Withdrawal of CPF savings

Here are some suggestions to deal with the problem faced by many cash strapped people who need their CPF savings  at 55, and do not like to see the money locked up in the CPF Minimum Sum Scheme. (Note: this represents my personal views and is not a matter for the Presidential Election).

18 June 2011

Withdrawal of CPF Savings

A few people have asked for my views about the withdrawal of CPF savings. They waited to withdraw their savings at 55, but found that it is now being held back under the Minimum Sum Scheme (MSS) to 62 and to be withdrawn in instalments. The minimum sum being held back for those reaching age 55 in 2011 is $131,000.

More details of the CPF Minimum Sum Scheme can be found here: http://ask-us.cpf.gov.sg/Home/Hybrid/themes/CPF/Uploads/RSD_WDL/CPF_Minimum_Sum_Scheme.pdf

Some people need the CPF money before age 62 as they are unemployed or have debts and were unhappy at the delay caused by the MSS scheme. They asked for my views if this CPF scheme should be modified to take into account of their situation.

Technically, the CPF member is allowed to withdraw all of his or her savings in the CPF at age 55, except for the minimum sum that has to be held back.

Withdrawal at 55

If a person has been contributing to CPF and has not used too much for housing, there should be cash available for withdrawal at age 55.

The problem is that many people paid too much for their HDB flats or private housing and do not have sufficient savings to withdraw at 55 years. This leaves them in a cash strapped position. The situation is worsened when they are unemployed. And many people seem to be caught in this situation.

Rent out a room

The practical solution to get an income is to rent out a room. The rental market is booming and it is easy to rent out a room in a HDB flat for $400 to $600 a month. This can be a good source of supplementary income. Many property agents will be happy to arrange this rental for the owner.

The family has to adjust and accommodate the tenant. This may be inconvenient but it should be considered, as it provides an additional source of income to owners who are cash strapped.

Allow early withdrawal of MMS money?

Some people may prefer a way to make an earlier withdrawal of the MMS money. They may not have sufficient money for their old age, but the felt strongly that their immediate need is to have money now, not later.

So far, there is no way to allow early withdrawal of the MMS money. The regulation is quite strict.  

I believe that for some special situation, it may be justified for the CPF member to make an early withdrawal. The problem is – how to access the justified cases from the unjustified cases? Do we want to make it easy for more people to withdraw their money early to spend and face a problem later on? Who makes out the case?

We should consider working out a case for people to make earlier withdrawal. The application can be handled as follows:

·         A set of guidelines should be set out on what are justified cases for early withdrawal

·         The applicant should engage a financial planner (from the approved panel) to assess the financial situation and make a recommendation

·         The recommendation should be considered by a special committee

We should recognise that there is a problem faced by many people under the current CPF regulations and be able to work out a way to deal with these problems. I hope that this problem can be looked into and a solution found (not necessarily the solution that I have proposed).

Limit use of CPF for housing

We should also set prudent limits on the amount of CPF savings that can be used for housing. Recently, some regulations have been implemented to set certain limits. I am not sure if these regulations are working well.

Instead of relying just on regulations that may not apply to certain people, it may be advisable for the purchasers to get the appropriate financial planning advice. This can be handled as follows:

·         A set of guidelines should be set out on what are prudent purchases

·         The applicant should engage a financial planner (from the approved panel) to assess the financial situation and make a recommendation, if the applicant wishes to go outside of the regulations

·         The CPF board can insists on this recommendation, if the applicant appears to be using too much of the CPF for housing

The recommendation of the financial planner should be considered by a special committee.

Financial Planning Advice

Many people need the right type of financial planning advice. They are many people who have obtained the qualification but they are not using their knowledge in the right way, i.e. giving financial planning advice for a fee.

The above schemes can help to build a proper financial planning service that will benefit many people in planning their savings properly for the future.

Tan Kin Lian