We know that CPF Board pays 2.5% per annum interest on Ordinary Account (OA) and 4.0% p.a interest on Special Account (SA), Medisave Account (MA) and Retirement Account (RA). It also pays an additional 1.0% p.a. for first $60,000 of a member’s combined balances, with up to $20,000 from OA.
Between OA and RA, the interest income differential is 1.5 percentage points (4.0% – 2.5%).
For those who are already passed 55 years old, you would have a Retirement Account set up with some balances. The Minimum Sum (MS) for this RA had moved up over the years:
|Birth Year||Prevailing Minimum Sum for the cohort born in that year|
Let’s take a case of one born in 1957.
For the 1957 cohort, his Minimum Sum was set at $139,000 two years ago. For this year the current Minimum Sum is $155,000. CPF Board has this scheme known as CPF Minimum Sum Topping-up Scheme to allow those above 55 years old to top-up RA from $139,000 to current MS of $155,000 (ie max $16,000 top-up amount to RA).
If this member’s Special Account has zero balance, he can choose to top-up RA using Ordinary Account (OA) balance.
Instead of leaving CPF money in OA and earn 2.5% p.a., he can choose to move CPF money from OA to RA to the tune of $16,000 and earn 1.5% p.a. more interest on this $16,000. This may not seem much but additional interest income helps. In addition, when his RA balance is raised to $155,000, the monthly payout after 65 years old from CPF Life will be higher too.
This example is applicable to one (above 55 years old) who intends to keep balance in his Ordinary Account even when he can withdraw it out and his Special Account has no balance. This is because, the MS topping-up scheme draws from the Special Account first before moving on to draw the remaining top-up balance from the Ordinary Account. The Special Account and Retirement Account has the same interest rate of 4.0% p.a. and therefore has no interest rate differential advantage.
Copyright © 2014, limkimtong for Living Investment
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