CPF Reforms - Investment Related

CPF Reforms suppose to help to increase the value of our cash parked in CPF given the reason we will live longer. (Additional info: Ministerial Statement on CPF Reforms and Other Measures for a Secure Retirement by Dr Ng Eng Hen, Minister for Manpower, 17 September 2007, at Parliament)

Here let's not debate whether it really benefits us as CPF contributors or not.

Listed out within the ministerial statement on this CPF reforms, are the three pillars for our retirement support. They are:

(1) Working longer
(2) Improve CPF return
(3) Making savings

Since the topic today is Investment Related, let's pick Improve CPF return. Changes are:

(1) Extra 1% interest rate
(2) Re-pegging of the rate on the Special, Medisave and Retirement Accounts

However, this is not the topic for today as well. Let's talk about New CPFIS restrictions. Under the statement item 29,

All OA monies can still be used for existing housing, CPF insurance, and education schemes. But in view of the extra interest being paid, the first $20,000 in both the OA and SA will no longer be allowed for use in the CPF Investment Scheme (or CPFIS). These restrictions on CPFIS will apply from 1 April 2008 because some time is needed for product providers and CPFB to make changes. Money already invested in CPFIS will not be affected. Even after these restrictions, $42 billion will still be available for use in CPFIS.

What?! My first $20,000 can't use for CPFIS? And my Ordinary Account (OA) amount can't even reach $20,000 this year due to my Singapore PR graduated rate.

So let's say you have $10,000 by this month and the cut off date is 1 April 2008. You can use (reference from CPF website):

1. Full amount to invest in Fixed Deposit (FD), Singapore T-bills, Exchange Traded Funds (ETFs), Fund Management Accounts etc.
   
   
2. 35% of full amount to shares.
   
   
3. 10% of full amount to gold.

If you don't want to wait another 1-2 years before you can use for investment. What you can do is open CPF investment account with one of our bank here and start to use the money to invest.

By looking at the current equities market, we are quite risk to execute any short term move but it is good to invest long term. Yet, you have to understand any investment has risk and you mustn't induce anything you don't know. Always seek advice from good source.

To sum up, what is the take away for today is by 1 April 2008 if you don't use your money in CPF for investment, you need to build up minimum sum of $20,000 (after reforms) before you can start to invest. Think ahead, you are not required to move.