facebookDo you think we should give CPF members the option to form the FRS by taking funds from OA first? - Seedly

Sau Yee Fong

07 Jun 2019

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SeedlyAMA

Do you think we should give CPF members the option to form the FRS by taking funds from OA first?

Some financially savvy CPF members used their SA to invest just before 55 so that the FRS is formed by taking monies from their OA first. After 55, they divest the investment in CPFIS-SA to enjoy the risk-free 4% interest in SA. What do you think of this approach ? And do you think CPFB should give CPF members the option to form the FRS by taking funds from OA first ?

AMA Christopher Tan

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Christopher Tan

07 Jun 2019

CEO at Providend Ltd

Hi Yee Fong, thank you so much for your question. So sorry it came so late as I had a busy 2 weeks. It is an interesting question that you have asked. There are possibly a few reasons why CPF Board first take our monies from CPF SA to form the FRS first.

  1. First of all, we need to understand that the primary purpose of CPF is to help us retire. When deciding on CPF policies, CPF Board often focus on the lower income group and not the wealthier ones. Therefore, when one reaches age 55, because CPF is mainly for retirement, our monies from SA (which is meant for retirement and attracting a higher interest rate) is first transferred to the RA to form the FRS. If it is insufficient, then CPF Board will take from OA.
  1. For a near risk-free "instrument" like CPF (risk-free in a sense that it is default-free, free from volatility risk and also guranteed interest rates), 4% p.a. is considered very high and it is not easy to fulfill this obligation. By allowing the transfer to happen first from OA and then SA, there is a possibility that you have now "more money" attracting a higher 4% p.a. This is just my opinion.
  1. By allowing one to first use the OA to form the FRS, we are likely to benefit the higher income group. This is not the intent of our CPF Schemes.

I have heard of advisers asking their clients to invest their SA just before age 55 so that the FRS is formed by taking monies from their OA first. After 55, thei sell away their investments and the monies are then transferred back to the SA. While this is a loophole and seemingly a viable option, depending on what one invest in, one must be preapred to lose capital after the divestment.

Hope this helps!

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