I Paid The CPF A Visit

CPF, whoa. There's been so much hullabaloo about our CPF ever since Roy got sued. No one really cared enough to get himself in trouble like this before. That's sort of nice isn't it?

I guess in contrast someone else isn't being nice enough to step back, take the high road, explain the facts and forget it ever happened. Well.

Now that people do care, again, it's perhaps time to set some things straight about our CPF.

1. I asked about 10 people about where our CPF money is invested, people from all walks of life, intelligent adults who are aware and not ignorant. Guess what? They all got this wrong. Our CPF money isn't invested with Temasek or GIC. It's invested against special financial instruments guaranteed by the Singapore government. These are the Special Singapore Government Securities. See http://www.sgs.gov.sg/

 

I don’t know what specific instruments our CPF is invested against and I don’t know what real returns we’re making. If anyone can figure that out, let me know.

2. The money you borrow out from your CPF to buy your house or flat has to be paid back when you sell that property. And you have to pay back the interest you would have earned if the money was untouched. If you took out $100k, and sold your flat after 10 years, you'd have to pay back $128,008.45 if the annual interest stayed at 2.5%.

If you're paying installments from your monthly CPF contribution, those are subject to this accrued interest scheme too. So if you took out $100k initially and pay out $1k a month to settle your HDB or bank loan, you'll owe $264,825 at the end of 10 years (with interest calculated monthly and compounded). Kinda sucks doesn't it?

I personally disagree with the need to pay back the phantom interest. If the money isn't there, it doesn't need the attention. If it's truly my money, I wouldn't be punishing myself. My future self would definitely understand.

3. With point 2, you can actually pay back the money owe yourself. I went to the CPF offices last Friday and ask the nice counter girl just that. I had to give the example of winning lottery to explain how I could perhaps even fathom paying the sizeable amount back. The officer lady had to come out to explain that yes, I could pay back what I 'owed'. I needed to present a letter explaining my intention together with my CPF account statement with the amount 'owed'. Plus an adequately furnished cheque would suffice. I could also furnish a partial amount of the principal borrowed. That would help keep the interest down.

The officer lady kindly also reinforced that by settling what I owed at this point in time didn't mean I wouldn't owe anything if I didn't kill off the monthly installments being paid out to meet my bank loan. So should you not pay your monthly instalments with your CPF? I liken It to paying two sets of interest rates. If the HDB charges folks 2.6% on monthly installments, and CPF makes sure I pay myself back at 2.5%, that’s 5.1% I have to fork out. In this market where savings rates are not even 1%, 5.1% seems like a lot. Paying your monthly installments out of your monthly cash is perhaps advisable for those who can truly afford to not have that cash. If you have a car or mouths to feed, then perhaps the liquidity is useful. 

3. You'd technically owe yourself this accrued amount even if you've paid off your bank or HDB loan. So at the end of a 25 or 30 year loan period, you owe yourself hundreds of thousands of dollars, a gaping hole of strange debt will still be growing at the prevailing CPF interest rate. 

4. If you kept your property, paid off the bank loan, and later passed on into the afterlife, the money owed to oneself would be negated. So you're only liable to refund 'your money' if you sell the flat.

I'm not sure if there's going to be a time to be able to make money off HDB flats anymore to even cover the money you owe yourself. You might be stuck with this property you own forever. Or till you kena lottery. 

Added later - Well if you make money from selling your property and the money has to back to your CPF account, you can still buy another property and restart that debt all over again. You just won't have so much money when you retire. But you could rent your flat out. Or migrate to Krabi. Or shack up with the kids. Some of my friends hope to die at 50+. Morbid but that's a thought that making its rounds. 

5. CPF interest rates have stayed at 2.5% for the last 14 years. They used to fluctuate annually, like a lot. There’s some formula now to assess how CPF rates are. Details are here http://mycpf.cpf.gov.sg/NR/rdonlyres/5C7AAE66-A2F1-4DCD-9898-D6D1F37A8FB0/0/InterestRate.pdf

When in doubt, go see your friendly CPF counter staff today. I intend to go see the HDB next about their inheritance rules.