All You Need To Know About Central Provident Fund (CPF)

The Central Provident Fund board, simply known as CPF, is a mandatory comprehensive savings and pension plan for working Singaporeans and Permanent Residents. The primary purpose of this savings and pension plan is to fund for Singaporeans’ retirement, healthcare, and housing needs.

What can CPF be used for?

CPF contributions are placed into three accounts: the Ordinary Account (OA), Special Account (SA) and MediSave. How the three CPF accounts work are as follows:

CPF contributions comes from both your employer and from your wages. The OA can be used for housing, insurance, investment and education purposes. The SA, can be used in old age and retirement-related financial products. The MediSave can be used for hospitalisation expenses and approved medical insurance.

Who is required to make CPF contributions?

All Singapore Citizens and Singapore Permanent Residents (SPRs) are obliged to make monthly CPF contributions. You will make and/or receive contributions in your CPF accounts as long as you are working in Singapore under a contract of service or employed under a permanent, part-time or casual basis. For those who are self-employed and earn a yearly Net Trade Income (NTI) of more than SGD6,000, it is compulsory to contribute to your MediSave only. In such cases, contributions to OA or SA are voluntary.

You can also contribute to your three CPF accounts voluntarily. These voluntary contributions will be apportioned and credited to your three accounts based on the CPF allocation rates.

What are the CPF contribution and allocation rates?

As mentioned earlier, CPF contribution rates are the percentage of your wages that your employer and you have to contribute towards your CPF savings. These contribution rates vary according to age group and is distributed across the three CPF accounts.

For employees who are aged 55 and below, you will have to contribute 20% of your wages to your own CPF account and your employer will contribute an additional 17% of your wages to your CPF account. This totals to 37% of your total wages going into CPF, which will be portioned out accordingly to the three accounts.

For employees who are beyond 55, the proportion drawn from your wages and contributed towards your CPF accounts will decrease. However, the allocation rates to your MediSave will increase in order to meet healthcare needs particularly during retirement.

The variance in CPF contribution rates and allocation rates differ across age groups to ensure the employability of employees and to meet their needs at various stages of their lives.

CPF retirement sum – what happens at age 55?

Once you reach 55, a Retirement Account (RA) will be created for you. The savings from your SA and/or OA, up to your Full Retirement Sum, will be transferred to your RA to form your retirement sum. This retirement sum will provide you with monthly payouts from the payout eligibility age, which is currently 65 for workers born in or after 1954.

To help you get a head start for retirement, the Basic Retirement Sum will be made known to you ahead of time. For each successive cohort of workers turning 55, the payouts will increase in order to account for long-term inflation and increase in standard of living.

When you turn 55, you can withdraw 1. SGD5,000 or your OA and SA savings above the Full Retirement Sum, whichever is higher, and 2. any RA savings above the Basic Retirement Sum as long as you own a property.

While some may find CPF complex and difficult to understand, it is imperative to be familiar with the CPF scheme as it includes plenty of ways for us to grow our pot of savings and optimise our retirement funds. Fulfill the statutory requirements easily with i-Admin, find out more here.

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