How to Get Exempted From CPF Minimum Sum

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CPF Board has announced that CPF Minimum Sum will be increased to $155,000 from $148,000 for 2014. This news has caused pretty bad publicity and it is definitely not well received. There is so much attention on the $155,000 number that they have left out the details surrounding the minimum sum.

Instead of focusing on the number and how it has increased over the years, this article explores the mechanics of the Minimum Sum scheme and how applicable it is to retirement.

img How to Get Exempted From CPF Minimum Sum
How to Get Exempted From CPF Minimum Sum

 How to Calculate Your CPF Minimum Sum

1. The Minimum Sum Can Be Reduced By Half If You Own a Property

While many are still being fixated on the $155,000 number, they forget that if they own a property the Minimum Sum can be reduced by half potentially. Assuming the value of the property is worth more than the pledge amount which is half of the minimum sum, then the minimum sum required is only $77,500. The reason for this is that if you own a home and live in it, you do not have to pay rental which decreases your monthly expenses dramatically.

2. You Are Able to Get Full or Partial Exemptions If You Have An Existing Annuity Policy

The sole purpose of the CPF Minimum Sum is to ensure that people have sufficient monthly income for retirement through the CPF Life Annuity. So if you already have an existing annuity policy, you can actually apply for exemption if the amount you get from the annuity is higher than the monthly payment by CPF. If your annuity payment is lower, you can still apply for partial exemption.

3. Retirement Account Earns 4% Return Per Annum

When one reaches retirement age, the Minimum Sum goes into the Retirement Account. The money in the Retirement Account is used to pay for a CPF Life annuity scheme.  Currently, the Retirement Account earns 4% return per year which is actually pretty decent return for a low risk fixed income instrument.

4. Is the Minimum Sum Even Enough?

Using the CPF Life Calculator, a full $155,000 Minimum Sum provides approximately $1,200 monthly income via the CPF Life Annuity. Is $1,200 even enough for living expenses? There is still the issue of inflation during the 20 to 30 years of retirement which can further raise living expenses. If the Minimum Sum is reduced by half to $77,500, the monthly payout is only $600 to $700, which is generally insufficient for living expenses.

So the Minimum Sum is really the bare minimum required for retirement. In fact, it is generally not enough for most people so you need to start planning for retirement much earlier. The CPF Life payout can only be a supplement to your retirement, majority will still have to come from your own investments. To begin planning for retirement, use the Dr Wealth retirement calculator to calculate your retirement number and start saving!

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  • Slight correction on the part about the MS reduced by half if you own a property.
    The amount that can be pledged is only the amount that you have utilized your CPF to pay for the house.
    In other words, even if your house may be worth $200000, but if you have only used $30000 from your CPF, then only $30000 will be pledged to cover the minimum sum, not $77500.

  • Although the article was well written in the perspective of providing alternative solution in achieving the minimum sum, it neglected to let known the implications of pledging your property for the minimum sum. In layman terms, it would meant that the amount under which your property has been pledged for the minimum sum (with interest accumulated over the years!) will be deducted from you when you or your living descendent sells the property. Pledging your property is probably one of the last resorts.

  • Hi Raywing, the amount that can pledged is not determined by how much CPF you use for you house. It's affected by your outstanding housing loan amount and your share of the property. CPF usage only applies for joint ownership cases where you have to deduct it out. See the rule from CPF Board:

    The amount that you can pledge for your property depends on:

    • HDB’s quarterly average median resale prices for HDB flats or valuation price for private properties;

    • Outstanding housing loan amount (including non-housing loan for private properties);

    • Co-owner's CPF usage (for joint-ownership cases) and;

    • Your share of the property.

  • Damien, the amount of the minimum sum set aside will not be deducted from you when you sell the property. It will just be put back into your CPF account. It is just a manner of providing more flexibility to people who own their homes as they do not to pay rental, hence their living costs is lower.

  • It is not necessary to buy an annuity to avoid the minimum sum. Having a paid up property is good enough to reduce that by half. It is just an alternative for people who do not want to rely on CPF Life for retirement.

  • Hi Calvin,

    This wasn't quite what I understood from the officer whom I spoke to at CPF Board.

    Firstly, going your illustration, the MS is "reduced by half", which I assume you are referring to the HDB pledge.
    As per the CPF website, it is indicated that it is "UP TO 50%"; meaning it may not be 50%, but that is the maximum that the pledge can go. So it is definitely not a case of "You have property? MS reduced by half".

    The clauses in the website are somewhat ambiguous, but from some scenarios that I have quoted with the officer, it did not seem that the housing prices have much impact on the pledge amount.

    Anyway, I will clarify with them again on what is written on the website, since you brought it up. It did seemed confusing and contradicting with what the officer have told me.

  • @LJJ:

    The CPF Minimum Sum is meant to be an annuity on it's own. It is only a matter of using the CPF minimum sum as an annuity, or having an annuity of your own so you can pull out the Minimum Sum in one lump sum.

    If you do not wish to purchase an annuity, simply leave your Minimum Sum there. Remember that it is going to last you until the day you die, no matter how much you have drawn out in total.

    The whole idea of the Minimum Sum is about retirement. If the 20% (+extra 14% from your employers) was not put into a savings for you, would you really be putting that 20% into an annuity plan to plan for your retirement?
    If you won't, then it highlights the fact that most people are not prudent enough to plan for their retirement, hence highlighting the importance of CPF.
    If you would, then what is the difference between leaving it in Minimum Sum or leaving it in your own annuity?

    So rationally, what exactly is your gripe? Is it that you irrationally don't want a proper annuity plan for your retirement? Or is it just an emotional unhappiness that the government is deciding what is best for you (even though it actually may be)?

  • @Calvin

    That being said, if the property is pledged, but was not sold, then effectively the member only have $77,500 in his CPF Life, which is considerably low for a retirement income.

    I feel that one major problem that the government (nevermind PAP or Opposition) failed at was controlling the prices of properties, especially BTOs, resulting in the high prices of today and that most people are now working their life away with their life savings technically being paid as rent for a 99 year lease, having trouble to retire properly. What is your take on this?

  • RayWing Ng yes that is exactly what I mentioned in point number 4. I doubt that $600 to $700 is enough for retirement for most people. So CPF Life can only be a complement, but not a replacement for proper retirement planning.

    I will try to address that in the next article on costs of living issues. Yes, HDB prices have sky rocketed and that is due to a combination of factors – lack of supply being built, rapidly increasing population and policies around HDB. Leasehold isn't such a bad thing, it's used in multiple countries i.e. Malaysia, Indonesia, HK etc. as a way to keep prices down and also keep control over the development masterplan. HK leases start from 49 years!

    Planning for retirement has definitely gotten more costly and complicated, no doubt about it. Which makes starting early to plan ever more important.

  • Calvin PassiveIncome

    A leasehold on it's own isn't something very unfair – but combined with an insane price, then it does not work out that well because life savings are mainly locked away – and depreciating – in the leasehold, which eventually the family does not own. I believe this is one of the major gripes with Singaporeans.

  • If I pledgs my property, will i still get a payout of $1200 or lesser? Th CS at cpf mention I would get lower payout if I pledga my property. tks

  • Yes, if you pledge your property to reduce your minimum sum then you will get a lower monthly payout. That's because there will be less money in your CPF RA for the CPF life to pay you. However, you get to withdraw the cash from your CPF and you can use it for investments or any other purpose.

  • RayWing Ng unfortunately housing prices will almost definitely go up over the long run due to inflation. The question though is how to manage the growth in housing prices. The government did a pretty bad job, especially during Mah Bow Tan's period where he did not manage the supply of HDB well to match demand, one of the key factors to sky rocketing prices. They are fixing the mistakes now as hdb prices have been down for 2 quarters straight, however, people who bought during the highs won't be happy about it.

  • Can someone tell me. If my MS is not enough and still i need to pay my property using cpf. Will i hv to pay cash instead deduct from my OA montly.

    • Hi Anuar Ali,

      Assuming that you’re still working, then yes, you can continue using your OA contributions to service your housing loan even if you don’t meet your MS. Take note that at the age of 55, the savings from your Ordinary and Special Accounts will be set aside to make up the CPF Minimum Sum and you can only service your housing loan from the remaining balance in your OA. Further contributions to your OA will remain untouched.

      • I am afraid the concept about property pledge said here is not exactly correct.
        Pledging of property is optional and it does not ‘halve’ your MS as per se. The main reason for pledging a property is so that you can withdraw any EXCESS SA you have which you want to cash out instead of having it move to RA. And the pledge is capped at 50% of the MS.
        Eventually speaking, the payout of CPF Life at 65yo ONLY takes into account the CASH portion in the RA. Therefore the amount from the pledge of your property does not earn interest nor use to determine the payout you will receive.

        As for the OA, in answering Anuar’s question, it can be RESERVE to pay for your housing should you wish so. Just have to write to CPF beforehand so that they don’t move it into your RA.

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