In this article, we explore investing with CPF in Singapore or more accurately how to invest with your CPF savings.
While good-intentioned and a better system than a welfare scheme or socialist policy, our CPF system appears to be way too convoluted or is just so poorly communicated that it is very difficult for an average (or even above-average) Singaporean to understand in its entirety. It does not help that there are constant tweaks and changes to the system.
Just ask 10 average Singaporeans and ask them to explain the CPF savings system. It is almost a certainty that 9 out of 10 people have no clue about what are the minimum balances required at 55, how much they expect to receive at the draw down age (which constantly changes) and how they can go about investing their CPF savings. Most just see the CPF as a vehicle to pay for their housing.
Considering that the CPF savings system affects a large majority of the population, it is surprising that the CPF board is not able to express themselves clearer and make it easier to understand. If things were simplified and made easier to understand, there will be less confusion.
Singaporeans will not be as uncertain and will not be demanding for their CPF savings to be returned to them. Yes, your CPF savings is your money. No one is taking it away from you. Although, you may not get all your money in one lump sum upon retirement, even if that is what you want.
As this guide is not meant to explain the CPF system itself, you can attempt to understand the intricacies of the CPF savings system from the CPF website here. Good luck.
The CPF Investment Scheme
What is relevant to this guide is how you can optimize your CPF savings and utilize them to invest, even though you technically cannot completely withdraw the money until your retirement, or more accurately, the government’s stipulation of what your retirement age is.
The CPF Investment Scheme (CPFIS) comprises of two schemes:
CPF Investment Scheme-Ordinary Account (CPFIS-OA)
CPF Investment Scheme-Special Account (CPFIS-SA).
The reason there are two schemes is because you have two CPF savings account; an Ordinary Account (OA) and a Special Account (SA).
Why do you have two accounts? The official classification is that the OA is for housing, insurance, investment and education. The SA is for old age and investment in retirement-related financial products. This is not something you can change so just accept there are two accounts for different purposes and can be used in different ways.
The good news is that you are allowed to invest your money in both accounts but the choice of investments might differ and the amounts of money you can invest is also different.
The basic criteria for taking part in the CPFIS is that you have to be at least 18 years old and not a non-discharge bankrupt.
Let’s discuss the specifics of each scheme.
CPF Investment Scheme-Ordinary Account (CPFIS-OA)
If you want to use savings in your Ordinary Account to invest (the CPFIS-OA scheme), you must first set aside $20,000 in your OA and then invest the surplus.
So, if you have only $15,000 in your OA, you will not be able to use any money in the OA to invest. If you have $30,000 in your OA, you can use up to $10,000 to invest.
In addition, you can only invest your OA savings up to 35% and 10% of your investible savings (the surplus above $20,000) in stock and gold respectively, also known as the stock and gold limits.
Using the example above, if you have $10,000 of “investible savings”, you can only invest $3,500 (35%) in stock and $1,000 (10%) in gold.
If you want to invest savings in your OA, you are required to open a CPF Investment Account at one of the three CPFIS agent banks in Singapore.
DBS Bank Ltd (DBS)
Overseas-Chinese Banking Corporation Ltd (OCBC)
United Overseas Bank Ltd (UOB)
CPF Investment Scheme-Special Account (CPFIS-SA)
If you want to use savings in your Special Account to invest (the CPFIS-SA scheme), you must first set aside $40,000 in your SA and then invest the surplus.
If you want to invest savings in your SA, you are not required to open a CPF Investment Account at one of the three CPFIS agent banks. You will make the trades on the securities you want through your stock broker, as you usually would.
When you make a trade with your stock broker, simply choose the option to settle the trade from your CPF SA account. All good stock brokers’ online platform will have this feature. If you are requesting the trade from a human remisier or dealer, inform him/ her that the trade is to be settled by your CPF SA account.
Note: Not all securities are available for trade under the CPFIS-SA.
What Can You Invest In Under The CPF Investment Scheme (CPFIS)?
Financial assets that can be invested in both CPFIS-OA and CPFIS-SA include:
There are fees involved when using your CPF savings to invest but these costs are unavoidable and there is nothing you can do about it. It is the part of the cost of doing business, or in this case investing.
If you like, you can read about the typical service and transaction charges here.
What Happens To Your Investments When You Reach 55?
To fully understand this, you do need to be familiar with the CPF savings scheme and its procedures when you reach 55. So, this might be a bit confusing.
Basically, when you reach 55, a new Retirement Account (RA) will be created. You are required to set aside a Basic Retirement Sum or the Full Retirement Sum (your option) in the RA. Money will be automatically taken from your OA and SA to make up this retirement sum.
If there is not enough money, you can pledge your property to make up the shortfall.
If you do not have property to pledge or do not want to pledge your property, it is ok. The CPF board cannot and will not force you to top up the shortfall.
If you have CPF investments made, you can continue keeping them indefinitely.
However, when you decide to liquidate your CPF investments (sell them off to get money) and if you have a shortfall in your Retirement Sum, the money from the liquidation will be used to top up the shortfall.
When you reach 55, you can also apply to the CPF board to withdraw your CPFIS-OA and CPFIS-SA investments as well as the cash balance in your Investment Account (as long as your RA has the required Retirement Sum).
The procedure to withdraw the investments from the CPFIS is as follows:
The CPF board will inform the agent bank to close your CPF Investment Account.
You may approach the bank to make the withdrawals of your investments and cash after CPF notifies you. Your investments will be transferred from your CPF Investment Account to your own name and you may continue to invest or liquate them for cash. I assume that the transfer to your own name means transferring it to your trading account with your stock broker.
Your CPF Investment Account with the agent bank will be closed once you withdraw your investments.
The CPF board will inform your investment product provider(s) to transfer your investments to you own name. One can assume that the transfer to your own name means transferring it to your trading account with your stock broker.
Note: More than likely, there will be changes to the scheme in the future. So, by the time you reach 55; one, the “retirement age” will be higher and two, the procedures and requirements will be different.
So, please take the above as a guide only and do your due diligence by consulting the CPF board directly when it eventually comes time to sell your CPF investments.