We refer to Ho Soo Sun’s letter “Hassle to close CPF investment account” (Straits Times Forum Oct 3).
Can’t close CPF Investment Account?
It states that “A month before I turned 55, I submitted a form to the Central Provident Fund Board to close my investment account. I knew that to do so, I would have to meet both the CPF Minimum Sum and the Medisave Minimum Sum, so I ensured I had enough CPF savings to top up both accounts.
No auto top-up of Medisave Account to meet Medisave Minimum Sum?
However, to my surprise, I received a letter from the CPF Board a few days later saying it could not close my investment account because of a shortfall in my Medisave account.
When I checked my CPF account, I noticed that the CPF Board had automatically set up a Retirement Account with the Minimum Sum, but did not top-up my Medisave account automatically. Thus, I ended up with a shortfall.
Must top-up Medisave Minimum Sum with cash, not CPF?
I went to the CPF’s Woodlands branch and was told I could top up my Medisave either with cash or by making a partial withdrawal of my CPF savings, so the system could “trigger” a transfer. My suggestion to simply use my CPF savings to top up my Medisave was rejected.
I chose the second option and was able to close my investment account. Later, I contacted the CPF’s call centre to ask why closing the investment account could not “trigger” a transfer of funds to top up my Medisave, since this could be done when a cash withdrawal was made.
No logic?
The officer insisted this was a protocol they had to follow. She added that I could submit my feedback to the CPF Board, which I did but its reply did not address the points I raised; it merely mentioned the conditions that had to be met before the investment account could be closed.”
Postulating why investment account so difficult to close?
– Allow us to postulate as to some possible reasons why the protocol on the closure of CPFIS investment accounts may have changed, and seem somewhat illogical.
Medisave Minimum Sum on “prevailing” basis?
Since the policy was changed such that the Medisave Minimum Sum (MMS) became the prevailing MMS rather than the cohort MMS – the MMS that applies after a CPF member turns 55 will increase in the future years, as the MMS is increased every year.
“Cohort” basis like the CPF Minimum Sum means that the amount does not increase in the future as it is based on the amount that was applicable when you turned 55.
If Investment Account closed – how to recover Medisave Minimum Sum shortfall?
Thus, if the investment account is allowed to be easily or automatically closed – there is no way for the CPFIS investments sold after 55 to be retained and used to top-up any shortfall due to future increases in the MMS.
In other words, when a CPF investment is sold, it gets to be returned to the CPFIS investment account first, so that any MMS shortfall due to MMS increases in the future can be “recovered” and held back from the investment proceeds.
Let’s illustrate this with an example. You sell your CPF investment at age 65 for $40,000 – and the MMS has increased from the current $43,500 by $30,000 (last year’s increase was $3,000) to $73,500, 10 years later. What this means is that you can only withdraw $10,000 of your $40,000 investment proceeds because of the “prevailing” MMS policy.
Now, how many people are aware of this?
Minimum Sum is effectively $198,500?
We believe very few people know that since 1 January 2013, one has to meet both the CPF Minimum Sum (MS) and the MMS, before they can withdraw the excess after age 55. This effectively means that the Minimum Sum may be $198,500 (MS $155,000 plus MMS $43,500), instead of what most people think – that the MS is $155,000.
“Unknowingly” leaving more funds in CPF?
So, by not automatically topping the MMS using a member’s Ordinary (OA) and Special Account (SA) balance in excess of the MS (currently $155,000) – members may not realise that this may be “preventing” them from withdrawing the excess above $198,500.
In other words, more funds may remain in CPF accounts.
Get lower interest of 2.5%?
In this connection, what we believe most members may not be aware of, is that any excess amounts that can be withdrawn but are left for whatever reason (member’s decision or MMS still have a shortfall as highlighted in the subject forum letter) – the interest paid is the lower 2.5% OA rate, and not the higher 4% SA/RA rate.
Again, more funds may remain in CPF accounts and CPF members may get less interest.
Also, if the Medisave account’s MMS shortfall is automatically topped-up from the OA/SA in excess of the MS (which is what Ho Soo Sun is asking) – the CPF Board may be paying more interest and the member would get the higher 4% on the shortfall topped-up amount, instead of the lower 2.5% on the same amount which remains to be classified as “amount that can be withdrawn” which gets the lower 2.5%.
Not so “illogical” after all?
So, in view of the above “postulations” – perhaps the seemingly illogical answers given to Ho Soo Sun that one has to withdraw one’s CPF and then use the cash to top-up the MMS shortfall, before being allowed to close the CPFIS investment account, may make some sense after all.
Finally, unless CPF members attempt to close their CPFIS investment accounts like Ho Soo Sun – many may be non the wiser as to the above.
Escaping future Medisave Minimum Sum increases?
Perhaps Ho Soo Sun may have unwittingly escaped the need to top up his MMS increases in the future, because there is no way to recover any future MMS shortfalls because he will get cash directly when he sells his CPF investments in the future now that his investment account has been closed.
For the rest of us who may be “unknowing” – we may not be able to get the entire CPF investment proceeds when we sell in the future, because the proceeds will first have to be routed through the CPFIS investment account and be subject to being retained for any future MMS increases’ shortfalls.
Uniquely Singapore right!
S Y Lee and Leong Sze Hian
P.S. Come with your family and friends to the 5th Return Our CPF protest on 25 October 4 pm at Speakers’ Corner https://www.facebook.com/events/446619505476438/
