What is CPF Minimum Sum? 7 things to know

SINGAPORE - The National Trades Union Congress (NTUC) announced on Wednesday 15 recommendations for the ongoing review of the Central Provident Fund (CPF) system.

Among other things, it has called for greater transparency and predictability of the Minimum Sum, proposing that the Government set a 10-year Minimum Sum schedule with corresponding CPF Life monthly payout. It also called for a mid-term review of the schedule to ensure relevancy.

"In addition, any adjustment or changes should be explained to members adequately in advance, including how the Minimum Sum is calculated and CPF Life monthly payout is determined," said NTUC assistant secretary-general Cham Hui Fong.

Here are seven things to know about the Minimum Sum:

1. What is the Minimum Sum?

The Minimum Sum is the amount that must be set aside in the Central Provident Fund (CPF) for retirement needs when a member turns 55. Half can be in the form of a pledge from a property purchased with CPF savings. The Minimum Sum provides CPF members with monthly payouts in their retirement years.

Currently, members who are turning 55 between July 1, 2014, and June 30, 2015, have to set aside $155,000 in their Retirement accounts to receive a monthly payout of about $1,200 when they turn 65. Come July 2015, the next cohort (those turning 55 between July 1, 2015 to June 30, 2016) will need $161,000. The amount, known as the Minimum Sum, is adjusted annually after taking into account inflation.

This one-size-fits-all approach is currently being reviewed by an advisory panel set up by the Government. In a media interview in December 2014, Manpower Minister Tan Chuan-Jin said that more options may soon be available for members to decide how they want to save for their retirement.

The panel's first set of recommendations should be ready by January 2015, and will also likely look at how to prevent payouts from being eroded by inflation.

2. What forms the Minimum Sum?

When a member turns 55, money from his Special and Ordinary accounts will be transferred into a newly-formed Retirement account. The Retirement account will hold up to $155,000 or whatever the Minimum Sum is for his cohort. Any extra remains in the respective accounts.

The member will have four accounts when he or she turns 55: Ordinary, Special, Medisave and Retirement.

3. What happens when members do not have the Minimum Sum?

Even if a member is unable to meet the Minimum Sum, he can still withdraw up to the first $5,000 from his CPF accounts.

He also does not need to top up the shortfall in cash or sell his property. The CPF Board will automatically pledge the property he has bought using his CPF for up to half of the Minimum Sum. The pledge amount is either the amount of CPF used for the property or the Minimum Sum shortfall - whichever is lower.

He will still get monthly payouts when he reaches 65, based on how much cash savings he has in his Retirement account. But his monthly payouts will be lower.

4. When can members start receiving payouts from their Retirement account?

Members turning 55 between July 1 this year and June 30 next year will receive monthly payouts of about $1,200 when they turn 65, provided they have set aside the current Minimum Sum. Those who had not set aside the full amount in cash will receive less.

5. What happens to a member's money in their Retirement, Ordinary, Medisave and Savings accounts if they do not make any withdrawals?

Money in the Ordinary account earns up to 3.5 per cent per annum. For Special, Medisave and Retirement accounts, the current interest rate is up to 5 per cent each year.

6. Can members be exempted from setting aside the Minimum Sum?

Yes, provided that they have bought life annuity that pays them a sum that matches or is more than their projected monthly retirement payouts. Members can apply to CPF to be exempted.

7. How has the Minimum Sum changed over the years?

The Minimum Sum was set at $80,000 in 2003 and has been raised every year since, to keep up with inflation and higher living standards. The aim is to reach $120,000, in 2003 dollars, in 2015. Increases were meant to end in 2013 but due to high inflation in 2012, the Government decided that year to spread out the remaining hikes until 2015.

This article was last updated at 7.26pm on January 21, 2015.

awcw@sph.com.sg