Query on property pledge for Min Sum

[CY09]

Hi all,

This was a previous email I sent to CPF on pledging your property for the min sum. While the answer they provided me is funny and does not make financial sense from the perspective of CPF. I will nevertheless paste it for VB member's info.

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Dear CY09

Thank you for your email of 8 June 2014.

Upon the demise of the member, the property pledge will be dropped and no refund is required.

I would be pleased to help you if you need clarification or further assistance on CPF matters. Alternatively, you can call us on 1800 2271188 from Mondays to Fridays, 8am to 5.30pm.

Yours sincerely

Eugene Pan
Customer Correspondence Unit
Central Provident Fund Board

From: Red Mizzrt [mailto:darigaaz88@hotmail.com]
Sent: Sunday, 8 June, 2014 11:20 PM
To: CPF MEMBER (CPF)
Subject: Query on Minimum Sum pledged through property
Hi CPF,

I will like to inquire on pledging your property to fund half of the min sum.

If a 55 year old now pledges $77,500 of his property value to fund the minimum sum to fund his CPF Life payout. Lets say this member passes away at age 80 and subsequently his beneficiary sells off the property he had pledged as collateral. How much will CPF claim [please explain in details the calculation of this claim amount] or will CPF not claim anything [this part is just my wishful thinking ] .

Thank you for your assistance in answering my query.

Regards
CY09

[brattzz]

Upon the demise of the member, the property pledge will be dropped and no refund is required.

means member already dead.. so no pledge needed, and no refunds too..beneficiary can keep all the money liao!

similar to a gift of hdb flat.. beneficiary cannot keep (if he has another HDB) , so have to sell lah!

[CY09]

My interpretation of the email from what i asked and the reply from CPF; is the illusion we just need to pledge $77,500 CPF with the other $77,500 via your property and be able to enjoy approx $1,200 a month payout. Subsequently upon our death, CPF will not ask back for the $77,500 pledged by your property upon the sale of that flat.

[aspeed]

My interpretation of the email from what i asked and the reply from CPF; is the illusion we just need to pledge $77,500 CPF with the other $77,500 via your property and be able to enjoy approx $1,200 a month payout. Subsequently upon our death, CPF will not ask back for the $77,500 pledged by your property upon the sale of that flat.

How much you get in monthly payout (after 65) depend on how much you contributed to min sum basket. So when you only contribute $77,500, likely you will get half of those who contributed $155K.

So by pledging house, you don't "owe" CPF anything, so obviously no need to pay back after death.

If sell house and still alive, the remaining half will go into min sum, and monthly payout will be adjusted accordingly.

[kichialo]

My interpretation of the email from what i asked and the reply from CPF; is the illusion we just need to pledge $77,500 CPF with the other $77,500 via your property and be able to enjoy approx $1,200 a month payout. Subsequently upon our death, CPF will not ask back for the $77,500 pledged by your property upon the sale of that flat.

From what I know the property pledge does nothing to the payout at age 65. The payout will still be based on $77,500 amount of CPF which means a non-guaranteed amount about half of $1,200 a month.

[CY09]

Hi Kichialo,

Thanks for the clarification. Does it mean assuming I am 55 and have a CPF balance of $188,000; I can pledge only $77,500 from my CPF balance, withdraw $110,500 and pledge the remaining using property instead of pledging $155,000 into CPF life and withdrawing only $33,000. However, my payout will be based on $77,500 that remains?

[kichialo]

Hi Kichialo,

Thanks for the clarification. Does it mean assuming I am 55 and have a CPF balance of $188,000; I can pledge only $77,500 from my CPF balance, withdraw $110,500 and pledge the remaining using property instead of pledging $155,000 into CPF life and withdrawing only $33,000. However, my payout will be based on $77,500 that remains?

I remember listening to Moneymind and someone called in to ask something similar. The reply from the financial expert on the show is similar to what you said, but he said best is always double check with CPF.

[specuvestor]

^^ sounds right because the original intent of this pledging is to let folks take out money even when their money is tied up with properties, mitigating the asset rich cash poor situation

In the first place i dont agree to CPF being used to fund properties... It defeats the purpose of a retirement fund and it makes as much sense as the policy of extending car loan tenor so to make it more "affordable"

The right but difficult policy is to slowly remove CPF from the property equation and hence scrap this pledging thingy. Obviously not going to be a welcome move but like LKY said, it's much easier to give than to take back.

[tikam tikam]

I believe CPF is ours and (under limited constraints) we should be able to do what we want with it. Thanks.

^^ sounds right because the original intent of this pledging is to let folks take out money even when their money is tied up with properties, mitigating the asset rich cash poor situation

In the first place i dont agree to CPF being used to fund properties... It defeats the purpose of a retirement fund and it makes as much sense as the policy of extending car loan tenor so to make it more "affordable"

The right but difficult policy is to slowly remove CPF from the property equation and hence scrap this pledging thingy. Obviously not going to be a welcome move but like LKY said, it's much easier to give than to take back.

[tanjm]

I believe CPF is ours and (under limited constraints) we should be able to do what we want with it. Thanks.

^^ sounds right because the original intent of this pledging is to let folks take out money even when their money is tied up with properties, mitigating the asset rich cash poor situation

In the first place i dont agree to CPF being used to fund properties... It defeats the purpose of a retirement fund and it makes as much sense as the policy of extending car loan tenor so to make it more "affordable"

The right but difficult policy is to slowly remove CPF from the property equation and hence scrap this pledging thingy. Obviously not going to be a welcome move but like LKY said, it's much easier to give than to take back.

Let me know if are able to find a pension scheme elsewhere where you can buy property and without a tax on the withdrawal.