Changes of CPF in 2016

CPF CELING
CPF con­tri­bu­tion ceil­ing will be increased from $5000 to $6000 with effect from 1 Jan 2016. This will help to boost anoth­er $170 from employ­er and $200 from employ­ee for those earn­ing more than $6000 monthly salary and below 55 years old. Though the take-home pay for these employ­ees will reduce by $200, the sav­ings for retire­ment will be boos­ted by these extra sav­ings.

CPF CONTRIBUTION RATE
The CPF con­tri­bu­tion rate for employ­ee 50 years and above will be increased from 1 Janu­ary 2016.

  • Above 50 to 55, employ­er CPF rate will be increased from 16% to 17%, while employ­ee CPF rate will be increased from 19% to 20%;
  • Above 55 to 60, employ­er CPF rate will be increased from 12% to 13%, with no change to the cur­rent employ­ee CPF rate of 13%;
  • Above 60 to 65, employ­er CPF rate will be increased from 8.5% to 9%, with no change to the cur­rent employ­ee CPF rate of 7.5%.

In addi­tion, for CPF mem­bers aged 55 and above from 1 Janu­ary 2016, the first $30,000 from the CPF accounts will earn extra 1% per annum, on top of the cur­rent 1% extra interest on the first $60,000 of their total CPF sav­ings. That is,

 

 

Total CPF bal­ance

Interest Rate
If in Special/Retirement/Medisave Accounts If in Ordin­ary Account
First $30,000 6% 4.5%
Next $30,000 5% 3.5%
Remain­ing bal­ance above $60,000 4% 2.5%

This trans­lates to extra $300 sav­ings per year for the next 10 years before CPF Life pay­out starts at 65. Assum­ing the yearly $300 interest earned goes into the Retire­ment Account which earns 4% interest, this trans­lates to $3,745 after 10 years. With high­er amount in CPF Retire­ment Account, CPF mem­bers can expect high­er pay­out from their CPF Life.

SUPPLEMENTARY RETIREMENT SCHEME
The caps on con­tri­bu­tion to the vol­un­tary retire­ment sav­ings scheme, Sup­ple­ment­ary Retire­ment Scheme (SRS) will be increased from 1 Janu­ary 2016. For Singa­por­ean and Per­man­ent Res­id­ent, the cap will be increased from $12,750 to $15,300. The cap for for­eign­er will be increased from $29,750 to $35,700. This will help to increase the per­son­al income tax sav­ings, as the amount put into SRS will enjoy tax relief. Moreover, retire­ment cash­flow will be improved when SRS money is allowed to be with­drawn without pen­alty from age 62 onwards.

First Singapore Savings Bond

The first Singa­pore bond was opened for applic­a­tion on 1st Septem­ber 2015 and will close on 25 Septem­ber 2015, 9pm. The total amount for this alloc­a­tion is $1.2 bil­lion.

You can apply in mul­tiples of $500 up to $50,000 through DBS/POSB, OCBC or UOB ATMs, or through DBS/POSB’s Inter­net Bank­ing portal. You will also need to have the indi­vidu­al CDP Secur­it­ies account linked to any of your bank accounts as CDP is the cus­todi­an for Sav­ings Bonds and it will pro­cess the applic­a­tions, interest pay­ments and redemp­tions. You may vis­it CDP’s webpage for inform­a­tion on open­ing your CDP Secur­it­ies account.

The alloc­a­tion will be con­duc­ted on 28th Septem­ber 2015 and the bonds will be issued on 1 Octo­ber 2015. The interest will be paid on 1st April and 1st Octo­ber every year till matur­ity date on 1 Octo­ber 2025. The interest for 1st year is 0.96% p.a., and 1.09% p.a. on second year. It will increases to 3.70% p.a. on the 10th year. So if you hold for 10 years till matur­ity, the com­poun­ded interest rate is 2.63%p.a.

Singa­pore Gov­ern­ment will issue the Singa­pore Sav­ings Bond every month. The applic­a­tion peri­od is always 1st of the month till the 4th last busi­ness day of the month. Alloc­a­tion of the bonds will be con­duc­ted on the 3rd last busi­ness day of the month and res­ults will be pub­lished on its web­site after 3pm. Should the total amount of applic­a­tions exceed the amount on offer in a par­tic­u­lar month, you may not get the full amount you applied for. The excess cash will be refun­ded to you by the end of the 2nd last busi­ness day of the month. Sav­ings Bonds will be issued on the 1st busi­ness day of the fol­low­ing month. You will be noti­fied by CDP via mail of the amount of Sav­ings Bonds allot­ted to you. You can also check your hold­ings online through the CDP Inter­net ser­vice or by call­ing CDP at 6535–7511. The total amount of Sav­ings Bonds held across all issues can­not be more than $100,000.

You will receive the first interest pay­ment 6 months after the bond is issued. Interest will be auto­mat­ic­ally paid into the bank account that is linked to your CDP account. Interest will be paid every six months after that, on the 1st busi­ness day of the month. The interest pay­ments will be reflec­ted in your CDP state­ments.

There is a $2 trans­ac­tion fee for any trans­ac­tion such as applic­a­tion and redemp­tion of the bond.

You can redeem in mul­tiples of $500 on the 1st busi­ness day of each month till the 4th last busi­ness days of the month without pen­alty. Redemp­tion pro­ceeds will be paid by the end of the 2nd busi­ness day of the fol­low­ing month. If you redeem before the sched­uled interest is paid, you will receive a pro-rated amount, which is the interest you have earned but have not been paid.

Financial Care for Special Needs Children

Source: The New Paper posted in edvantage.com.sgCur­rently, there are two fin­an­cial secur­ity schemes for par­ents with spe­cial needs chil­dren when they are no longer around to care for them.

The first one is the Spe­cial Needs Trust Com­pany (SNTC) Trust­ee Scheme which provides trust ser­vices to bene­fi­ciar­ies who have spe­cial needs. How­ever, this requires cash sav­ings with SNTC with a min­im­um depos­it of $5000 and nom­in­al annu­al fee. For those without much cash out­side their CPF, the new Spe­cial Needs Sav­ings Scheme (SNSS) man­aged by CPFB will be a great help.

Photo source: The New Paper, 30 Apr 2010, pos­ted in edvantage.com.sg.
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More Deposit Products Promotion and Bond Issuance Now

With the aver­age sav­ings banks interest rate at a low of 0.14% p.a. in July 2010, investors have been turn­ing to fixed depos­its of ten­ure 1 year and above. Bond of 10 years ten­or is also offer­ing good returns that beat the aver­age infla­tion rate of 3%.

May­bank offers 0.75% p.a. for a min­im­um depos­it of $10,000 of 1 year ten­ure. CIMB Bank offers 1.3% p.a. for a 24-months fixed depos­it with min­im­um amount of $10,000. OCBC Bank pays 0.688% p.a. for a 9-month time depos­it or 0.788% p.a. for a 14-month term.

For investors, espe­cially insti­tu­tion­al investors, long ten­or bonds are in hot favour. In par­tic­u­lar, Tem­asek Hold­ings offer of 40 years ten­or with 4.2% p.a. interest were snapped up in few hours. Below are some of the bond issues in the past 2 months.

 

Amount (S$ mil­lion)

Coupon rate (%)

Matur­ity Date

Tem­asek Hold­ings

1,000

4.2

2 Aug, 2050

Khaza­nah Nas­ion­al

900

3.725

11 Aug, 2020

Khaza­nah Nas­ion­al

600

2.615

11 Aug, 2015

City Devel­op­ments

500

2.48

3 Sept, 2015

VTB

400

4.2

11 Aug, 2012

Cap­it­al­Malls Asia

350

3.95

24 Aug, 2017

Cap­it­a­Land

350

4.3

31 Aug, 2020

HSBC

300

Float­ing

9 Sept, 2025

Altern­at­ively, investors can also con­sider NTUC Income Growth Plan of 5–10 years term that offer guar­an­teed interest rate of 1–2.x% and additon­al bonus declared. The total return thus range from 3–4.x% p.a.. Growth Plan also provides per­son­al acci­dent cov­er­age of 2 times the Sum Assured.

Source : The Straits Times, 25 Aug 2010 & 26 Aug 2010

MAS to Tighten Rules on Structured Investment Products

Fol­low­ing the fiasco of the fail­ure of the Leh­man Minibonds and DBS High Notes 5, Mon­et­ary Author­ity of Singa­pore (MAS) will be tight­en­ing the rules and imple­ment tough­er laws to pro­tect con­sumers. All new invest­ment products will have a 3–4 pages of sum­mary sheet called “Product High­light Sheet”  that answers 12 tough ques­tions that investors may have. These will include min­im­um invest­ment amount, fees and charges, the worst case scen­ario and  how the invest­ment can be exited. The fin­an­cial advisors are expec­ted to go through the sum­mary sheet with the investor in detailed too.

MAS will also require fin­an­cial insti­tu­tion to cat­egor­ize the “com­plex” invest­ment product. Com­plex invest­ment products will be defined as any product that has deriv­at­ives embed­ded in it. These products are in gen­er­al more dif­fi­cult to under­stand. There­fore, fin­an­cial insti­tu­tion is sup­posed to provide com­pre­hens­ive advice and to determ­ine if the per­son is suit­able for such product.

Lastly, bank tell­ers will not be allowed to refer the cus­tom­ers to the wealth/relationship man­ager to advise on the invest­ment product. The bank will have to stop giv­ing refer­ral fee to the bank tell­er to curb such rampant prac­tice pre­vi­ously.

Local and Foreign Currencies Guaranteed in Singapore

Singa­pore Gov­ern­ment has just announced that all loc­al and for­eign cur­re­cies depos­it of indi­vidu­als and non-bank cus­tom­ers with banks, fin­ance com­pan­ies and mer­chant banks in Singa­pore until 31 Decem­ber 2010.  The list of banks, fin­ance com­pan­ies and mer­chant banks licensed by the MAS can be found on the fol­low­ing link.

This is so much more re-assur­ing than the $20,000 guar­an­tee per fin­an­cial insti­tu­tion under the Singa­pore Depos­it Insur­ance Scheme. How­ever, do note that he accounts not covered under the Gov­ern­ment Guar­an­tee on Depos­its are:

  • Dual cur­rency depos­its
  • Any depos­it that is pledged / secured as col­lat­er­al
  • Struc­tured depos­its
  • Struc­tured pro­ducta
  • Dual cur­rency invest­ments
  • Pref­er­ence shares
  • Shares
  • Bonds
  • Insur­ance
  • Unit trusts

I must emphas­ize that thought insur­ance is not guar­an­teed under the scheme, every­one should still have at least the health and life insur­ance. NTUC Income, backed up NTUC Labour Move­ment, is a very reli­able and extraordin­ary insur­ance cooper­at­ive that exists to serve the Singa­pore Res­id­ents.

Investment in Troubled Times

For the past 2 months, we have seen the vari­ous coun­tries’ indexes dropped by more than 10 per cents in more than one instances. The fin­an­cial mar­ket is now in a mess, with giant fin­an­cial insti­tu­tions in U.S. and Eupose being shut­down, acquired or nation­al­ised.

In these troubled times, should we leave the money in banks, sav­ings account, Fixed Depos­it or take it as an oppor­tun­it­ies? War­ren Buf­fet, the great U.S. suc­cess­ful investor, had just recently revealed that he was going to pull out all his per­son­al money from bonds to U.S. equit­ies. He advised that we should be greedy when every­body is in fear, and be in fear when every­body is greedy.

So it  may be times to invest in those com­pan­ies with sound fin­an­cial back­ground which have been beaten relent­lessly by the recent devel­op­ment. See the sequence of events hap­pen­ded in Septem­ber 08 and assess what kind of investor you are.

What Should I Do with My AIA Policies?

Fin­an­cial tur­moil has swept through U.S. for quite some time. But the ones that affected Singa­por­ean is the col­lapse of Leh­man Broth­ers and the fin­an­cial crisis of AIG.

Those who bought DBS High Notes 5 may loose part or all of their at least $25k invest­ment. AIA, a sub­si­di­ary of AIG, has its poli­cy­hold­ers anxious about their policies should the par­ent com­pany col­lapse.

So what are the choices for these two groups of people then?

DBS cus­tom­ers can do noth­ings except to wait for DBS to inform them of any resid­ual cash to be dis­trib­uted back to them.

For AIA poli­cy­hold­ers, they will need to stay cool and calm in this peri­od of time. For those who really afraid of los­ing their money fur­ther, they can con­sider auto­mat­ic premi­um loan that will help to pay for their future premi­um by loan­ing against their cash value. It comes with a 5–7% interest rate. But at least you are bet­ter off with con­tinu­ta­tion of cov­er­age and buy­ing time to mon­it­or the situ­ation. Any early ter­min­a­tion of any insur­ance policies, espe­cially those with cash value, is at your dis­ad­vant­age. You can also con­sider with­draw­ing the cash value by loan­ing the amount of the cash value instead of sur­ren­der­ing policies if you really want to pro­tect whatever cash value you have with AIA.

Let’s hope that the U.S. government’s plan to fix the root of the sub-prime prob­lem will show some res­ult soon­er.