CPF produces several emotions for Singaporeans, from confusion to vexation. It would be completely fine considering Singapore’s CPF (Central Provident Fund), a kind of a doubtful deity or mythical beast with all the consistent hand-wringing and muttering when the subject is surfaced.
We agree that CPF is a little complicated as it is tightly incorporated into Singapore’s social and economic drapery structure. So, to make you understand everything here’s a complete guide to understanding the fundamentals of the Central Provident Fund in Singapore.
What is CPF?
CPF (Central Provident Fund) is Singapore’s employment-based savings scheme financed by your employer and you. This scheme is operated by the Central Provident Fund Board (CPFB). The citizens of Singapore or Singaporean PR are eligible to join CPF. Under this scheme, all Singapore’s citizens need to consistently add to the Fund to fulfill their medical, retirement, and housing needs.
The additions made by you and your employer reflects in three accounts: Ordinary Account, Special Account, and the MediSave Account. The CPF contributions are withdrawn automatically from your salary, and your employer’s contribution supplements your contribution. These contributions earn interest similar to the bank savings account, letting the CPF account member or holder increase their money.
The money available in one’s CPF account cannot be withdrawn unless under emergencies or particular circumstances. These involve renouncing citizenship if you relocate and are legally certified for a minimum life expectancy.
How do Central Provident Fund contributions work?
As per this scheme, the employees whose monthly earnings are more than S$500 are required to contribute some part of the salary to their CPF account. And the CPF rates may vary based on age, decreasing slowly from 55 years onwards. However, it is not applicable for individuals who work overseas, as the CPF contributions are not required in that case. It is important to consider that other payments also attract CPF contributions, including cash incentives, bonuses, and commissions.
The employee’s contribution is checked by the employer, who has to make an individual contribution to the CPF account of the employees.
Let’s know about the current CPF contribution rates:
| Employee Age | Contribution rates by the employee (% of wages) | Contribution rates by the employer (% of salary) | Total contribution as % of wages |
| 55 and below | 20 | 17 | 37 |
| 55 to 60 | 13 | 13 | 26 |
| 60 to 65 | 7.5 | 9 | 16.5 |
| Above 65 | 5 | 7.5 | 12.5 |
To understand how this contribution works, as an example, let’s use Ravela, who is 26 years of age. She has a gross income of S$5,000 a month. Since her age is under 55, the
CPF contribution rates for her are shown below:
| Gross wage – | S$5,000 |
| Ravela’stake-home pay: 80% | 80% x S$5,000 = S$4,000 |
| Ravela’s CPF contribution: 20% | 20% x S$5,000 = S$1,000 |
| Employer’s CPF contribution: 17% | 17% x S$5,000 = $850 |
| Total contribution to Ravela’s CPF account- | S$1,850 |
Though Ravela contributes just 20% of her gross wage, the amount she contributes to the account exceeds 20% as the employer will make an extra contribution to the CPF which is equivalent to 17% of her gross salary.
CPF Retirement Savings Money
Each year, a large part of your salary is deposited in CPF accounts. However, as a paid employee, your CPF contributions are essential to your retirement income. Let’s understand the meaning of Retirement Savings Money. A retirement account is created automatically for you after 55 years of age.
The amount from the Ordinary and Special accounts is transferred into Retirement Account. Here the question arises, how much is the amount that we are looking at? The amount is up to the CPF’s full retirement sum, which is $192,000 in 2022. If you are still left with money in your SA and OA, you can proceed to contribute until you get the Enhanced Retirement Sum of $288,000 in 2022.
The most interesting part is that if you are a property owner, you can withdraw the cold hard cash from CPF Retirement Account once you are 65. You can withdraw any amount, but you must leave the CPF Basic Retirement Sum (BRS) in your CPF retirement account with the assumption that you are pledging your property that you are holding now. Remember that this amount can’t be accessed until you are prepared to accept your retirement payout at 65 or later if you want. That’s why it was formerly called ‘minimum sum’. The amount in the Retirement account will now equal the retirement sum. To check the amount of retirement sum you have saved already, you can add the money in your Ordinary account and Special account.
What are the types of CPF Retirement Sum Amount?
Retirement Sums are of three types:
● BRS (Basic Retirement Sum)
● FRS (Full Retirement Sum) (BRS x 2)
● ERS (Enhanced Retirement Sum) (BRS x 3)
Make sure to note that all three retirement sums increase each year by around 3% to keep up with inflation.
How to calculate the CPF Retirement Savings Money or Retirement Amount?
Beyond 2022, CPF does not publicize Retirement sums. To figure out your own retirement sums, first determine the pending number of years to reach the age of 55, then take the help of a compound interest calculator. For instance, if you are 35 this year, you will be 55 in the next 20 years. Enter the amount of $96,000 as the initiating investment and period of time as 20 years, and 3% as the interest rate. Alternatively, this retirement calculator is helpful in giving you an idea on your retirement money calculation.
The CPF Contribution Caps
A certain number of limits exist for contributions to the CPF accounts every month. It is called as CPF wage ceiling & has two parts. First, the OWC (Ordinary wage ceiling) specifies that CPF contributions are applicable for one with a monthly gross salary of S$6,000. Anything exceeding this is not allowed for CPF contributions- either by the employer or the employee.
Then comes “the additional wage ceiling”. It affects the other additional salaries, like bonuses, and is calculated accordingly. If your gross salary is S$102,000, then ordinary annual wages are subjected to CPF contribution for the whole year. The CPF contributions apply to the total additional salaries if they lie below the AWC (additional wage ceiling).
What does CPF Annual Limit mean?
There is a certain restriction on the amount you can contribute in your CPF account each year. It is called the Annual limit & is presently set to S$37,740. This limit applies to voluntary and mandatory contributions like cash top-ups in the CPF accounts. However, from Jan 1, 2022, it is not applicable for MediSave’s top-up limit.
CPF interest rates
It is among the most important concerns related to the CPF accounts. Everybody wants to know the amount of interest they can earn on their CPF accounts, be it ordinary, special, or retirement. Well, the CPF rate of interest is somehow complicated, so here we will explain the interesting rates for every separate account one by one. But first, look at the table that makes you aware of the overall CPF interest rates.
| Account | Interest rate (per annum) |
| OA | Up to 3.5% |
| SA | Up to 5% |
| MA | Up to 5% |
| RA | Up to 6% |
OA (Ordinary Account) earns around 3.5% p.a
The funds available in your Ordinary Account can earn around 3.5% p.a but just on the initial S$20,000 in your account. After your funds exceed the set limit, you get a 2.5% interest rate per annum. If you wonder ‘why,’? Then the funds in the original account are for a short time period. You can utilize the amount in your Ordinary Account to purchase your first home, tertiary education, and insurance premiums.
The OA’s interest rate is reconsidered after three months and is enforced to be at least 2.5% or the three-month average interest rate of large local banks, whichever is the maximum.
Medisave Account and Special Account earn around 5% p.a
The MA and SA account funds can earn around 5% p.a., only if the merged balance is S$60,000 or less (including S$20,000 from the Original Account). After this, the MA and SA grow at a rate of 4% p.a. Both MA and SA interest rates are reviewed quarterly. The MA and SA savings are currently funded in the SSGS (Special Singapore Government Securities), which can earn either:
- The annual average outcome of 10-year SSGS, plus 1 %
Or
- 4% p.a., whichever is maximum.
(Retirement Account) earns around 6% p.a.
Lastly, it comes RA (Retirement Account), which is made for you after you reach age 55 and can earn around 6% interest rate per annum.
Similar to MA and SA, the Retirement Account earns either
- the annual average outcomes of 10YSGS10-year Singapore Government Securities plus 1%
Or
- 4% p.a., whichever is maximum.
The overall interest rate on the return account is around 4% per annum. Also, you can earn an extra 1% on the initial S$60,000 of your merged balance if you are 55 or above, an additional 1% interest on the initial $30,000 of your merged balance. The Retirement account rates are reconsidered annually, so you can be assured that they align with how good Singapore is economically performing.
How to earn Additional Interested rates from CPF?
The individuals who are under 55 years can get an extra 1% p.a. interest on the initial $60,000 of combined balances, of which around $20,000 comes from the Ordinary Account.
Whereas the members above 55 can also earn an extra 1% interest rate on the first $30,000 of their combined balances, of which around $20,000 comes from the Ordinary Account. Hence, they can earn up to 6% p.a on the retirement sums.
Where can you use your Ordinary Account?
The OA can be used for education, investments, and housing. When you are younger or 35 years old, primarily your CPF contributions will be reflected in the Ordinary Account. With time, the contribution amount to your OA reduces and prioritizes your MediSave and Special Accounts. Similar to other CPF accounts, your OA account also earns interest at a low rate in comparison to MA and SA.
Account Allocations of Wage Rates (% of total CPF contribution) (monthly wage > S$750)
| Employee’s Age | OA (%) | SA (%) | MA (%) |
| 35 and below | 23 | 6 | 8 |
| 35-45 | 21 | 7 | 9 |
| 45-50 | 19 | 8 | 10 |
| 50-55 | 15 | 11.5 | 10.5 |
| 55-60 | 12 | 3.5 | 10.5 |
| 60-65 | 3.5 | 2.5 | 10.5 |
| Above 65 | 1 | 1 | 10.5 |
Where Can You Use Your Special Account?
The SA functions just like your RA. You can utilize it as a provident Fund for retirement or retirement-related investments. Currently, it has an interest rate of around 5%, which allows it to be a stable savings account. However, if you want to utilize this amount to invest instead of saving, it must have at least S$40,000.
Where Can You Use Your MediSave Account (MA)?
The MediSave Account is helpful for paying your health insurance and medical bills. Plus, you can utilize your MediSave for specific health treatments to particular limits for your approved dependants and yourself. But you must know of its withdrawal limits.
Where Can You Use Your Retirement Account (RA)?
When you get 55 years old, the money in your Ordinary and Special Accounts are transferred to your newly created account, known as Retirement Account. It offers you a monthly income for around 20 to 30 years after your retirement until 95 years of age. If the RA has more than S$60,000, you will be automatically eligible for CPF LIFE- a national annuity scheme that lets you get a lifetime monthly income.
Conclusion
CPF might be complex and sometimes touchy, but this scheme is essential for every PR and Singaporean. Even if you are thinking of migrating for personal or professional purposes, you are still required to make the most out of your CPF while you reside in Singapore, and the plan may vary over time too.
Each of your four CPF accounts and the schemes serves a purpose, whether for healthcare expenses or retirement needs. It might be complicated, but it is the one that addresses the needs of individuals at every stage of life. If you still have queries regarding any concept related to CPF, let us know!
