Using Your Parent's CPF Retirement Account as Investment Vehicle

I read that Ms Lorna Tan, ex- The Sunday Times' Invest editor, is now Head of financial planning literacy at DBS bank. 

She wrote the most “impressive” article in the Sunday Times on Oct 20, 2019.  Many Hwz forumers “cursed her like mad” for “killing” their lobang, ie. How to Stop CPFB from Transferring your SA to RA.

Now I know why she left her “most impressive” article with u for greener pastures! 

She also shared how she make use of her Dad's RA as her investment vehicle. Her dad is 84, RA almost depleted, so she can topup his account with cash to get tax relief plus up to 6% interest on first 30k and 5% on first 60k. She did not mention whether she transfer her OA to his RA, so u make your own guess. Her monies in his RA will balloon with compounding interest as her Dad's RA is under RSS, not compulsory to receive mthly payout. If her DAD needs money, she will ask him to start mthly payout.

Lorna Tan's story is similar (not exactly the same) to Uncle Henry's story.

What's the Moral of the Story?

My opinion, based on Uncle Henry's experience until his dad passed away around 90 (I think) and Lorna Tan's story:

1. If u are going to make use of your parents RA account as your investment vehicle, make sure u inform your siblings/family if u cannot be made a beneficiary in your parents' CPF nominations. Why? Read note (A) below.
2. Topup your parents RA account with your OA where possible. Why? Read note (A) below.
3. Topup your parents RA account with cash if u can claim tax relief on the cash topup. But read note (A) below.
4. Make sure your parents RA accounts are under RSS, if possible, and no need to start monthly payout where possible, so your “invested monies” can balloon very fast for your own future retirement as well as to benefit your parents still alive. In your case, your parents have no choice but to start mthly payout at 70. Why RSS is prefered for your “invested monies from OA”? Read note (B) below.
5. If your parents need to start CPF mthly payout for whatever reasons, continue to topup their RA account with OA then with Cash. This will help increase their monthly payout in the next CPFB periodic review. CPFB recently changed the computation of mthly payout to last till 90 instead of 95. If u continue to topup, it can still last beyond 90 with your continued family support for the old folks. Remember to plan should u die before them, eg your big CPF account monies go to them to support them for the rest of their life.
6. U can also recycle their monthly payouts, if not fully utilised, into RA. Teach them to do it in case u are not around. This will help increase their future payouts and last them possibly beyond 90 depending on when it is done.

Note A - CPF rules protect the Giver of CPF Funds

U do not need to worry or “interfere” with your parent's CPF nominations. It would be good if u are also a beneficiary and best if u are the only child. If u can convince your parents to include at least 2 nominees, it will be good in case both your parents die at the same time, there is still a valid CPF nomination. Dun need to play with the petty % share.

Why? U will still be a beneficiary of the “bulk” of their CPF monies even tho u are not a nominated beneficiary as CPF rules protect the “donor or giver” (and the giver's beneficiaries) of CPF funds. Read the following extracted from CPF website:

Q. If my recipient passes away, will my top-ups be refunded to me?

A. Whether the top-ups will be refunded depends on when the cash top-up/CPF transfer was made.

1. Cash top-up(s) made on/after 1 November 2008

Cash top-up(s) made on/after 1 November 2008 will be treated as cash gifts to the recipient. Any remaining cash top-up(s) will be paid to the recipient's nominees based on his CPF nomination. If there is no nomination, any remaining cash top-up will be transferred to the Public Trustee for distribution in accordance with the intestacy laws or inheritance certificate (for Muslims) in Singapore.

2. CPF transfer(s)

For all CPF transfers, any remaining transferred monies will be returned to the givers' originating CPF account(s), capped at the principal top-up amount.

If the giver passes away before the recipient, then upon the death of the recipient, the transferred monies returned to the giver's originating CPF account(s) will be paid to the giver's appointed nominees.

Note B: Protect Your Investment Objective

Your objective of using your parents' RA as a investment vehicle is similar to Lorna Tan's, ie to earn more interest on your OA monies by transfering the monies into your parents' RA accounts. From 2.5% to 4% and up to 6%! So u need to protect your OA monies siting in their RA, as well as the interest earned on their RA accounts (part of which is yours at 2.5% OA) to make sure you can get it back, as the Giver, their beneficiary, for your own beneficiaries or for their other beneficiaries.

The only way you can get it all back (regardless of who receive it) is their RA account continues to be on RSS!

Once they convert their RSS RA account into CPF Life, you will lose some of your monies:

a. If they join CPF Life Standard or Escalating Plan, all RA balance at point of joining will be transferred to the CPF Life Pool. You will potentially lose 4% pa compounded on the monies + 1%pa first 30k + 1% pa first 60k should they die earlier than expected.

b. If they join CPF Life Basic Plan, about 10-20% of RA balance will be transferred to CPF Life Pool as premium. You will potentially lose 4% pa compounded on the premiums should they die before 92 (thereabouts). Extra interest still get credited to their RA.

Should you topup your monies into their RA after they joined CPF Life, it will earn 4% pa and get streamed out as Additional Mthly Payout (AMP).

Should they choose to use the monies in RA to buy additional annuity, CPF will process and buy another CPF Life Plan policy same as what they already have, and they will get another CPF Life Plan mthy payout from this policy.

There goes your investment objective, into the drain!