Managing CPF (Central Provident Fund) contributions while ensuring compliance with legal regulations can be quite a daunting task. Even experienced HR professionals can find the intricate and time-sensitive procedures challenging.
But don't worry, Here’s everything you need to know about CPF; Singapore's mandatory social security system!
What is a CPF Contribution?
The Central Provident Fund (CPF) is a mandatory social security system in Singapore. It helps Citizens and Permanent Residents save money for retirement and other future needs. Other needs include healthcare funding, home ownership of HBD housing, family protection, and asset enhancement. All of these needs must be met throughout their lives.
Working Singaporeans or Permanent Residents (PRs) contribute a percentage of their monthly salary to the Central Provident Fund (CPF). In addition, their employers are required to make a contribution to the CPF in addition to the employees' normal salary.
What are the current CPF contribution rates?
CPF contribution rates for private sector and public sector non-pensionable employees who are:
- Singapore Citizens
- SPRs (Third year onwards)
- First and Second Year SPRs who have jointly applied with employers to contribute at full employer-full employee rates
CPF Contribution Cap
There is an upper cap of CPF contribution rates for employees 55 years & below. This is referenced as the *max monthly contribution from salary in the table below. The current maximum monthly ordinary wage amount that is subject to CPF payments is $6,000. Any additional wages (such as bonus payment) are CPF liable up to the value of $102,000-Annual Ordinary Wages.
Monthly wage $7,500: Only the first $6,000 of monthly income will be subject to CPF contributions.
Annual bonus $15,000: Additional Wage Ceiling is $102,000 – ($6,000 x 12 = $72,000 ) = $30,000. Therefore the entire annual bonus of $15,000 is also subject to CPF contributions as it is below the CPF contribution cap.
CPF Contribution Rate Table for citizen and 3rd+ year PR (Singapore Permanent Residents)
CPF contribution Table for 1st and 2nd year PR
CPF contributions are payable to foreign employees if they obtain Singapore Permanent Residency status. However, unless SPRs have jointly applied to contribute to CPF at the full employer/employee rate from the time they become permanent residents, they will contribute to their CPF fund at lower rates for the first two years after obtaining PR status. From the third year onwards, the employer and employee will contribute to CPF at the full employer/employee rates.
CPF calculation for PR for the public sector for years 1 & 2:
Contributed money from both employer and employee for Citizens and PRs gets split between three accounts in the employees CPF fund.
🔸 Ordinary Account: Primarily for retirement and housing needs.
🔸 Special Account: Primarily for retirement needs.
🔸 MediSave Account: Primarily for healthcare needs.
On a persons 55th birthday, a fourth account, the Retirement Account (RA), is automatically created.
CPF Contribution Allocation Rate Table (by Age)
CPF allocation rates by age for private sector and public sector employees.
What are the interest rates on money held in CPF Funds?
Funds held by CPF earn the owner interest, which compounds over time, helping to grow retirement savings.
CPF account interest rates (1 Jan 2023–31 March 2023):
🔸 Ordinary Account : 2.5% p.a.
🔸 Special Account : 4% p.a.
🔸 MediSave Account : 4% p.a.
🔸 Retirement Account : 4% p.a.
- Interest rates include an extra 1% interest paid on the first $60,000 of a combined balance, including up to $20,000 from the Ordinary Account.
- If a member is aged 55 and above, they will also earn an additional 2% extra interest on the first $30,000 of their combined balance, including up to $20,000 from their Ordinary Account, and an extra 1% on the next $30,000 (capped at $20,000 for OA).
What can CPF Funds be used for?
CPF funds help in the Ordinary Account can be used to buy and HDB flat or to buy or build a private residential property.
This includes the downpayment for the property purchase, stamp duties and legal fees, paying for Home Protection Scheme premiums, and ongoing payments on the housing loan taken to purchase the property, land or construction.
▪️Medical Care & Coverage
MediSave is a national medical savings scheme which helps CPF members put aside part of their income into their MediSave Accounts to meet their future personal or approved dependant’s hospitalisation, day surgery and certain outpatient expenses.
There is no minimum amount to set aside in the MediSave Account, but a set percentage of income contributions throughout a persons working life will form the contributions allocated to this account until the balance reaches the Basic Healthcare Sum.
The Basic Healthcare Sum is the estimated savings someone will need in their MediSave Account for basic subsidised healthcare needs in old age. The Basic Healthcare Sum is adjusted yearly to keep pace with the growing cost of medical care as well as increased use in the elderly.
The current Basic Healthcare Sum for people aged 65 in 2021 is $63,000. Once a person reaches 65, the Basic Healthcare Sum is set, despite increasing for younger members. This is the maximum amount a person can hold in their Medisave account before money starts to be funnelled into their Special Account or Retirement Account.
Money in the MediSave account can be used at any time throughout a persons life, not just in old age. Further support schemes are included under CPF to allow members to use MediSave Account money to pay MediSheid Life premiums, or for private medical insurance schemes for themselves and dependants.
Ensuring retirement savings is the primary goal of the CPF Scheme.
🔸 CPF Retirement Sums
When a person reaches 55 years old, money can start to be withdrawn from the Special Account and Ordinary Account savings, as long as the Basic Retirement Sum has been met and put aside. The Basic Retirement Sum for people turning 55 in 2020 was $90,500.
At age 55, this sum is transferred from the Special Account and Ordinary Account into a new account category, the Retirement Account, to form the Basic Retirement Sum. Every year, the Basic Retirement Sum is increased to account for long-term inflation and the rising standards of living. Payouts will also be expected to continue for longer periods as life expectancy increases.
If the Basic Retirement Sum cannot be met from these two accounts, $5,000 will still be able to be withdrawn by the CPF holder. For people with more than the Basic Retirement Sum in their accounts, after this has been set aside, the remaining money in these account can be withdrawn, or can be kept in the CPF accounts to continue earning higher rates of interest.
Once a person reaches the age of 65, monthly payouts will start from the Retirement Account. Payment amounts start from around $730 per month, but different depending on Retirement Account savings balance and whether the members own a property or have sufficient property charge, or choose to pledge their property. For contributors to CPF LIFE, payments will also be higher.
🔸 CPF LIFE
The CPF Lifelong Income For The Elderly (CPF LIFE) Scheme is a national longevity insurance annuity scheme that insures a person against running out of retirement savings, by providing a monthly payout no matter how long they live.
If a person opt in to CPF LIFE, Retirement Account savings from age 55 will be used to pay the annual premium. Once a person reaches 65, CPF LIFE payments will be paid on top of CPF Retirement Account payouts, and will extend until death, even if the Retirement Account has been emptied.
There are many other support schemes to CPF that enable Singaporeans to make the most of their savings, including:
🔸 CPF Investment Schemes
The CPF Investment Schemes gives people an option to invest money from their Ordinary Account and Special Account savings in a wide range of investments to enhance their retirement nest egg.
🔸 CPF Education Loan Scheme
A loan scheme which allows members to use savings in their Ordinary Account to pay for their own, or their children’s or spouse’s subsidised tuition fees at local tertiary institutions.
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