Some thoughts on CPF SA Topup vs SRS Contribution

 
There was some recent discussion about CPF in my chatgroup that got me thinking about CPF SA topups vs SRS Contributions.

As you guys might know, I previously emptied my OA into my SA, as well as did a cash topup, the idea being that I'll let the government give me more interest than the cash I put in over the long term. I'll look at contributing another 9k across the years, and that's pretty much it.
My OA will be used to finance my future home, at most I'll probably either chuck the excess into the SA from OA or use the OA to invest if the option still exist by then after the house is fully paid and when I no longer have a use for the OA funds stuck there.

This post is mostly some thoughts I have, so feel free to discuss more, I believe there are many things I have overlooked and have not considered.

I'm thinking that we are looking to game the system, or in JRPG terms, optimise and stat max the character (which is "me", in this game called "Life"), so that we get the best character at the end.


CPF

• 5% on the first 40k (60k if your OA is empty)
• 4% on the remaining of the account
• Acts as a pseudo-"bond" that yields 4% and is AAA rated.
• Policy Risk (i.e. changes in CPF)
• Illiquid, once the money goes it, it cannot be taken out
• Allows Tax savings
• Topup capped at 7k per annum (for tax relief), once the Full Retirement Sum is hit, no more topups allowed
• CPF LIFE kicks in at 65, for life
• Payout is not taxed
• Limited options to invest the SA for higher returns

Ideas

• Can be used as a high interest fixed deposit when you are close to age 55 and have fulfilled the MS (From XL)
• If you are slightly going into another tax bracket that hikes your taxes significantly, SA Topup could help
• If one is less tolerant to volatility of equities and only places the cash in fixed deposits for retirement, it could be an idea

SRS

• No interest, the returns are purely based on the individual ability to generate returns
• More Liquid, however, if withdrawal before 63 is done, there's a 
• 5% penalty, and 
• 100% of the withdrawal is taxed
• Allows for Tax Savings
• Topup capped at $12,750 $15,300 per annum (Thanks Anonymous!)
• Withdrawal "payout" kicks in at age 63, over 10 years
• By the age of withdrawal, you have to liquidate your investment positions to withdraw as cash you can transfer out your holdings as "withdrawals" and preserve your holdings (Thanks Alovefororange!), find out more here.
  
• By end of 10 years, if you still have investments left inside, it will all be liquidated to cash and deposited into your bank account (and taxed, if applicable).
• Tax 50% of withdrawal per year
• SRS can be used to purchase, stocks, bonds, funds, insurance and even annuities
• Note that SRS is unable to participate in Rights Issue (Thanks yvvuj)
  
• Not kept in CDP 

Ideas

• Can be used to drop a tax bracket much easier due to the 12k cap 
• At today's taxation rates, if one hits 400k by 63 and have no income, one can withdraw 40k per annum, get taxed at 50% (which is 20k), which means you get it tax free.

Some thoughts against both

Do also note whether the tax savings for your own use is actually significant.
Especially for those in the lower income bracket. It seem to make a significant difference when you can drop one bracket or just in the higher income bracket (especially the 80k bracket onwards, which I definitely do not qualify).

We are also assuming although tax savings are part of the total return, do we actually reinvest the "returns" from tax savings? Or do it make us feel that we have more excess funds to spend?

Also realise that your capital gains and dividends which increases the size of the SRS account, will be taxed (generally), compared to using cash to invest, which is not taxed.
You can't retain the stock/bond positions that you keep in the SRS account.

One could technically keep cash as "warchest" in accounts such as OCBC 360, UOB One, CIMB Fastsaver, Fixed Deposits and SSB, but you get no tax deferment/relief.

Perhaps one could even look at MA Cash Topup (up to 7k per year for tax relief up to Annual contribution cap per year less mandatory contribution and capped at prevailing BHS, see here. Thanks Anonymous!) to allow it to reach the cap faster so that the funds to MA will be directed to SA. I also found out recently that, apparently one can transfer from OA/SA to MA from here (EDIT 14Oct16: However, one have to be age 55 and above and have the FRS sum, meh). Perhaps I could chuck my OA to MA instead of to SA to reach the basic healthcare sum (currently at about 49.8k), so that remaining contributions will be directed to SA anyway. 
In hindsight, perhaps I should have performed half of my OA to MA and the remaining half to SA instead. Perhaps, my extra 9k worth of SA topups should be directed to the MA instead. Maybe even my PSEA account -> OA -> MA.

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A side note, it seems that the CPF LIFE Basic Plan is the best overall plan (though Standard is the default), someone did a comparison here.

Hmm, so whichever one I qualify by retirement, will be BRS/FRS/ERS -> Basic Plan.

This also makes me wonder, is CPF the best annuity out there (in terms of benefits) in Singapore's market, perhaps someone would do a comparison as well (Sunday Times just illustrates the payout only here).
But it could be a hard one as CPF does not require a sales team, so one less cost (though they might hire actuaries instead), and no shareholders unlike various insurance companies (less the government/nation).


What do you guys think?

Do discuss!

Update (03 Dec 16): Cai Haoxiang has written a good article on it here as well. 

Update (04 Dec 17): Edited to clarify topup cap for only tax relief