Queries on CPF minimum sum - Pledging your property

There has been much discussions on the comments section of my previous post: All about CPF minimum sum and CPF life. A reader named NV volunteered to write to CPF with regards to the issue on pledging your property. There was a concern that if you did not meet the minimum sum which is $155,000 from July 2014, then you may not be able to pledge your property to 50% of the MS and withdraw the balance. You can only pledge to make up for the shortfall. 

For example if you have $100,000 in your OA and SA, you can only pledge your property at $55,000 instead of 50% of the MS at $77,500. This is not true and has been verified by the email reply from CPF board below. 

This is the reply from reader NV on the email from CPF:

Hi SG Young Investment,

Received a reply from CPF today. 

Don't mean to sound preachy and windy here. But before going into the details of the reply from CPF, I would suggest readers get themselves updated from time to time as the rules may change and they will not want to be caught off guard at the worst time. If possible, look upon your CPF savings as an additional reserve to draw upon when you retire. Work hard, save, spend below means and get a second income. Understandably, it should be tougher for lower wage workers who will have proportionately more of their savings locked up in CPF and housing. 

From the reply from CPF, and as SG young investment has rightly pointed out in his article, you can apply to pledge your property bought with CPF funds in lieu of the CPF MS (with a limitl) and then apply to withdrawal for the pledged amount. Making this withdrawal will immediately reduce your RA balance and you will have less do draw on for CPF Life. Do think carefully if you really need to take out this amount of cash or leave it in RA to earn the 4% or 5% pa.

Below are the three case examples from CPF's email to me (in brackets are my personal notes). I have also just requested the CPF officer to let me know where I can find the relevant rules on CPF's website and also the CPF Act. If you are interested, it is probably in section 15 of the CPF Act which I have no time to look in detail.

In all the cases, assumed Medisave MS is met and the prevailing CPF MS is $155k. Also assumed that the amount available as property pledge is $100k, so way above 50% of the MS. 


Case 1

Before 55,
OA+SA = $100,000
 
At 55,
OA+SA = $5,000
RA = $95,000
 
Mr A can withdraw $5,000 from his Ordinary Account. Separately, he may also pledge his property to withdraw another $17,500 from his RA. (Property pledge $155k/2 or $77.5k minus MS shortfall topup $60k = $17.5k)
 

Case 2
 
Before 55,
OA+SA = $200,000
 
At 55,
OA+SA = $45,000
RA = $155,000
 
Mr B can withdraw $45,000 from his Ordinary/Special Account. Separately, he may also pledge his property to withdraw another $77,500 from his RA. (no MS shortfall, so can apply for property pledge and withdraw up to $77.5k)



Case 3
 
Before 55,
OA+SA = $60,000
 
At 55,
OA+SA = $5,000
RA = $55,000
 
Mr C can withdraw $5,000 from his Ordinary Account only. (Maximum auto property pledge of $77.5k + RA balance $55k = $132.5k. A MS Shortfall of $22.5k. But can withdraw max $5k under current rules)


What was my reply?

Hi NV,

You have good financial management concepts. Work hard, save, spend below your means is what I propose in my articles too. Its better to live a simple life and be happy. If you want, I'd welcome you to guest post on my blog. Just email me and we can share more :)

The reply from CPF is clear now. It goes to show we can't believe every article that is written out there. The whole CPF saga has generated much confusion. Some ask for higher interest rates but they may not know the implications of higher interest rates. Also, we can have the freedom to transfer money from our OA to SA earlier so we can enjoy the 4% interest instead of just 2.5%. The 1.5% interest will make a big difference over the years. Isn't this getting higher interest by using the system in our favour? .....

Thanks to reader NV for the contributions!   

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Related Posts:
1. All about CPF minimum sum and CPF life