C wards of public hospitals. Its Enhanced IncomeShield C plan caters to those with household income of less than $3,500 or who live in three-room or smaller HDB flats.

Mr Peter Tay, Income's chief operations officer, says: "This provides an option for lower-income people to own an as-charged plan at affordable premiums. Combined with a Plus rider (which covers the deductible and co-insurance components), the Enhanced IncomeShield C plan provides coverage from the first dollar, giving the insured greater peace of mind."

It is also the only IP provider to offer its insurance contracts in plain English to help policyholders better understand their policies and make informed decisions. The documents satisfy the "Crystal Mark" standard for offering simple, clear and concise information.

EXPERTS SAY

Mr Patrick Lim, associate director at financial advisory PromiseLand Independent, highlights the importance of a reasonably high annual policy limit.

"I would recommend that customers go for a higher annual policy limit, the higher the better, so as to cover big hospitalisation bills for extreme cases," he says.

AXA offers the highest policy annual limit at $1 million followed by Income's $700,000, for the two insurers' highest class IPs.

Mr Brandon Lam, DBS Bank's head of consumer insurance products, likes the as-charge feature. This is present in most IPs, except the new standard IP. An as-charged plan does away with caps on claims such as daily ward charges, surgical costs and so on.

"Pick an as-charge plan where possible so that you get reimbursed as charged and do not need to fork out additional amounts," he says.

Mr Fabian Ng, UOB's head of retail bancassurace, group retail, advises that to get the best value, you should look out for the deductible and co-insurance conditions in the hospitalisation policies.

"Individuals who are less likely to be hospitalised can consider plans with higher deductibles and more affordable monthly premiums. Conversely, those with chronic health problems can pay higher monthly premiums to reduce the payable deductible amounts," he notes.

Other considerations include affordability as premiums of such plans are expected to rise significantly with age. You should also gauge the appropriate level of cover you need.

Mr Lim cautioned people to have sufficient savings set aside for a rainy day. He has seen people who have had to scramble to raise cash when hospitals request payment on an interim basis. Insurers would typically only reimburse claims after the patient's discharge.