Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Sunday, 31 May 2015

3 Common Questions for CPF HPS

As promised in our previous blog post, here are the answers to 3 common questions that people have on the CPF Home Protection Scheme (HPS).

MORE LINKS
CPF Voluntary Contribution Rates
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
Reducing CPF Housing Accrued Interest


1. Can I be exempted from paying the HPS?

If you have an insurance policy that is enough to cover your outstanding housing loan up to the full term of loan or age 65, you can apply for Exemption from Home Protection Scheme. You may apply to be exempted online via my CPF Online Services. You will get a full premium refund into your CPF Ordinary Account (OA) if the exemption application is received (by the Board) within one month from the issuance of the HPS cover. Otherwise, a pro-rated refund will be given to your CPF OA upon the termination of your HPS cover.


The types of insurance policies, both conventional and investment-linked, that are acceptable are:
a) Whole Life
b) Term Life
c) Endowments
d) Life Riders (must be attached to a basic policy)
e) Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider

You may also apply to be exempted from HPS even if you used your CPF savings to pay for the monthly housing instalments. However, in our opinion, it is not advisable to do so as this scheme is primarily to prevent you from losing your home if you are unable to pay the loans. You have to apply for HPS first if you are planning to use your CPF savings for your monthly housing loan instalments. You can then apply for HPS exemption after you have obtained legal ownership of the flat. In this case, the HPS exemption is subject to the CPF's approval.

2. How much am I paying for this protection?

Fortunately, there is a simple method for this. You can visit the following link to obtain the premium of HPS: https://www.cpf.gov.sg/

If you are wondering how is the premium calculated, the premium is calculated based on the following factors:

- Outstanding housing loan on the flat
- Loan repayment period
- Type of loan (concessionary or market rate)
- Sex and age of the applicant

Premiums are generally higher for a higher share of coverage, larger loan amounts or longer repayment periods. The premiums would be lower for younger persons and females.

3. What happens if I do not pay for HPS cover and it lapses?

Similar to all insurance policies, if you do not pay the premiums, the policy will simply lapse. What will happen then? You will not be able to use your CPF savings to service your housing loan and in order to continue doing so, you will have to apply for HPS again. This time it will be subjected to underwriting and your health condition at the time of application.

More information can be found on the CPF website HERE. We hope that our blog will be able to garner more interest and stimulate the curiosity of fellow readers on the scheme to research more on their own. This would be more fruitful in answering their own personal questions. You can find out more 

If you have any other questions or feedback on the following topic, do drop us a mail or leave a comment below!

Friday, 29 May 2015

CPF: Home Protection Scheme: What does it provide?

Today's post will be regarding the CPF Home Protection Scheme (HPS).
This is part of our "CPF Housing-Related" posts.

In the rare occurrence of a blue moon, some of you may have realised that after reading your CPF account statements, money in your CPF OA is deducted under an entry denominated as 'HPS'. So what is this scheme that is slowly and quietly siphoning cash from your retirement nest for several hidden centuries?!

As defined on CPF website, Home Protection Scheme (HPS) is a "mortgage reducing insurance which insures CPF members and their families against losing their homes should members become physically / mentally incapacitated or pass away before their housing loans are paid up.".

If I could, let me paraphrase this into simpler term. HPS is basically an insurance that has a reducing sum assured feature which can be used to cover the reducing mortgage payments, should you be physically / mentally incapable of doing so, or upon your death. However, this insurance will lapse if your housing loan is paid up or until the age of 65. Similar to all insurance, it is dependent on your health conditions.

Another point to note is that you have to be insured under HPS if you want to use CPF savings to pay your monthly housing installments under the Public Housing Scheme, which typically includes all types of public housing (HDB, DBSS etc).

In my opinion, this insurance is of utmost importance as it transfer the risks of being unable to pay due to illness or death. Being a direct recipient of this insurance, I am glad to say that my home is protected by this scheme. It allows you to tap on your CPF funds for premium payment, which also means less cash payments from your pockets. 

We will be subsequently posting on 3 questions that people have on the HPS. If you have any other questions or feedback on the following topic, do drop us a mail or leave a comment below!

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Monday, 25 May 2015

CPF Housing Interest

Today's topic will be on the Interest you pay to CPF on your housing loan.
This topic is asked by 2 of our readers.
We got an email asking us to talk in detail the 3rd point (am I paying double interest to CPF?) in this post of ours: LINK.
We also got another reader who asked us to post about using CPF to pay for our housing loan.
We would like to thank our readers for the questions asked, and we hope to see more of them coming our way.
This will be the first part of our CPF Housing Loan Related Posts.
Subscribe to us, because more will be coming!

When you take on a CPF mortgage loan, you are doing several things:
Step 1) You are borrowing money from CPF to pay for your house (a mortgage).
Step 2) You are to pay your mortgage every month to CPF, with interest.
Step 3) You pay your mortgage every month via the money credited into your CPF Ordinary Account (OA).
Step 4) Upon selling your house in the future, you are required to pay back the amount that you had withdrawn from CPF to pay for your mortgage PLUS the interest that you would have earned if that money had remained in your CPF OA.

Step 1:
Think of the CPF as a bank. If you were to borrow money from a bank to buy a house, the bank would charge you interest. This is the same for CPF, in return for lending you money to buy a house, the CPF charges you interest (currently at 2.6% - OA interest + 0.1%).

Step 2:
If you borrowed money from a bank to buy your house, you have a mortgage loan with the bank. In return, you are required to pay back your mortgage loan via monthly instalments/payments.
Think of CPF as a bank, and this is why CPF charges interest on your CPF housing loan.

Step 3:
In a normal bank mortgage loan, you will be required to pay your monthly mortgage to the bank with your monthly take-home pay.
In the CPF housing loan, instead of paying via your income, you can pay it via the money that is deposited into your CPF OA.
While the money in your OA is still considered as your income, you do not have to pay your mortgage with your take-home pay. Instead, you pay it with money that is saved for your retirement - or money that you technically cannot touch.

Step 4:
IF after you have finished paying your bank housing loan, should you decide to sell your house, you are able to earn the price appreciation of your house (selling price greater than buying price).
However, if you used CPF housing loan to pay for your house, you are required to CONTRIBUTE back into your CPF
         a) the amount of money you took out over the years from your CPF OA to pay your mortgage.
         b) the amount of interest you could have earned if you had not used the money in your CPF OA
              to pay for your house (accrued interest).

I used the word to CONTRIBUTE instead of the word PAY.
In essence, you are not exactly paying to CPF with the profits of your house.
Instead, the money is actually sent to your CPF OA.
You can actually use the money from that account to Invest, buy insurance, participate in schemes applicable for OA.

If you are wondering why is it so, it is because CPF needs to ensure that you have a bigger safety for your retirement.
This compulsory locking away of your profits ensure that
         a) you do not squander away the money unnecessarily.
         b) money is put into better use - earning CPF interest etc.

I believe there are people who think that this "accrued interest" thing should be abolished because "it does not make sense for me to pay myself the could-be-accumulated-interest when CPF should actually be the one to be paying me it".
Then again, your money is not in CPF's care/usage, as such, why should CPF be paying you the could-be-accumulated-interest?
And, you are contributing, not paying, the profit into your own CPF account. Think about it another way, you are "profit-sharing" with your retirement fund. While it may be unpleasant, the greatness of it can only be seen in the future.

Saturday, 23 May 2015

CPF Minimum Sum: 4 Insurances in 1

Today's post will be on how CPF is actually 4 insurance in one.
Our apologies that we have not been posting for the past few days.
We have been busy with some of our personal matters and thus were unable to blog daily.

I was working on a post on CPF Minimum Sum Scheme when a sudden thought came into my mind.
The CPF and subsequently the CPF minimum sum scheme is actually 4 insurance plan merged into one.

Instead of looking at the CPF minimum sum as a target where you can withdraw money at a certain age, look at it as a Savings + Medical + Life + Annuity insurance plan.
 
It is a Savings Insurance
It helps you save up money for housing, medical, kids' education, and retirement

It is a Medical Insurance
1) We have got Medishield, Eldershield, and other medical insurance schemes that are paid by the Medisave Account.

2) It is not just an insurance for yourself, but also for your family members - you can use your Medisave funds to pay for your family's medical bills. So it is like a family-medical-insurance.

It is a Life Insurance
1) In the event that you passed away, all your CPF money will be passed to your dependents. 

2) If you bought the Dependents' Protection Scheme (DPS) for yourself, in the event of you passing away or becoming mentally or physically unable to work anymore, you will receive a insurance payout of $46,000.

3) There is also a Home Protection Scheme (HPS), a housing insurance that will pay your mortgage in the event that any mishap falls on you and result in you no longer able to pay your mortgage.

It is an Annuity Insurance
1) Annuity is an insurance that you pay premiums to an insurance company every month, and in return, when you reached a certain age (usually retirement age), the insurance company will pay you a fixed monthly payout for as long as you live. However, if you die early/young, the payouts will stop, which is not worthwhile if you paid 20years of premium and took only 10years of payouts.

2) When you reach 55, CPF automatically enrolls you for CPF Life, which is an annuity plan that pays you a fixed monthly payout when you reached the retirement age (65).

3) However, it is better than just an annuity plan. In the event that you passed away before fully utilising the funds in your CPF accounts/CPF Life, the money unused will be passed over to your kids just like a Life Insurance. This feature is usually unavailable for most annuity insurances.

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Tuesday, 19 May 2015

Reaching Retirement is Tough

Reaching your retirement tough, especially with inflation, low interest rates and longevity.
The amount that we are saving might not be sufficient for us to retire at the age we feel we should be retiring.

Assuming you make the income as per below.
Assuming you save 20% of your monthly income, and there is no inflation.
Age Monthly Income Annual Savings
20 - 24 $2,000 $4,800
25 - 39 $2,500 $6,000
30 - 34 $3,000 $7,200
35 - 39 $3,500 $8,400
40 - 44 $4,000 $9,600
45 - 49 $4,500 $10,800
50 - 54 $5,000 $12,000
55 - 59 $5,500 $13,200
60 - 64 $6,000 $14,400

When you reached age 65, you would have saved $216,000 in total.
Below is the retirement income you can get depending on how long you think you can live.
Live Till Retirement Years Monthly Income
95 30 $1,200
90 25 $1,440
85 20 $1,800
80 15 $2,400
75 10 $3,600
70 5 $7,200

Base on the above 2 tables, we can tell that the longer you live in your  retirement, the less you get monthly from your retirement fund.
Retirement is going to get tougher as we live longer unless we push it back to after age 65.
Currently, if we start working at age 20, retire at 65 and live till 90, we are using 45 years of work to support 25 years of retirement; that's nearly equivalent to using half your monthly salary to support 1 month of your retirement, which technically, is fairly insufficient.

Several facts below:
1) On average, 1 year is added to your estimated lifespan every 10 years.
2) People used to live till 60+ 70, so retiring at 55 would still get you a fairly good monthly retirement income (35 years of work to support 15 years of retirement).
3) Retirement is going to get tougher as you live longer unless you work longer.

Sadly, most people will never have a scenario where there is no inflation. Most people will see inflation being higher than the interest they can receive, which erodes away their money's value.

*Above assumes a saving rate of 20%, which is the amount Singaporeans technically "save" via a compulsory retirement scheme call Central Provident Fund (CPF).
Just a little heads up, if you are unable to grow your retirement savings at a rate faster than inflation, chances are, you are going to have to work pass your retirement age to ensure you do not face any retirement income shortfall.

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Monday, 18 May 2015

The Automatic Customer

Today I will be sharing a book that I recently read.
I think that this is a really good book that is worth sharing to our readers, even though it does not belong to any of our blog category.
This book is more of a "business start-up" book than a "investment/personal finance" book.

Personally, I don't buy books because I believe that a public library provide really good resources for free - better save the money and invest more.
But, there are certain books that I believe are worth buying.
Mary Buffett's 'The Warren Buffett Stock Portfolio: Warren Buffett Stock Picks: Why and When He Is Investing in Them' and 'Warren Buffett and the Art of Stock Arbitrage: Proven Strategies for Arbitrage and Other Special Investment Situations' are examples of 2 books that I bought because I think that they are simple to understand important concepts and beautifully written.

The book I'm sharing today is: The Automatic Customer, Creating a Subscription Business in Any Industry.
It contains a lot of real subscription businesses and plenty of advice on how to start one.
The book gave me several ideas on what businesses that I could start with some of the business model in the book - there are many kind of subscription model.



If you would not like to buy the book, I urge you to at least borrow it from your nearest library, because this is a really good book to read.

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Sunday, 17 May 2015

Retirement Sum Top Up Versus Voluntary Contribution

Today's topic will be a more complex one because it covers 2 CPF schemes.
These 2 CPF schemes are complex because there wasn't enough information on the CPF website that allowed me (or us) to understand it fully.
In fact, I must thank one of our readersla Papillion, for pointing out that there are 2 different schemes for CPF top-up, if not I would have assumed that "Voluntary Top Up" was a new scheme used to replace "Retirement Sum Top Up", so thank you la Papillion.

This is the link to the article that leads to this post: LINK

We have emailed CPF Board to clarify the difference between the 2 schemes.
The difference was not very obviously shown on the CPF website.
As such, we have dedicated this post for it.

Topic Retirement Sum Top Up Scheme Voluntary Contribution Scheme
$ Goes To Special Account (age less than 55)
Retirement Account (age 55 and above)
Ordinary, Special & Medisave Account*
Uses Retirement only. Funds cannot be used
for investments etc
Funds can be used for other CPF schemes
Tax Contributions are tax-deductible #Non-tax deductible except if all
contributions go into Medisave Account
Interest SA 4% OA 2.5%, SA & MA 4%
Contribution Via Cash or CPF transfer** Via Cash
Contribution Limit Until you reach your minimum sum or
your NOKs reach theirs'
Annual CPF contribution Limit or
Medisave Contribution Ceiling

*Money goes into OA, SA & MA based on a fixed percentage that is determined by your age.
There is a Voluntary Contribution Calculator on the CPF website.
However, we have done the work for you, and the contribution rates are posted HERE

#There are 2 voluntary schemes, one is fixed contributions to 3 CPF Accounts (OA, SA & MA), which are non-tax deductible. Another is where all contributions go into your MA, which is tax-deductible.
However, if you are self-employed, there are other tax-related exemptions for you that are beyond the scope of this post.

**You may transfer your excess CPF funds to your next-of-kin if you have met the current prevailing Retirement Minimum Sum (RMS) if you are aged below 55.
If you are age above 55, you may transfer your excess CPF funds above your RMS to your next-of-kin's CPF.
Next-of-kin are parents, spouse, siblings, grandparents, parents-in-law, & grandparents-in-law.

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CPF Voluntary Contribution Rates

Today's post will be on CPF Voluntary Contribution Rates.
This post is written to complement our 2 other posts:
        CPF Interest VS Fixed Deposit
        Retirement Sum Top Up VS Voluntary Contribution

When you voluntarily contribute money into your CPF via the Voluntary Contribution Scheme, your money goes into your OA, SA & MA based on a fixed percentage that is determined by your age.
There is a Voluntary Contribution Calculator on the CPF website.
However, we have done the work for you, and the contribution rates are as per below:
Age Ordinary Account Special Account Medisave Account
Below 35 62.17% 16.21% 21.62%
35 to 45 56.77% 18.91% 24.32%
46 to 50 51.36% 21.62% 27.02%
51 to 55 40.00% 30.00% 30.00%
56 to 60 48.00% 10.00% 42.00%
61 to 65 21.88% 12.50% 65.62%
Above 65 8.00% 8.00% 84.00%

If you have any queries or tips about CPF, please do not hesitate to contact us!
We will share your tips with our readers (which will help benefit a lot of people) or we will find the answer for your question and share it with our readers too (for everyone's benefit).
Keep reading our blog, and we hope to be able to one day interact with you our dear readers.

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Friday, 15 May 2015

Earning more Interest with my CPF Ordinary Account

For an updated version, refer to the article HERE.

Today's TIP will be on: Earning more Interest with my CPF Ordinary Account (OA).
This tip is proposed by one of our readers, who asked the question: is it wise to transfer my money in OA into SA?
We would like to thank all our readers who posed us questions and sent to us tips.
We would love to see more of that coming in, so do feel free to keep sending us these love messages!
You can contact us via email (investmentstab@gmail.com) or comment on our blog.

There is a scheme in the CPF that allows you to transfer your money in your OA account to your Special Account (SA).

Benefit:
1) Higher Interest - SA gets 4% while OA gets 2.5%.

Considerations:
1) Money transferred from OA to SA cannot be transferred back - its a one-way traffic.
You will only be able to get the money back at age 55, when you have met your minimum sum

2) The range of investment products that you can invest in becomes smaller.
SA is unable to invest in ETFs and other investment products, however, money in OA is allowed to invest in ETFs, and other investment products.

3) You can only transfer money from your OA to your SA until your SA hits its minimum sum (currently at $155,000). No more money can be transferred from your OA to your SA unless the minimum sum is raised (again) or if you managed to spend the money in your SA.
*Monthly contribution can still be contributed into your SA even if your SA has reached the minimum sum.

4) Should you have insufficient money in your OA to pay for your insurance premiums or your mortgage, you would be required to pay these in cash. You are unable to use the money in your SA to pay for almost anything.
So only transfer the excess money you will not be using if you wish to transfer from OA to SA.

Wednesday, 13 May 2015

Repay the Accrued Interest from my CPF Home Loan?

Today's post is an answer to the question: Why do I have to return them into my CPF the accrued interest I would have gotten from my CPF home loan?
This question is posted by one of our readers.
We would like to thank him/her for reading and interacting with us by posting a question for us to answer.

MORE LINKS
Accrued Interest More than Housing Profits?
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

If you have any more questions regarding this topic, feel free to comment, ask us, or email us.
We would love to hear from you on how you think about this topic or other things that you would like more details/clarity on.

1) What is Accrued Interest?
The CPF Housing Loan Accrued Interest is the interest that you would have accumulated if you had not used the money in your CPF Ordinary Account (OA) to pay for your monthly mortgage.
However, the accrued interest DOES NOT belong to the CPF. It belongs to you.
The accrued interest goes back into your CPF OA account.

2) Why do I have to return the Accrued Interest?
Assuming you did not use your CPF to buy your house, the monthly contribution into your CPF would have collected an annual 2.5% interest inside your OA. The "returning of CPF principal + accrued interest' is so that your CPF OA account is able to fully reflect the amount that should have been inside if you did not use it to buy a house.
I would say there are 2 big reasons for this:
       a) Keep the money inside CPF at a high level so that you can hit your minimum sum.
       b) Discipline, because people tend to spend the extra cash once they profit from selling a house, thus if a portion of it went into a place that they cannot withdraw and spend, the money is thus saved. 

3) Am I Paying Double Interest via CPF Home Loan?
In a way, yes. You are paying interest to the CPF at a rate of 2.5% + 0.1% (base OA interest rate + 0.1%). In addition, you are also required to top back your OA to the "would-be amount" if you did not use your CPF to pay for your mortgage (OA rate of currently 2.5%).
BUT, you can also consider it as a mortgage loan + forced savings.
You pay your monthly mortgage, and upon selling your house, it automatically helps you transfer some of your money away into a savings plan (forced savings), which you can use for a range of different purposes depending on your age and schemes available.


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Tuesday, 12 May 2015

How much can I invest in ETF using my CPF Monies

Today's post will be on: how much can I invest in ETFs using CPF monies.
This question is posted by one of our readers.
We would like to thank him/her for reading and interacting with us by posting a question for us to answer.

1) What is an ETF?
An ETF is an Exchange Traded Fund, a fund traded on financial markets (SGX, NYSE etc) like a stock. For more information on what ETF is, please read our posts HERE

2) Am I Eligible to CPF Investment Scheme (CPFIS)
All members are eligible if you
    a) are at least 18 years old
    b) are not an undischarged bankrupt
    c) have more than $20,000 in your Ordinary Account or more than $40,000 in your Special Account
*Your first $60,000 in your combined CPF account earns an extra 1%, which is why the CPF recommend you to invest the only amount in excess of that $60,000.

3) What can I invest in?
What you can invest in shown in the table below:

*Source from https://www.cpf.gov.sg/Assets/members/Documents/INV_InstrumentsunderCPFIS.pdf

4) How much can I invest in ETFs using my CPF monies?
Yes, you may invest your CPF money in Singapore listed ETFs.
However, there are some rules & regulations regarding this.
You may only
    a) use your CPF OA for investing in ETFs
    b) use funds in excess of $20,000 in your OA
    c) invest in 3 ETFs (currently approved):
              i) SPDR Straits Times Index ETF
              ii) Nikko AM Singapore STI ETF
              iii) ABF Singapore Bond Index Fund

5) What is the cost associated with using my CPF for investments in ETFs?
There are 2 costs associated with investing in ETFs with your CPF.
    a) Your brokerage fees
         Your account will have to be opened with 1 of the 3 banks in Singapore (DBS, OCBC, UOB). You will also incur service and transaction charge as per below in addition to your normal brokerage fees.
*Source from https://www.cpf.gov.sg/Assets/members/Documents/INV_Annexd.pdf
    b) Your ETF fund fees
         This depends on which ETF you are buying. Most ETFs charge a low fee. The fees are used to pay the fund management team for providing the product.
          i) SPDR STI ETF: expense ratio of 0.3% NAV (Net Asset Value)
          ii) Nikko STI ETF: expense ratio of 0.42% NAV
          iii) ABF Singapore Bond Index: expense ratio of 0.25% NAV


If you have any more questions regarding this policy, feel free to comment, ask us, or interact with us.
We would love to hear from you on how you think about this policy or other things that you would like more details on.

Recommended Post: Raising the Re-Employment Age to 67

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