CPF Contributions – To Increase Or Not

There was an article in the Sunday Times Invest section a few weeks back about the pros of “investing” in one’s CPF amid the volatile world economy. The pros cited include:

1)      Risk Free – Guaranteed principle and returns (4%).

2)      Reasonably flexible. CPF Ordinary Account funds can still be used for other forms of investment when the economy improves.

To be frank, I considered both transferring part of my liquid cash into my CPF accounts and increasing my monthly CPF contribution a while back. 4% looks very good in these times.

I did not do it in the end because:

1)      Accessibility to my CPF principle is age-limited. For someone who is considering retiring early, it would be stupid to stick more money into an account that I cannot access in full until I reach 55 years old (or 65 years old if I have less than required by the Minimum Sum Scheme).

 2)      I would have no access to any gains or dividends from CPF investments until 55 (or 65 years old), same as 1) above.

 3)      There are no tax benefits if I top up my own account over my usual employment based contributions.

 4)      I am not planning any more property investment in the foreseeable future.

 5)      I cannot foresee political or policy changes which may affect the liquidity and applications of my CPF savings. I’d rather not take the risk of having more money stuck than I can help it.

 However, I have urged my sister to start contributing to her CPF accounts as her situation is a little different:

 1)      She is self employed and currently contributes nothing. She can claim a tax relief up to 36% of her yearly net trade income, provided that it does not exceed the prevailing CPF Annual Limit of $30,600.00. That is free money as far as I am concern.

 2)      She plans on buying property in the next ten years or so. She can contribute now and earn the interest until she is ready to put the money down for the property investment. The final application of the money is the same, so she might as well earn the higher interest in the meantime.

 3)      Her work does not involve huge capital inlays, and she does not plan to retire early, so liquidity is not that important to her.

 Should I have done differently, and advised my sister otherwise?

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