Adulting’s easy — said no one ever. Among the milestones that prove you’ve transitioned into adulthood is this one: getting your first full-time job, and having a portion of your salary put towards your Central Provident Fund.
Except: what is it? Is it simply a retirement scheme? And what’s the difference between all those accounts? Here’s everything you need to know, and how to stretch your use of the mandatory system in Singapore.
What is CPF?
The Central Provident Fund — or CPF as it’s commonly known — is a compulsory savings and retirement scheme for working Singapore citizens and PRs. The social security plan additionally covers healthcare, home ownership, family protection and asset enhancement.
Why do we even need CPF?
Every country has its own social security system to cope with the needs and challenges faced by its citizens. While the jury’s still out on whether the ‘perfect’ savings and retirement scheme exists, these mandatory CPF contributions essentially prepare us for our retirement years, even if that means forcing us to set aside a sum each month.
Our CPF contributions are also put towards something called Special Singapore Government Securities (SSGS).
These government-backed, non-tradeable bonds are extremely safe, and resistant to financial market conditions.
(And nope, this isn’t a sponsored post!)
What are the CPF contribution rates if I’m employed or self-employed?
If you’re drawing a monthly salary of S$500 or more in Singapore and are not self-employed, your employer is expected to make a monthly contribution of up to 17% of your paycheck. An additional 20% is then deducted from your salary to be put towards your CPF.
Here’s a breakdown of what that means for you:
|Up to 55 years old||17%||20%||37%|
|> 55 to 60||14%||14%||28%|
|> 60 to 65||8%||6%||14%|
|> 65 to 70||8%||6%||14%|
What if I’m self-employed or a temp/contract worker?
If you’re a self-employed person (SEP), then the above CPF rates don’t apply to you. That’s because SEPs are allowed to contribute to their CPF on a voluntary basis — although Medisave contributions remain mandatory. Regardless, and if you fall in this camp, you’re still expected to file your taxes.
READ MORE: Self-Employed Persons’ Guide to Filing Income Tax and Paying CPF
Temporary/ad hoc staff or contract workers are entitled to CPF contributions from employers, provided they are:
- Singaporeans or PRs
- Employed by someone, or by a company
- Earning more than S$500 a month.
And if you’re earning less than S$500 a month, you won’t be expected to make an employee’s CPF contribution — but your employer will have to put 17% of your salary towards your CPF anyway. Be sure to know your rights, and contact the WorkRight hotline at 1800-221-9922 if you have pressing questions.
How are CPF contributions allocated?
Your CPF contributions are split between four CPF accounts — the Ordinary Account (OA), Special Account (SA), MediSave Account (MA), and Retirement Account (RA). The latter, which is automatically opened on your behalf at the age of 55, combines the funds from your OA and SA.
CPF account types and allocation rates
Here’s a detailed look at the functions of each account, and their corresponding CPF allocation rates.
|CPF ACCOUNT TYPE|
PURPOSE OF ACCOUNT
|Ordinary Account (OA)|
|Special Account (SA)|
● Retirement savings
● Investing in retirement-related products
|MediSave Account (MA)|
● Hospitalisation expenses
● Selected medical insurance plans
– MediShield Life
– Additional coverage through Integrated Shield Plans (IPs). IPs are offered at a premium — a portion of which can be deducted from your Medisave.
|Retirement Account (RA)|
– Created when you reach age 55. Funds from OA and SA will be transferred here, up to the prevailing Full Retirement Sum, and this is where your savings will sit.
An important point to note is, your money isn’t equally allocated between each of your accounts. This overview shows how your salary contributions vary with age — and only applies to salaried employees drawing a monthly income of S$750 or more.
CPF allocation rates
|YOUR AGE||ORDINARY ACCOUNT|
(% OF WAGE)
(% OF WAGE)
(% OF WAGE)
|Up to 35 years old||23%||6%||8%|
|≥ 35 to 45||21%||7%||9%|
|≥ 45 to 50||19%||8%||10%|
|≥ 50 to 55||15%||11.50%||10.50%|
|≥ 55 to 60||12%||5.50%||10.50%|
|≥ 60 to 65||3.50%||4.50%||10.50%|
|≥ 65 to 70||1%||2.50%||10.50%|
The CPF contribution cap
CPF imposes a contribution cap in what’s known as the CPF Wage Ceiling. This contribution cap means that no more than S$30,000 is put towards your CPF as a salaried employee. This cap can be further broken down into two parts: the Ordinary Wage Ceiling, and the Additional Wage Ceiling.
CPF Wage Ceiling
Ordinary Wage Ceiling
- Capped at S$6,000 of your monthly salary. (This amount is to be raised to $8,000 progressively by 2026. From 1st September 2023, the CPF monthly salary ceiling will be raised by $300 to $6,300.)
- That means both you and your employer will only make CPF contributions for the first S$6,000 of your salary.
- So if you’re drawing a salary of S$7,000 a month, the remaining S$1,000 will not be subject to CPF deductions.
Additional Wage (AW) Ceiling
- The AW Ceiling determines the maximum annual CPF contributions deductible on your additional wages deductible on your additional wages — such as bonuses.
- The formula for this is: (S$102,000) less (total ordinary wages for the year)
How to calculate the Additional Wage (AW) Ceiling?
To better set the context for the Additional Wage (AW) Ceiling, let’s assume you currently draw a monthly salary of S$7,000. Of this, the maximum sum of S$6,000 is subject to CPF.
To calculate your AW Ceiling, use the above formula:
(S$102,000) less (S$6,000 x 12 months) = S$30,000 (max. CPF contribution cap)
You later learn you’ve gotten a two-month bonus of S$14,000.
At S$14,000, your bonus falls below the annual CPF contribution cap of S$30,000. Therefore, your entire bonus is subject to CPF contributions from both you and your employer.
Can I top up my CPF accounts outside of the mandatory contributions?
You absolutely could, but there is an annual limit of S$37,740 for CPF contributions — inclusive of what you and your employer would have contributed, of course. This annual limit essentially ensures no one games the system to stretch their returns too much.
All that brings us to this:
It’s no secret CPF interest rates are notoriously competitive, and even more so than banks’ typically meagre annual interest rates.
INTEREST RATE PER ANNUM
|Ordinary Account (OA)||2.50%|
|Special Account (SA)||4%|
|MediSave Account (MA)||4%|
|Retirement Account (RA)||4%|
To help boost members’ retirement savings, the Singapore government pays extra interest in addition to what is listed above.
For those below 55 years old, , you’ll get an extra 1% interest per annum on the first $60,000 of your combined CPF balances — of which up to S$20,000 can come from the OA.
To encourage older Singaporeans to leave some of their funds in CPF, those aged 55 and up will get an extra 2% interest per annum on the first $30,000, and 1% per annum on the next $30,000 — also capped at $20,000 from the OA. That means you can earn up to 6% on your retirement savings. .
Should I transfer my money in OA to SA?
Granted, Special Account interest rates are far more enticing than that of the Ordinary Account. But keep this in mind: transferring your savings from OA to SA is irreversible.
That’s something worth thinking about if you’re planning to get a BTO or home, since the purpose of the Ordinary Account is to supplement the costs of your basic needs: housing, insurance, education, and investing.
The Retirement Sum Scheme, and CPF LIFE
We mentioned earlier that your OA and SA merge on your 55th birthday to form your RA.
That’s where the Retirement Sum Scheme comes into play. Although this scheme was officially replaced in 2009 by the CPF LIFE Scheme, Singaporeans born before 1958 would technically still fall under the former scheme.
For purposes of clarity, we’ll focus on CPF LIFE, since all Singaporeans are automatically included in it.
CPF LIFE manages your RA payouts to ensure you’ve enough to tide you through your golden years, depending on which of the three tiers your retirement sum sits under. These figures are adjusted annually, owing to long-term inflation and projected costs of living.
It’s a little confusing at first, and a raise of the Basic Retirement Sum was also just announced in February 2022 as one of the major budget measures — so here’s a look at what to expect.
|YEAR OF YOUR 55TH BIRTHDAY||BASIC RETIREMENT SUM|
|FULL RETIREMENT SUM|
ENHANCED RETIREMENT SUM
So, how does it work?
READ MORE: Saving for Retirement: Raised CPF Basic Retirement Sum & What It Means for Millennials & Gen Zs
From the time you turn 65, your payouts will vary depending on whether you’ve hit any of the above sums in each of the categories. If you don’t hit any of the above tiers, your monthly payouts will instead be prorated.
If you’ve managed to unlock your full retirement sum, however, you’ll be entitled to withdraw the excess.
|YEAR OF YOUR 55TH BIRTHDAY||FULL RETIREMENT SUM||YOUR FULL RETIREMENT SUM|
SUM ALLOWED FOR WITHDRAWAL
The same applies if you’ve amassed enough to hit the Enhanced Retirement Sum: you’re able to withdraw the excess, so long as the base Full Retirement Sum does not go beyond the minimum amount imposed. You’re also encouraged to supplement your monthly payouts with your own savings.
Where does my CPF money go after I die?
Ah, the all-important question. That’s where the CPF Nomination Scheme comes into play — because it’s your money, after all, and you can do (almost) what you like with it.
So while you can’t redistribute your CPF money through your will — not choose to donate it to charity organisations of your choice — you have the option of choosing who your CPF funds go to upon your passing.
There is no limit to the number of nominees you can appoint, but if you are making a nomination online (you will need two witnesses), you can only indicate up to eight nominees. If you wish to nominate more than eight nominees, visit the CPF Service Centres to do so.
You can indicate the share of savings you want to allocate to each nominee.You’ll have to fill out a form, which can be accessed on the official CPF site.
READ MORE: 3 Simple Steps To Nominate Your CPF Online
Rather than rely on your CPF contributions, though, start planning early with Planner Bee’s retirement calculator to figure out how much you’ll need to live comfortably in your golden years.