CPF: Singapore's Mandatory Savings for Retirement, Housing, and Healthcare
Whether you’re 18 or 80, understanding CPF is easier than you think. Here’s all you need to know
- The CPF is a mandatory savings scheme designed to help you save for some of life’s most significant expenses, such as retirement, medical needs, and of course, housing.
- Before you reach 55 years old, contributions made by you and your employer go into three accounts: Ordinary Account, Special Account, and Medisave. At the age of 55, your Retirement Account is formed from the OA and SA.
- The CPF LIFE scheme provides a monthly payout to ensure you do not run out of income in retirement. The level of payout varies depending on several factors.
What is the CPF?
You may have learnt about the Central Provident Fund (CPF) during Social Studies Lessons, but do you really know what it is? Well, the CPF is a crucial component of Singapore’s social security system. The mandatory savings scheme helps Singaporeans save for retirement, housing and healthcare needs. For lower-income earners, the government helps augment their CPF savings through schemes such as Workfare and top-ups to MediSave for elderly citizens.
The CPF is needed to help Singaporeans set money aside to be as self-sufficient as possible in their retirement.
CPF is funded through employer and employee contributions. Each month, your employer will withhold a portion of your pay to be paid into your CPF accounts as your employee’s contribution. Your employer is also obliged to make an employer’s contribution as well, to add to yours. Here are the current contribution rates:
If you are a working Singaporean, employed on a full-time, part-time or casual basis, you and your employer's CPF contributions go into three accounts:
Ordinary Account (OA)
- Primarily for insurance, education, investment and housing.
- Education - can be used to fund your or a family member’s tuition fees (for undergraduate university courses only, not tuition centres!)
- Housing – can be used to pay for part of your property, monthly home loan repayments, and secure CPF Housing Grants. Singapore currently has the second-highest homeownership rate globally (89.3%), and the CPF helps maintain this rate as the funds can be used for property purchases.
- Interest rate (1st October 2023 to 31st December 2023): 2.5% per annum. Reviewed quarterly.
Using Your Oa Account For Housing
You can use your CPF Ordinary Account (OA) savings to buy an HDB flat or buy or build a private residential property — as long as the property has more than 20 years left in its lease.
You can also use CPF OA for:
- Downpayment
- Stamp Duty
- Housing Loan
- Construction Loan
- Home Protection Scheme Premiums (HDB only)
When you sell your house, the sale proceeds will be used to pay off the outstanding housing loan taken to buy the property, and a required CPF refund if you had used your CPF savings to finance the property.
Special Account (SA)
- Primarily for Retirement income and retirement-related investments
- Interest rate (1st April 2024 to 30th June 2024): 4.05% per annum. Reviewed quarterly
- Note: From 2025, the SA will be closed for those aged 55 and above. SA savings will be moved to the RA up to the Full Retirement Sum, where you'll still accrue interest at a minimum of 4%. Any remaining SA savings will then be shifted to the Ordinary Account (OA).
Medisave
- Primarily for healthcare needs.
- It can be used to pay for your Integrated Shield Plan premiums partly
- Interest rate (1st April 2024 to 30th June 2024): 4.05% per annum. Reviewed quarterly.
Note
Those aged below 55 years old will earn an additional 1% interest on the first $60,000 of your combined CPF balances (up to $20,000 from the Ordinary Account).
Those aged 55 and above will earn an additional 2% interest on the first $30,000 of your combined balance (up to $20,000 from your ordinary account) and 1% on the next $30,000. Additional interest earned on OA savings goes into an SA or Retirement account to increase retirement savings.
Monthly Allocation Rates
Once the monthly contributions are paid into the CPF, it is allocated accordingly between the three accounts (as shown below). The allocations reflect what you’re likely to be saving for at that stage of your life. For example, at a younger age, more funds will go towards housing (Ordinary Account) rather than medical needs (Medisave).
Retirement Sums: Retirement Account
Once you reach 55, your Special and Ordinary Account will merge to form your Retirement Account (RA), establishing your retirement fund. This sum will give you a monthly payout (CPF LIFE) from the payout eligibility age, which is 65 for members born in or after 1954. The annual interest rate on your Retirement Account is 4.05% (1st April to 30th June 2024).
To help you best prepare for retirement, the full and basic retirement sums will be made known to you ahead of time. At 55, you can withdraw:
- As much of your Special Account and Ordinary Account savings as you want above the Full Retirement Sum (FRS) in your Retirement Account.
- If you own a property, you can also withdraw as much of your SA and OA.
- Any Retirement Account savings (excluding government grants, interest earned, and top-up monies) as you want above the lower Basic Retirement Sum (BRS) in your Retirement Account.
- But if you do not have enough in your RA to cover your FRS (or, if you own property, the lower BRS), you can still withdraw up to $5,000.
Tip: The CPF RA Shielding Hack
The RA is funded from cash in your 4.0% interest-earning SA first, and only if that is insufficient to meet the FRS, topped up with cash from your 2.5% earning OA. The hack involves moving as much of the cash in your SA as possible above the minimum $40k to CPF Investment Scheme (CPFIS) products, including unit trusts, bonds and shares, and insurance products (including short-term liquid ones) just before you turn 55. That way, the entire FRS will be drawn from your 2.5% earning OA.
After that happens, you return the sum you withdrew from your SA to earn 4.0% again, picking up a sizeable additional 1.5% annually on top of what you would have received had those same RA dollars come from your SA instead of your OA. This hack gets you a 60% higher interest rate; remember, it compounds tax-free! (Note that the RA will also earn 4.0%.)
Of course, there are many other considerations to consider before embarking on this "hack", including your cash needs, investment strategy and property commitments, among others, so think carefully and speak with a trusted professional if you need to!
Learn more about what CPF is here.
CPF Lifetime Income for Elderly (CPF LIFE)
As was briefly mentioned earlier, the CPF LIFE scheme gives you a monthly income throughout your retirement, regardless of how long you live. These payouts are crucial to a CPF member’s retirement plan. The payout level may vary depending on factors such as the amount of Retirement Account savings used for CPF LIFE, your gender and age, CPF interest rates, mortality rates, and your chosen LIFE plan.
Though it may seem a distant prospect for many, the request you wish to leave behind should also be considered when determining which LIFE plan is best for you.
The Three Different LIFE plans:
Escalating Plan – for those who want payments to increase as time goes on. Payments increase by 2% each year, helping protect you against rising costs and maintain your standard of living.
Impact on bequest = neutral.
Standard Plan – the default plan. Original payments are higher than the escalating plan; however, they remain flat over the years to come. For those able to cope with inflation.
Impact on bequest = leaves a lower bequest.
Basic Plan – lower payments at the start and in the future. Payouts will decrease gradually after combined CPF balances fall below $60,000.
Impact on bequest = leaves a higher bequest.
Under all three plans, you will enjoy risk-free CPF interest rates. Any leftover CPF LIFE premium balance will be handed to your beneficiaries, together with your leftover CPF savings, upon death. Between the age of 65 and 70, you can choose when you wish to receive your LIFE payouts. Every year you defer receiving payouts, your payout income will increase by 7%.An introductory guide to CPF, Singapore's mandatory savings scheme for retirement, healthcare, and housing needs. Discover how to use your CPF accounts and maximise savings.
Use the CPF LIFE estimator tool here.
CPF BASICS. COMPLETED. ✅
Sources