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The Noob’s Guide To Singapore’s CPF Investment System

Your wallet is flat but your Central Provident Fund accounts are flush with cash. Now’s the perfect time to build up your retirement nest egg.

Like many Singaporeans, civil servant Lynn Wee, 37, shares the burden of paying for her five-room HDB flat with her husband, while supporting two kids and two sets of elderly parents. The couple save whatever is left for the occasional luxury, like an annual holiday. “But we don’t have spare cash to invest and make our money grow,” says Lynn. The couple knows they are already luckier than many of their peers. “We bought our flat directly from HDB for about $280,000 and our combined monthly CPF contribution is more than enough to pay the instalments,” says Lynn, who knows friends who shell out cash, on top of using their CPF, to finance their more expensive homes.

Currently, your CPF contribution earns an interest of 2.5% per annum in the Ordinary Account (OA) and 4% per annum in the Special Account (SA), Medisave Account (MA) and Retirement Account (RA). But, annual inflation averages about 2.8% per year, eating into your interest earnings. To help bulk up our retirement funds, the government offers an additional 1% interest per annum on the first $60,000 of the combined balances (with up to $20,000 from the OA). Lynn has accumulated five-figure savings in her OA, SA and MA. Joking that she is “more CPF-rich than cash-rich”, she wants to start investing her CPF monies under the CPF Investment Scheme (CPFIS) to beef up her retirement fund.

If you’re also keen to invest your “untouchable savings”, here’s how you can do it.

How much can I invest?

You can invest any amount in excess of $20,000 in your OA and in excess of $40,000 in your SA. Check your CPF statement via CPF’s website to get a detailed breakdown, which will also show you what types of investments, known as CPFIS instruments, you can invest in. But first, you must not be an undischarged bankrupt to qualify to use your CPF savings for investment. If you want to invest money from your OA, you need to open a CPF Investment Account with DBS, OCBC or UOB; this is not necessary if you’re investing from your SA.

What can I invest in?

Choose from different CPFIS instruments: shares and loan stocks, unit trusts, government bonds, statutory board bonds, bank deposits, fund management accounts, endowment insurance policies, investment-linked insurance policies (ILPs), exchange traded funds (ETFs) and gold. These are offered by vendors like CPF Fixed Deposit Banks (DBS, Maybank, OCBC or UOB), insurance companies, fund management companies and other banks. What you can invest in also depends on whether you’re using your OA or SA monies. Investing your OA offers more options, although there are certain guidelines to adhere to. For instance, only up to 10% of your investible savings (your total OA balance plus the amount of CPF you’ve used up for investment and education) can be invested in gold ETFs and gold. You can also use your CPFIS-OA funds to apply for shares, property funds or bonds offered during an Initial Public Offering (IPO).

Do note: You can use money from your OA only for investments under the CPFIS-OA scheme, and your SA only for investments under CPFIS-SA. You can’t combine them to invest in one product. But if you’re under 55, you can transfer funds from your OA to your SA and invest via your CPFIS-SA. Do think twice though as it is irreversible; you can’t shift the money back to your OA in the future to pay for housing or education needs. Also, the total savings in the SA, including the amount withdrawn under CPFIS-SA, must not exceed the CPF Minimum Sum after the transfer. This is currently set at$155,000 but will be raised to $161,000 in July 2015.

Want to save more? Here are 8 ways to pay less income tax in Singapore http://thefinder.life/lifestyle/career-money/8-ways-pay-less-income-tax-singapore

By Stella Thng, Simply Her, March 2015

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