The Central Provident Fund (CPF) is pervasive and perhaps a little perplexing for Singaporeans. However, because your CPF contribution is so significant at so many different points in your life, it’s critical to understand what it is, what you can do with it, and what changes have occurred in recent years. Therefore, we’ll go through the key features of your CPF and explain everything about it below.
What is CPF?
The Central Provident Fund (CPF) is a Singapore social security savings plan that you and your employer both contribute to. It will assist you in meeting your housing, medical, and, most crucially, retirement expenses. The contributions you and your employer make are divided into three categories: ordinary, special, and MediSave. Each CPF payment is deducted automatically from your paycheck, and your employer’s contribution complements yours.
Citizens and Permanent Residents of Singapore begin paying their CPF as soon as they obtain their first employment, whether contractual, permanent, part-time, or casual. Unless you work overseas, the payments are required and kick in if you earn more than S$50 per month. Only your employer needs to contribute to the CPF if you earn less than S$500 each month. You will contribute between 5% and 20% of your earnings to your CPF whenever you earn more than S$500. New PRs need to contribute to the CPF at graded rates for the first two years to compensate for the decreased take-home salary.
Contribution Rates as a Percentage of Monthly Wages for CPF Contributors
| Age of Employee | Contribution of Employer | Contribution of Employee | Total Contribution |
| 55 and below | 17.0% | 20.0% | 37.0% |
| 55 to 60 | 14.0% | 14.0% | 28.0% |
| 60 to 65 | 10.0% | 8.5% | 18.5% |
| 65 to 70 | 8.0% | 6.0% | 14% |
| 70 and above | 7.5% | 5.0% | 12.5% |
Other sources of remuneration are utilised to contribute to your CPF contributions in addition to your Ordinary Pay, which is the monthly wage you earn. Commissions, overtime pay, financial incentives, allowances, and bonuses are examples of Additional Wages. CPF contribution limitations apply to both types of salaries. Currently, the Ordinary Wage Cap is set at S$6,000. This implies that the CPF contribution will only apply to the first S$6,000 of your earnings. After that, the Additional Wage contribution is limited to S$102,000, minus the total Ordinary Wage subject to the CPF.
The amount you may contribute and take from your CPF accounts is limited. The annual CPF limit is S$37,740, the maximum amount you may contribute to your CPF each year from combined required and voluntary payments. Those who wish to continue saving for retirement can do so by investing in a high-yield savings account, unit trusts or other known investment plans. However, you should always conduct due research before investing.
Your CPF money is invested in Special Singapore Government Securities (SSGS). The government backs the securities, ensuring that your money is protected from financial market swings. The funds in all of your accounts will generate interest. The table below outlines the interest earned from each account per annum.
The CPF Annual Interest Rates
| Account Type | The Interest Rates Per Annum |
| Ordinary | Up to 3.5% |
| Special | Up to 5.0% |
| Medisave | Up to 5.0% |
| Retirement | Up to 5.0% |
Types of CPF Accounts
A CPF member will have three accounts until the age of 55. After they reach the age of 55, a fourth account, a Retirement account, will be opened automatically. Let’s look at what these accounts are and what they’re used for.
The Ordinary CPF Accounts (OA)
Housing, insurance, investment, and education are all possible uses for your Ordinary Account (OA) assets.
The most common application of the OA in Singapore is to pay for housing. However, depending on the law, the OA can be used to buy both HDB public housing and private homes.
There are several variations between buying a public apartment with OA funds and buying a private property. Still, the most essential thing to remember is that OA money used to purchase private properties must be repaid into your CPF account when the property is sold. This regulation does not apply to HDB dwellings.
The OA is most typically used to pay premiums for the Dependants Protection Scheme (DPS), a low-cost term life insurance plan that provides CPF members with basic life insurance.
Another acceptable use of OA funding is education. Members can use their OA to pay for reduced tuition costs for approved courses for themselves, their spouses, children, or relatives. Starting one year after graduation, the student must repay the amount spent on education. If qualifying criteria are satisfied, the member may seek to have the replacement fee waived.
Finally, the OA can be invested in various CPFB-approved financial instruments. The Board does not guarantee such investments, and members may lose money on their OA investments. Even if the funds in your OA are short-term, you should still invest with caution. After all, the funds are primarily intended for housing and education.
The Special CPF Accounts (SA)
In comparison to the OA, the Special Account (SA) has a more limited variety of applications, presumably because the money in this account is intended to cover retirement expenses.
As a result, SA funds can only be used to invest in a limited number of financial products, such as unit trusts, investment-linked policies, annuities, treasury bills, endowment plans, and Singapore Government Bonds, to mention a few. If you’re familiar with financial goods, you’ll note that they’re frequently regarded as low-risk investments.
Apart from these low-risk investments, there’s not much you can do with your SA except fill it up with cash or funds from your OA, which is an irreversible and irrevocable action.
The Medical Savings Account (Medisave) CPF Accounts (MA)
The Medisave Account (MA) is primarily intended to pay medical and healthcare expenses, as its name implies.
Medishield Life, a national health insurance plan, provides a range of benefits that cover basic medical treatments, day surgery and hospitalisation expenditures, as well as some outpatient charges for the rest of one’s life.
Medishield Life premiums can be paid in full using the MA. Your MA can also be used to pay your deductible, co-insurance, and any remaining balance on your hospital bill.
The Retirement CPF Accounts (RA)
You will be given a new Retirement Account (RA) on your 55th birthday. This is used to support your CPF Life payments, which is a lifelong annuity plan designed to help members meet their retirement and long-term care needs.
When the account is created, all the savings available in your OA and SA are moved to your RA. The combined assets continue to generate interest in your RA, and you begin receiving monthly distributions from your RA when you reach the age of 65. The amount you receive each month is determined by the amount of RA you have at 65.
Meanwhile, your OA and SA will continue to exist and function normally according to current contribution and allocation rates. Money in these accounts can be transferred to the RA or withdrawn by the contributing member if specific requirements are met.
Who is Required to Contribute to CPF?
If you are an employee who is a Singapore citizen or permanent resident, you are eligible for CPF payments from your company.
When an employer and an employee have signed a contract of service, CPF contributions are due.
Every month, employers must pay the CPF employer contribution along with the employee’s portion of CPF payments. However, they have the right to deduct the employee’s part of the wages from the employee’s pay.
Singapore nationals and permanent residents working in Singapore on a contract or service basis or employed on a permanent, part-time, or casual basis are also required to pay these payments.
Do Foreigners Have To Make a CPF Contribution?
Foreign citizens are only required to begin contributing to the CPF once they have been granted permanent residency status.
CPF contribution rates are decreased for the first two years after becoming a permanent resident of Singapore.
Conclusion
The best thing you can do to prepare for a financially secure post-retirement existence is to become well-versed in the complexities of your CPF. While the CPF does reduce your monthly take-home pay, it is actually to help you secure your future.
Many challenges that develop in systems where obligatory savings are not in place may be avoided by having a mandated withdrawal from your income to put towards a retirement fund. In the United States, for example, where retirement payments are voluntary, the ordinary American is expected to be unable to retire.
As a result, when it comes to repayments and contributions, consider it as dividing your income between your present and future selves rather than paying money to the government.
As an employer, if you are unsure about how to go about managing the payroll for your employees, you can count on Timcole for the same. We will ensure all the statutory contributions like CPF are computed accurately. Contact us today.
