Tuesday, April 27, 2021

More on the CPF Shielding Lifehack Abomination !

The previous article was a humongous success with so much interaction, I actually had to censor some comments from some angry FAs. This clearly means that citizens can be passionate about the CPF programme without resorting to unreasonable antics like those of Roy Ngerng. 

Seeking a solution to plug the CPF Shielding loophole is not too much to ask for.

Today, I would like to raise three points after readers have provided their feedback on my initial post :

a) $40,000 / $20,000 of the CPF SA/OA cannot be shielded

One reader pointed out that certain components of CPF-SA and CPF-OA cannot be shielded, so in my example in the first article, the advantages were overstated. If you have $280,000 in CPF-OA, you will are prevented from dumping $20,000 from CPF-OA, so you will have an extra 1.5% x $260,000 or $3,900 a year from successfully executing the hack. 

Still a fairly consequential amount of savings, so if you are reading this, please read my previous article on the hack and figure out what you need to do when you turn 54 years old. 

b) The lifehack itself contains some hidden risks, so it is not foolproof

The recommended funds tend to produce low returns but contain a lower amount of credit and market risk so when the hack is being carried out, you can lose the difference between the 4% and the amount returned by the funds over the short term. Some readers also commented that the hack should be performed using higher risk-balanced funds to minimise this difference, but this increases the volatility of the fund when it is in transition.

Ultimately there is no free lunch. 

You can lose money from the balanced fund or even the bonds in the short duration bond funds. The Sharpe ratio of CPF-SA is infinity with a 4% fixed return. No living FA can recommend an alternative to CPF-SA which is why having an option from CPF Board remains the best solution for everyone. 

As such, readers who recommend completely banning investments using CPF-SA may even have a point.

c) Why some commissioned FAs were baying for my blood while complaining about low commissions from executing this manoeuvre

Fortunately, I have FAs out there who are my allies who can assist in interpreting the antics of the angry commissioned FAs who read my blog. The fact that FAs earn low commissions from implementing the hack was explained to me by my allies. In fact, many of them are happy to assist my readers who need this hack but emphasised to me that a certain level of DIY is still expected because this is a really low margin service. 

So the question remains: why are some FAs so mad with my proposal to nerf this hack when they earn so little from this?

One possibility is that this hack gives commissioned FAs a foot in the door to the client's trust. If a client can save $3,900 a year with the hack, there should be no issue buying a couple of extra ILPs bundled into the service. 

I'm not done talking about this issue. I should have one more article from the policy maker's perspective that I will launch if I am still alive after my second Pfizer jab tomorrow.

Do keep your comments coming...


  1. i really hope policy-makers are reading your blog and taking notes. Somehow some of us think that such hack is unintended and even illegal in the first place. How can one cheat the got or taxpayers collectively ? And for those not so smart or financially suave, they lose out. Surely this is not intended by policy-makers to be unfair on this as majority loses out and a small segment of population benefited in full. Who pay in the end for the extra interests ? The people in the cpf pool, i suppose.

    1. Who knows if Ah Gong dont really mind paying the sheilding 1.5% just to keep the funds in...

  2. Any FAs or agents or RMs or whatever should just direct inquirers to Dollardex, POEMS, or FSMOne (fsmone doesn't charge platform fees for CPFIS).

    GHChua's (whoa, pioneer SG Fire'er in the 2000s) suggestion to disallow low-risk investments such as short term bond funds for SA is a good middle-of-the-road solution.

    It prevents people from trying a short-term hack if there are no low-volatility options. As I said, even with short term bond funds, majority of people won't have the guts or mentality to execute the hack. What more when these short term bond funds are taken out of the picture.

    With a balanced fund, SA shielding hack CAN STILL be carried out, but you'd need to do it probably at 50 or earlier. Hence no one will do this hack anymore.

    In recent years, not many investment providers are interested in developing CPFIS solutions as the oversight, scrutiny & capping of fees by CPF is not worth it.

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