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CPF – F1 or F9? Half also cannot withdraw anymore

By Leong Sze Hian

On Jan 22, 2007, the manpower minister, Dr Ng Eng Hen, was quoted by the media thus:

'To a question if the minimum CPF sum of $90,000 would be enough for retirement, Mr Ng said changes are being made so Singaporeans can have more money when they retire. The minimum sum, for example, is gradually being increased and the 50 per cent withdrawal rule will eventually be phased out in 2009.'

According to the CPF Board's website, the rationale for phasing out the 50 per cent withdrawal rule is as follows:

'As Singaporeans are living longer, and having smaller families on which to rely, they will have to depend more on their CPF for their retirement. With the cut in the CPF contributions, it has become even more important for Singaporeans to ensure they have enough CPF savings for their old age.

The current withdrawal rule allows members to withdraw 50 per cent of their combined Ordinary Account and Special Account balances, even if this leaves the Retirement Account with less than $47,300 in cash. This leaves many members with insufficient CPF to see them through their retirement. Phasing out the 50 per cent withdrawal rule will help more Singaporeans set aside their CPF Minimum Sum.'

The 'cut in the CPF contributions' may result in some Singaporeans having even less cash at age 55, because they have to use more cash to pay off their home mortgage, children's tertiary education tuition fees and Dependents' Protection Scheme insurance premiums.

Currently, for those with $10,001 to $189,200 at age 55,

'the member can withdraw up to 50 per cent of the total balance in his Special and Ordinary Accounts. The remainder will be set aside in his Retirement Account. Starting Jan 1, 2009, the 50 per cent withdrawal rule will be phased out gradually.

The percentage for withdrawal will drop to 40 per cent, and thereafter be further reduced every year by 10 percentage points until the withdrawal rule is phased out. Therefore, from Jan 1, 2013, you must meet the CPF and Medisave Minimum Sums first before you can withdraw your remaining Ordinary Account and Special Account balances at age 55.

However, you can continue to withdraw the first $5,000 from your Ordinary Account and Special Account balances. We believe this gradual phasing in will give CPF members time to make adjustments to their financial plans. The Minimum Sum will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013, and will be adjusted yearly for inflation.'

Hence, by 2013, those with less than the Minimum Sum of $120,000 and the Medisave Required Amount of $25,000 (currently $11,500), will not be able to withdraw any CPF money.

With older workers finding it harder to keep their jobs and find new jobs, some Singaporeans may have no choice but to rely on the current 50 per cent CPF withdrawal allowed. This may cause financial stress to those affected. Consequently, I would like to suggest that the phasing out of the 50 per cent withdrawal rule be reviewed.