How Does the CPF Support Your Retirement in Singapore

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The Central Provident Fund or CPF is Singapore’s comprehensive social security scheme that allows working citizens and permanent residents (PR) to put away savings to fund their basic needs during retirement. The CPF is fully funded by the monthly contributions of both employees and employers. The funds go into several accounts: Ordinary Account (OA), Special Account (SA), MediSave Account (MA), and Retirement Account (RA). 

Unlike the usual pension systems of other countries that merely focus on providing members with retirement income, the CPF also helps Singaporeans and PRs save for housing, healthcare, family protection, and asset enhancement. With CPF, members receive government subsidies to build wealth and develop assets to help prepare for retirement.

How CPF Supports Your Retirement

Perhaps you are a Singapore citizen or a PR who is new in the workforce, and you do not know how CPF works. If so, here is a summary of what you need to understand about how this comprehensive social security system can help support your retirement years:

• Your monthly CPF contributions will build up during your working years and earn interest at much higher rates than what banks provide. Note that your CPF savings are also safe as they have the guarantee of the Singapore government. You can be sure to enjoy your retirement funds regardless of the condition of the financial market. 

• When you celebrate your 55th birthday, your CPF Retirement Account (RA) will be created automatically. The funds from your SA and OA, up to the Full Retirement Sum (FRS), will be moved to your RA. After the transfer of funds, you have the option to withdraw your remaining monies at any time.

• If your year of birth is 1958 or after, and you have at least S$60,000 in your RA six months before you reach your payout eligibility age (PEA), you will be automatically placed in CPF Lifelong Income for the Elderly (CPF LIFE).

• When you reach the age of 65 (PEA), you have two payout options. You can either withdraw the lump sum from your RA or convert the funds to monthly payouts that you can enjoy for the rest of your life.

Tips to Get More Out of Your CPF Savings

Although the CPF scheme enables you to save for retirement, it is crucial to note that it is only meant to provide for your basic needs. If you dream of a lavish retirement, you should increase your private funds or grow your CPF savings to have more income in your later years. Here are several ways to build your CPF retirement pot:

Make Voluntary Contributions

One of the ways to increase your CPF savings is by making voluntary contributions to all your CPF accounts in addition to the mandatory monthly CPF payments deducted from your salary. If you are wondering how to top up CPF ordinary account, MediSave, and Special Accounts, take note of the following:

• The amount added to each of the three accounts will depend on the current CPF allocation rates of your age group. For instance, if you are 36 years old and you choose to top up S$200 to all your accounts, the distribution would be as follows: SGD 113.54 to your OA (56.77 per cent); SGD 37.82 to your SA (18.9 per cent); and SGD 48.64 to your MA (24.32 per cent).

• The maximum voluntary contribution you can make in a year should not exceed the difference between the CPF Annual Limit (currently pegged at SGD 37,740) and your mandatory contributions per year. Use the CPF Contribution Allocation Calculator for a hassle-free way to calculate the allocation amounts.

• You can make a one-time voluntary contribution via digital payment methods using the e-Cashier service of the Central Provident Fund Board website. 

Top Up Your Special Account (SA)

You can also grow your CPF savings by topping up your SA every year. By doing so, you can earn an interest of 4 per cent annually. Because of compound interest, your SGD 100 monthly top-up can grow to nearly SGD 69,000 in 30 years, which is much higher than keeping it in the bank. Apart from the high interest rate, you can also enjoy tax savings of as much as SGD 7,000 per year if you top up your account and an additional SGD 7,000 tax relief if you do the same to your parent’s Special/Retirement Accounts.

Transfer Your OA Funds to Your SA

Since your SA earns an annual interest rate of 4 per cent, which is much higher than your OA’s 2.5 per cent interest rate, it is advisable to transfer your money from your OA to your SA. Although the difference of 1.5 per cent does not appear significant, it has a huge impact when you factor in compounded interest. 

Let’s say you transfer SGD100,000 to your SA. In thirty years, your money will grow to SGD 324,339.75. However, if you left the funds in your OA, your SGD 100,000 will become SGD 209,756.76 only—nearly SGD 115,000 less.

The CPF is an integral part of financial planning among Singapore citizens and PRs. It gives you the chance to own a property, pay for healthcare, and meet your basic expenses during retirement. CPF gives you a head start, but it is not enough to support comfortable and anxiety-free retirement years. That is why you should utilize your CPF savings wisely and adopt measures to grow your CPF fund as early as possible.