Home Life and Family Retirement & Estate Planning CPF Special Account Investment Threshold Raised

CPF Special Account Investment Threshold Raised

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From 1 July 2010, the first S$40,000 of CPF Special Account (SA) balances will no longer be allowed to be used for investments. Currently, the limit is set at $30,000.

According to the CPF Board, “given the higher risk-free interest rate on the Special Account, it is better to be more conservative than to subject these savings to the uncertainty of CPFIS returns.”

Special Account balances currently yield 4% in annual interest.

The change in policy is probably promoted by poor returns of funds under the CPF Investment Scheme, for which cumulative losses were recorded in the past 3 years. According to a report in the Business Times on 6 Mar 2010, equity funds lost 10.76% in the past 3 years, while bonds funds lost 8.43% and mixed-asset funds lost.5.73%.

The $20,000 investment limit for Ordinary Account remains unchanged.

What It Means For You

The CPF SA is intended for old age, contingency purposes and investment in retirement-related financial products.

For CPF members under 35 years of age, only 14.49% of CPF contributions go to the special account. This rises to 17.39%, 20.28% and 24.56% at ages 35, 45 and 55 respectively. Therefore, most people would be unlikely to attain balances of $30,000 or even $40,000 in their SA. Indeed, only about 2.7% of all CPF members are said to be affected by the new ruling.

Finally, there are probably no investment instruments on the market right now, which offers a better risk-reward then the CPF Special Account. As long as the Singapore-dollar interest rate and inflation rate remain low, keeping your CPF funds in the SA may not be a bad idea at all.

Last Updated ( Sunday, 21 March 2010 05:13 )  
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