CPF Special Account Shielding. Worth it? Any opinion?

[duckrice]

CPF Shielding Hacks (Special Account & Ordinary Account): Do They Really Make Sense?
dollarsandsense.sg

Today, many more people in Singapore are becoming aware of their CPF accounts and interested to find out how to optimise their CPF funds – which can be a substantial amount. In fact, in the latest CPF Annual Report 2020, CPF top-ups to Special and Retirement Account hit $3 billion. This is about 42% more than the $2.1 billion top-up in 2019.
One increasingly popular trend to “get the most” out of our CPF is the CPF Shield Hack.
Read Also: 12 Little-Known Things About The CPF That Most Singaporeans Are Still Unaware About

What Is The CPF Shielding Hack?​

When we turn 55, a new Retirement Account (RA) is created for us. Up to our Full Retirement Sum will be transferred from our Special Account and Ordinary Account into the Retirement Account. For example, the Full Retirement Sum (FRS) in 2021 is $186,000.
The first pool of monies that will be transferred into our Retirement Account will be from our Special Account. This is because the balances in our Special Account have always been set aside for our retirement purposes. If we are unable to hit the FRS with just our Special Account funds, then our Ordinary Account balances will flow in to plug the gap.
If we do not want our CPF SA balances, or even our OA balances, to be transferred into the Retirement Account, we can use the CPF Shielding Hack to “shield” these balances.

The Special Account Shielding Hack​

The problem some people have with the way our Retirement Account is filled up is that our Special Account balances, which earn 4.0% per annum, flows into it first. Meanwhile, our Ordinary Account (OA) balances, earning 2.5% per annum, is only transferred in after that. Because of this, some people may prefer our OA funds to flow into our Retirement Account first and to shield our Special Account balances which already earns 4.0%. This way, we optimise the amount of interest we earn on our CPF balances.
Unfortunately, this hack has been conjured up because we cannot simply transfer our Ordinary Account balances to our Special Account after the age of 55 – we can only do this before we turn 55. This is the primary reason why the Special Account CPF Shielding hack exists.
To shield our Special Account balances, we typically have to correctly time an investment into a low-cost and liquid fund offered on the CPF Investment Scheme (CPFIS) before we turn 55. Remember, we’re only trying to shield the amount, not trying to actually earn a comparable 4.0% interest on our Special Account funds. This way, our Ordinary Account balances will flow into our Retirement Account (RA) to hit the Full Retirement Sum on our 55th birthday. After we turn 55, we’re going to divest the entire amount invested and see it flow back into our Special Account.
When doing so, we can only invest anything beyond the first $40,000 in our Special Account – which means at least $40,000 of our Special Account balances will be transferred into our Retirement Account.
Read Also: Beginner’s Guide To Start Investing Using The CPF Investment Scheme

The Ordinary Account Shielding Hack​

If we choose to, we may also shield our Ordinary Account balances.
This way, we get to keep our Ordinary Account balances outside of the CPF LIFE scheme. We retain greater flexibility with our Ordinary Account balances, being able to pay for a property purchase or to invest.
In addition, we also get to make additional top-ups to our Retirement Account to earn yearly tax relief doing so.
To shield our Ordinary Account balances, we also have to correctly time an investment into a low-cost and liquid fund offered on the CPF Investment Scheme (CPFIS) before we turn 55. Unlike our Special Account, we can only invest anything above the first $20,000 of our Ordinary Account balances.
By utilising both the Special Account and Ordinary Account shielding hack, a total of $60,000 ($40,000 from our Special Account and $20,000 from our Ordinary Account) will still be transferred into our Retirement Account.

Stop Ordinary Account Balances From Going Into Retirement Account​

If we still have a home loan to service, we may need to start paying for it in cash if our entire Ordinary Account is transferred into our Retirement Account. This is especially if we are not working after 55. Even if we are working, only 12% of our salary flows into our Ordinary Account at age 55, compared to 15% before we turn 55, and up to 23% for those below 35.
This is not a shielding hack, but we can simply apply directly to CPF to stop our Ordinary Account balances from being transferred into our Retirement Account if we still need it to service a home loan. We just need to log in to the CPF website to apply to reserve our Ordinary Account balances before our 55th birthday.

Does It Make Sense To Do The CPF Special Account Shielding Hack?​

Since the Special Account and Retirement Account pay the same base interest rate, but the Ordinary Account pays less, it makes sense to see our Ordinary Account balances get transferred into our Retirement Account instead.
Due to this reason, this hack makes most sense only if we have a large Ordinary Account balance we rather see flow into the Retirement Account compared to our Special Account balances. In addition, we must also like the CPF scheme such that we want to keep our excess funds in it rather than withdrawing.
Read Also: How Older Singaporeans Can Continue Using CPF To Enjoy Higher Risk-Free Returns After Age 55
For example, anyone turning 55 in 2021 has to set aside the Full Retirement Sum $186,000 in 2021. If the person has $200,000 in their Ordinary Account and $100,000 in their Special Account, by employing the Special Account shielding hack, he or she allows their Ordinary Account balances to fund the entire Full Retirement Sum (FRS), apart from the $40,000 they have to leave in their Special Account. This way, they would have $54,000 in their Ordinary Account and $60,000 in their Special Account, and $186,000 in their Retirement Account.
Without the Special Account shielding hack, they would have $114,000 in their Ordinary Account, $0 in their Special Account, and $186,000 in their Retirement Account. This earns much lower interest returns compared to using the Special Account shielding hack.
Remember, the hack allows the person to earn the most interest return on their balances. Of course, we don’t even need to consider this hack if we wanted to withdraw anything above the FRS. In both situations, we can withdraw $114,000 from CPF.
One simple solution we can consider if we want to achieve a similar outcome is simply to transfer our entire Ordinary Account balances (up to the Full Retirement Sum) to our Special Account before we turn 55. Doing so may even lead to a more optimal transfer of our Ordinary Account to Retirement Account at 55, while keeping more in our Special Account.

Does It Make Sense To Do Ordinary Account Shielding Hack?​

If we want to shield our Ordinary Account, we first have to already be willing to do the Special Account shielding hack. By employing both shielding hacks, we will still see a minimum of $60,000 flow into our Retirement Account – $40,000 from our Special Account and $20,000 from our Ordinary Account as we cannot invest these minimum amounts.
Unlike shielding our Special Account balances, by shielding our Ordinary Account balances, we are earning lower interest returns compared to the Retirement Account. This means we must prefer the flexibility of using our Ordinary Account or dislike being on the CPF LIFE scheme.
Since we do not meet the Full Retirement Sum (or Basic Retirement Sum with property pledge), we cannot withdraw our excess CPF monies even if we technically have more than the $186,000 across our Retirement Account, Special Account and Ordinary Account.
Read Also: Here’s What You Need To Know About Pledging Your Property To Meet The CPF Full Retirement Sum (FRS)
In terms of flexibility, we are able to use our Ordinary Account balances to purchase a property, pay for mortgage loans, and if we want to invest to potentially earn a higher return.

Timing Is Important When Doing CPF Shielding Hack​

If we are trying to shield our CPF Special Account or Ordinary Account, timing is going to be important. We need to invest these funds before we turn 55, and we should try to time it such as it is divested right after we turn 55.
This is because we will not be earning any interest for the duration that our money is outside the CPF system. It can be a very substantial amount that we lose out if we don’t time it properly. It can also be a very costly mistake if we invest in the wrong investment – it needs to be very safe, very liquid and have very low costs involved.
If we try to do this a few days before we turn 55, we may end up being too late and see our CPF Special Account, or Ordinary Account, balances not invested in time.

This article was originally published on 7 December 2020 and has been updated.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.

 

[duckrice]

CPF Special Account Shielding and is it right for me?
www.moneyowl.com.sg

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Weigh the pros and cons of “SA Shielding” to see if it’s the right strategy for your retirement planning.
If you are a CPF member who will be turning 55 years old, you may have heard your friends or your financial adviser speaking to you about SA Shielding. It could have left you with doubts about the legitimacy of such a manoeuvre, the benefits of doing so, and most importantly whether you will lose out by not shielding your Special Account.

What is SA Shielding?​

This is a process which “shields” your Special Account savings from being transferred to your Retirement Account when you turn 55 years old to form your retirement sum. To appreciate this process, let me first explain what happens to your CPF accounts the second you turn 55 years old.

Prior to turning 55, you have three CPF Accounts, i.e. Ordinary, Special and MediSave. Upon turning 55, CPF Board will create a fourth account called the Retirement Account, which will be used to set aside a retirement sum. This retirement sum will be used to join CPF LIFE, which will give you a stream of stable lifelong income from age 65. This retirement sum is formed by taking savings from your Special and Ordinary Account.
Which account would you like to use to make up your retirement sum in the Retirement Account? Perhaps you may have chosen Ordinary Account because this process would have easily helped you earned up to 3.5% p.a. more interest on your savings. Or perhaps you may have said it doesn’t matter, if you are not sensitive to the interests earned on your savings. After all, the focus is on making sure you have set aside a sufficient sum of money for your CPF LIFE payouts.
By default, CPF Board will transfer the savings from your Special Account first to your Retirement Account because savings in your Special Account were designed specifically to help you save for retirement. The amount transferred is up to the Full Retirement Sum (FRS) of your cohort, which is estimated to provide you with a CPF LIFE payout sufficient for basic expenses. If you are turning 55 this year, the FRS is $186,000. If there are insufficient balances in your Special Account, balances from your Ordinary Account will be transferred as well.
Over the last five years or so, a few savvy individuals have found a way to circumvent this process by using one of the existing CPF schemes. Under the CPF Investment Scheme, you can invest both your Ordinary and Special Account savings except for the first $20,000 in your Ordinary Account and the first $40,000 in your Special Account. CPF savings which are invested will not be transferred to your Retirement Account. In other word, if you invested your Special Account savings above the first $40,000, those savings will not be transferred to the Retirement Account. As $40,000 is insufficient to make the FRS, CPF Board will then pull the balances from your Ordinary Account instead. Voila!

Benefit of SA Shielding​

Through this, you have increased the effective interest earned on your combined CPF savings. But that’s not all. When you subsequently liquidate your CPF investments, the savings will be returned to your Special Account. As you have already satisfied the FRS, these savings in your Special Account can be withdrawn anytime, whilst earning the 4% p.a. interest, thus creating your very own high interest savings account.
For even more enterprising clients, they can also consider doing both an Ordinary and Special Account Shield by investing all their CPF savings above the respective limits. As the remaining Ordinary and Special Account savings would be insufficient to meet the FRS, they can also use cash that is sitting idle in the bank to top up their Retirement Account, effectively earning a high risk-free interest on their cash savings.
As you can see, SA Shielding is legitimate as it uses existing CPF schemes to achieve an outcome that while slightly different from the default, nonetheless satisfies the policy intent of ensuring that you have sufficient retirement income through CPF LIFE while optimising your savings. However, as with all things, there is always the danger of misusing such hacks, which you will need to watch out for.

What to watch out for​

As you will need to invest your Special Account savings, there is potential danger of mis-selling. You may be recommended an expensive or higher risk investment instrument without understanding the risks or costs involved in them. This could lead to potential investment losses that outweigh the benefit of SA Shielding. Our recommendation is to either invest in short term Singapore treasury bills or government bonds through your bank or invest in a short-term bond fund such as Nikko AM Shenton Short Term Bond Fund. The choice should be focused on low costs and safety rather than returns as the intent is to return the savings to your Special Account within a month or two.
In conclusion, SA Shielding can be used to help you optimise your CPF savings to earn higher returns on your cash or CPF. While it’s great to reach for higher returns, don’t forget that ultimately CPF is meant to provide you with a steady stream of income during retirement so make sure your end outcome is having enough in your RA for your CPF LIFE payouts.
For greater clarity, speak to our client advisers who are well versed in national schemes like CPF to understand SA Shielding better and whether it is right for you.
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[batman1]

Too complicated for ordinary sinkees.

 

[duckrice]

FOR SUBSCRIBERS

No more 'shielding' of CPF soon?​

The Board says there are risks involved in doing shielding, and advisers who fail to highlight these to their clients should be taken to task.PHOTO: ST FILE

Tan Ooi Boon
Invest Editor

• PUBLISHED
  JUL 25, 2021, 5:00 AM SGT

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The days of exploiting loopholes in the national retirement scheme could be over soon, after the Central Provident Fund (CPF) Board posted a warning on its website.
In particular, it is taking aim at the act of "shielding", which is promoted by some financial advisers to circumvent the transfer of funds from members' Special Account (SA) to their Retirement Account when they hit 55.

Please subscribe or log in to continue reading the full article.

 

[Peace Maker]

CPF Shielding Hacks (Special Account & Ordinary Account): Do They Really Make Sense?
dollarsandsense.sg

Today, many more people in Singapore are becoming aware of their CPF accounts and interested to find out how to optimise their CPF funds – which can be a substantial amount. In fact, in the latest CPF Annual Report 2020, CPF top-ups to Special and Retirement Account hit $3 billion. This is about 42% more than the $2.1 billion top-up in 2019.
One increasingly popular trend to “get the most” out of our CPF is the CPF Shield Hack.
Read Also: 12 Little-Known Things About The CPF That Most Singaporeans Are Still Unaware About

What Is The CPF Shielding Hack?​

When we turn 55, a new Retirement Account (RA) is created for us. Up to our Full Retirement Sum will be transferred from our Special Account and Ordinary Account into the Retirement Account. For example, the Full Retirement Sum (FRS) in 2021 is $186,000.
The first pool of monies that will be transferred into our Retirement Account will be from our Special Account. This is because the balances in our Special Account have always been set aside for our retirement purposes. If we are unable to hit the FRS with just our Special Account funds, then our Ordinary Account balances will flow in to plug the gap.
If we do not want our CPF SA balances, or even our OA balances, to be transferred into the Retirement Account, we can use the CPF Shielding Hack to “shield” these balances.

The Special Account Shielding Hack​

The problem some people have with the way our Retirement Account is filled up is that our Special Account balances, which earn 4.0% per annum, flows into it first. Meanwhile, our Ordinary Account (OA) balances, earning 2.5% per annum, is only transferred in after that. Because of this, some people may prefer our OA funds to flow into our Retirement Account first and to shield our Special Account balances which already earns 4.0%. This way, we optimise the amount of interest we earn on our CPF balances.
Unfortunately, this hack has been conjured up because we cannot simply transfer our Ordinary Account balances to our Special Account after the age of 55 – we can only do this before we turn 55. This is the primary reason why the Special Account CPF Shielding hack exists.
To shield our Special Account balances, we typically have to correctly time an investment into a low-cost and liquid fund offered on the CPF Investment Scheme (CPFIS) before we turn 55. Remember, we’re only trying to shield the amount, not trying to actually earn a comparable 4.0% interest on our Special Account funds. This way, our Ordinary Account balances will flow into our Retirement Account (RA) to hit the Full Retirement Sum on our 55th birthday. After we turn 55, we’re going to divest the entire amount invested and see it flow back into our Special Account.
When doing so, we can only invest anything beyond the first $40,000 in our Special Account – which means at least $40,000 of our Special Account balances will be transferred into our Retirement Account.
Read Also: Beginner’s Guide To Start Investing Using The CPF Investment Scheme

The Ordinary Account Shielding Hack​

If we choose to, we may also shield our Ordinary Account balances.
This way, we get to keep our Ordinary Account balances outside of the CPF LIFE scheme. We retain greater flexibility with our Ordinary Account balances, being able to pay for a property purchase or to invest.
In addition, we also get to make additional top-ups to our Retirement Account to earn yearly tax relief doing so.
To shield our Ordinary Account balances, we also have to correctly time an investment into a low-cost and liquid fund offered on the CPF Investment Scheme (CPFIS) before we turn 55. Unlike our Special Account, we can only invest anything above the first $20,000 of our Ordinary Account balances.
By utilising both the Special Account and Ordinary Account shielding hack, a total of $60,000 ($40,000 from our Special Account and $20,000 from our Ordinary Account) will still be transferred into our Retirement Account.

Stop Ordinary Account Balances From Going Into Retirement Account​

If we still have a home loan to service, we may need to start paying for it in cash if our entire Ordinary Account is transferred into our Retirement Account. This is especially if we are not working after 55. Even if we are working, only 12% of our salary flows into our Ordinary Account at age 55, compared to 15% before we turn 55, and up to 23% for those below 35.
This is not a shielding hack, but we can simply apply directly to CPF to stop our Ordinary Account balances from being transferred into our Retirement Account if we still need it to service a home loan. We just need to log in to the CPF website to apply to reserve our Ordinary Account balances before our 55th birthday.

Does It Make Sense To Do The CPF Special Account Shielding Hack?​

Since the Special Account and Retirement Account pay the same base interest rate, but the Ordinary Account pays less, it makes sense to see our Ordinary Account balances get transferred into our Retirement Account instead.
Due to this reason, this hack makes most sense only if we have a large Ordinary Account balance we rather see flow into the Retirement Account compared to our Special Account balances. In addition, we must also like the CPF scheme such that we want to keep our excess funds in it rather than withdrawing.
Read Also: How Older Singaporeans Can Continue Using CPF To Enjoy Higher Risk-Free Returns After Age 55
For example, anyone turning 55 in 2021 has to set aside the Full Retirement Sum $186,000 in 2021. If the person has $200,000 in their Ordinary Account and $100,000 in their Special Account, by employing the Special Account shielding hack, he or she allows their Ordinary Account balances to fund the entire Full Retirement Sum (FRS), apart from the $40,000 they have to leave in their Special Account. This way, they would have $54,000 in their Ordinary Account and $60,000 in their Special Account, and $186,000 in their Retirement Account.
Without the Special Account shielding hack, they would have $114,000 in their Ordinary Account, $0 in their Special Account, and $186,000 in their Retirement Account. This earns much lower interest returns compared to using the Special Account shielding hack.
Remember, the hack allows the person to earn the most interest return on their balances. Of course, we don’t even need to consider this hack if we wanted to withdraw anything above the FRS. In both situations, we can withdraw $114,000 from CPF.
One simple solution we can consider if we want to achieve a similar outcome is simply to transfer our entire Ordinary Account balances (up to the Full Retirement Sum) to our Special Account before we turn 55. Doing so may even lead to a more optimal transfer of our Ordinary Account to Retirement Account at 55, while keeping more in our Special Account.

Does It Make Sense To Do Ordinary Account Shielding Hack?​

If we want to shield our Ordinary Account, we first have to already be willing to do the Special Account shielding hack. By employing both shielding hacks, we will still see a minimum of $60,000 flow into our Retirement Account – $40,000 from our Special Account and $20,000 from our Ordinary Account as we cannot invest these minimum amounts.
Unlike shielding our Special Account balances, by shielding our Ordinary Account balances, we are earning lower interest returns compared to the Retirement Account. This means we must prefer the flexibility of using our Ordinary Account or dislike being on the CPF LIFE scheme.
Since we do not meet the Full Retirement Sum (or Basic Retirement Sum with property pledge), we cannot withdraw our excess CPF monies even if we technically have more than the $186,000 across our Retirement Account, Special Account and Ordinary Account.
Read Also: Here’s What You Need To Know About Pledging Your Property To Meet The CPF Full Retirement Sum (FRS)
In terms of flexibility, we are able to use our Ordinary Account balances to purchase a property, pay for mortgage loans, and if we want to invest to potentially earn a higher return.

Timing Is Important When Doing CPF Shielding Hack​

If we are trying to shield our CPF Special Account or Ordinary Account, timing is going to be important. We need to invest these funds before we turn 55, and we should try to time it such as it is divested right after we turn 55.
This is because we will not be earning any interest for the duration that our money is outside the CPF system. It can be a very substantial amount that we lose out if we don’t time it properly. It can also be a very costly mistake if we invest in the wrong investment – it needs to be very safe, very liquid and have very low costs involved.
If we try to do this a few days before we turn 55, we may end up being too late and see our CPF Special Account, or Ordinary Account, balances not invested in time.

This article was originally published on 7 December 2020 and has been updated.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.

Thanks brother, a great enlightenment to those turning 55 soon

 

[Leongsam]

The benefits are so minuscule it is hardly worth all the fuss.

 

[mahjongking]

this ponzi scheme is getting so complicated that you need to be a nuclear scientist to try to understand,
i gave up bothering, just take out every single cent you can after 55 and invest or enjoy yourself

proper way is, if you want to pay so called 4% to benefit citizens, make it withdrawable anytime.
cannot withdraw pay 20% also no use,

 

[sweetiepie]

The benefits are so minuscule it is hardly worth all the fuss.

KNN indeed such a fuss that pap should just take from oa to ra KNN

 

[Thick Face Black Heart]

All these shielding hacks are for the hoi polloi.

Your main savings should be cash, not CPF. If your main savings is CPF, it means you are illiquid and have not saved enough.

 

[sweetiepie]

All these shielding hacks are for the hoi polloi.

Your main savings should be cash, not CPF. If your main savings is CPF, it means you are illiquid and have not saved enough.

My uncle has alot of savings of cash but he topup to his cpf as much as cpfb allows and is liquidifable after he set aside the min sum

 

[sweetiepie]

My uncle has alot of savings of cash but he topup to his cpf as much as cpfb allows and is liquidifable after he set aside the min sum

The max amount of topup to sa allowable is cap at the min sum capped for that year my uncle done it long ago while the max allowable topup to oa is upto the amount you have used to pay for your property + accrued interest KNN my uncle has leecentlee made about 60% of the topup and the leemaining 40% will be done when he reached 55 KNN

 

[rushifa666]

She push you out of the window and collect. Maximise option

 

[SalahParking]

sinkies and new shittyzen sinkies are so dumbfuck stupid about your CPF, HDB.

HDB is a useless piece of shit property unless you use it to pledge for BRS. which will increase every year. With the pledge, you can withdraw all the money above this and travel.

what's so complicated about this.