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

Tuesday, 11 August 2015

Enhanced Retirement Sum (ERS) for CPF

Today's post is about Enhanced Retirement Sum (ERS)
It is currently set at 1.5x the Full Retirement Sum (FRS)
Why would someone wish to put more money into their Retirement Account than necessary?
That will be what this post will answer.

For more information on the different types of Retirement Sums, click HERE
For more information on the amount on the different types of Retirement Sums, click HERE

Finance theory states that as you grow older, you need to take less risk.
Hence as you grow older, your retirement portfolio should be less stocks & more bonds.
In recent years, Bonds' interest return has not been spectacular, especially high quality bonds.
You also might not want to go into low rating bonds for higher returns (such as BBB rated bonds).
Most importantly, we need to understand that our retirement portfolio is meant to provide us a stream of income (preferably steady income) during our retirement.
The CPF LIFE scheme (click HERE for more information) does that, the ERS adds on to what CPF LIFE can provide

Advantages of ERS
1) Higher Interest Returns - up to 6%
2) High-Rated "Investments" - since it is guaranteed by the Singapore Government which holds a AAA credit rating
3) Compounding Growth - Interests are compounded yearly, unlike bonds which do not compound
4) Fixed monthly income - it is like an investment that gives you a "payout" every month.
5) Its is auto-pilot - you do not have to do anything. You put your money in and expect money out every month. Unlike normal investments where you have to manage your funds actively.

Disadvantages of ERS
1) Low liquidity - you cannot wish to withdraw the whole amount out like you can with your private investment fund
2) Policy changes to CPF - changes might affect you from withdrawing any more money or getting higher monthly payouts or something beyond what I can think of for now
3) Political Risk - because it is Singapore Government backed, if anything goes wrong in Singapore, it will affect the returns you get from CPF.

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  1. Hi,
    Interest rate for ERS is definitely not up to 6%.
    It is 4% + 600 + 300 from Jan 2016 for those aged 55 or more since ERS is more than 60k.

    1. Hi Joe,

      Thank you for your comment.
      Technically and from an English perspective, it is up to 6% (with very big terms and conditions applied).
      4% + 1% (for first 60k) + 1% (for first 30k)
      So it is up to 6%
      Though mathematically it is around 4+%

      Thank you for your comment! :)

  2. To be on a safe side, opt for the FRS instead of ERS even if he has sufficient money?