Are you aware of the percentage of your monthly income that makes it to your pocket and the other portion that goes into your CPF? If you can’t fully comprehend what happens to that valuable portion of your paycheck that goes into your CPF accounts, which will never make it to your pocket, then you don’t probably know much.
But don’t panic; learning the ins and outs of CPF may be time-consuming, but it’s not that complicated. And by the time you’ve finished reading this article, you’ll have a firm grasp on the specifics of your CPF contributions, including how much is being deposited and where it ultimately winds up.
The CPF: what is it, and why do we have it?
In Singapore, the Central Provident Fund (CPF) is a cornerstone of the country’s welfare system.
CPF’s primary aim is to provide Singaporeans with a nest egg they may use to buy a home, save for retirement, and cover medical costs in the event of illness or injury.
One of the key solutions in accomplishing these aims is to collect mandatory contributions from the people each month to set aside a fixed amount of money into their CPF accounts.
Your monthly payment will automatically be deducted from your CPF contributions directly into your CPF accounts. This is why, as an employee, you won’t take all the money you get from your monthly income.
If Singaporeans weren’t required to set a certain amount in their CPF accounts, some might blow it all on frivolous things and then have no way to pay for things like retirement or medical care. Since CPF may only be used to pay for house purchases and not rent, it helps to maintain Singapore’s high homeownership rate.
As an employee/employer, how much should we contribute to CPF in 2022?
CPF contributions are deducted automatically from employees’ salaries. Your employer will deduct a certain amount from your salary that must be deposited into your CPF accounts monthly. In addition, the employer is also required to contribute a different percentage. This amount is given on top of your regular wage directly into your CPF accounts.
Individuals aged 55 and up had an increase in their overall CPF contribution rate, which took effect last January 1, 2022. Contributions are broken out as follows (in terms of percentages of salary):
Please note that the CPF contribution rate for workers aged 55 and over will be raised progressively over the following decade to reach the total contribution rate of 37% (employee + employer). The CPF contribution rate for those aged 60–65 will be increased to 20.5% starting in January 2023, as outlined in the Budget (2022).
The information mentioned above does not apply to you if you are self-employed. Contributions to the Central Provident Fund (CPF) are optional except for the mandatory Medisave contributions that must be made annually once tax returns have been filed.
CPF Cap For Employees
Were you aware that there is a monthly cap on the amount you may put into your CPF accounts? This is a type of CPF contribution cap and is sometimes referred to as the CPF Wage Ceiling. The Ordinary Wage Ceiling and the Supplemental Wage Ceiling are two parts.
Your monthly payment is subject to a CPF contribution ceiling known as the Ordinary Wage Ceiling, which is set at $6,000 as of now. Therefore, you must contribute a percentage of your monthly earnings (up to a maximum of $6,000) to the CPF. All revenues over that threshold will not be subject to CPF withholding. Moreover, if your salary is over $6,000, your company is exempted from making additional contributions to your CPF.
A CPF contribution cap known as the Additional Wage Ceiling applies to any additional salary, such as bonuses. The Additional Wage Ceiling is determined by subtracting $102,000 from the number of Ordinary Wages subject to CPF for the year.
How many CPF accounts do you have?
The following Central Provident Fund (CPF) accounts are available to all Singaporeans and PRs:
Ordinary Account (OA)
Used to pay for:
- Housing
- Education
- Some investments
Special Account (SA)
Used to pay for:
- Some investments
Medisave Account
Used to pay for:
- Healthcare and medical bills
- Premiums for some types of insurance
Retirement Account (RA)
When you reach age 55, your OA and SA will be combined into one retirement account from which you can draw income throughout retirement.
How much allocation rates would fall into these accounts every month in 2022?
Hopefully, by now, you have a good grasp of how much money is deposited into your CPF accounts every month.
If you earn $750 or more per month, the money will be distributed among your accounts as follows:
For those 55 or older, the CPF allocation rate changed last January 1, 2022, with higher weightage for Medisave accounts.
When young and healthy, you’re less likely to need the money in your Medisave account and more likely to need it in your OA to purchase a home.
However, allocation rates change with age. More savings go to your SA and Medisave accounts to save for retirement and healthcare costs, respectively.
Once you reach age 55, your OA and SA contribution rates decrease since you should have saved enough for retirement. Now that you’re older and less robust, you’re still putting a lot of money into your Medisave account.
When Can You Withdraw the Money From CPF Accounts?
While there are no specific guidelines on how to use the money in your CPF accounts before retirement, here are some of the most common strategies employed by Singaporeans:
- You can utilize the funds in your OA to help cover the cost of a down payment or other costs associated with purchasing a house, provided that you won’t exceed the OA’s withdrawal limits and pay the required cash down payment. You can make payments on your mortgage from your OA as well. You can also receive housing grants to aid with the down payment and closing costs of a home purchase if you meet their criteria.
- Making educational expenses from your OA: If you or a family member enroll in a subsidized diploma or degree program at a local university, polytechnic, or ITE, you can use your CPF savings to pay for your tuition.
- The CPF Investment Scheme allows you to invest a portion of your OA and SA balances in investments like shares, Unit Trusts, investment-linked insurance, Singapore Government Bonds, and exchange-traded funds (ETFs). Of course, there’s no assurance that you can get higher returns.
- You can buy an Integrated Shield plan using the funds in your Medisave account. If you can afford it, you should get an Integrated Shield plan, a private health insurance plan designed to supplement your MediShield Life. You can use your Medisave account to pay for some or all of your monthly premiums.
What is the CPF Retirement Sum, and how does it impact you?
You’ve probably overheard people complaining that the CPF Retirement Sum keeps rising yearly. Previously, it was named ‘CPF Minimum Sum,’ which caused annoyance and confusion among Singaporeans; therefore, the term ‘CPF Retirement Sum’ was used instead.
But what exactly is it, and how does it impact you in real-life circumstances?
As a first step, you have to learn about the two primary types of retirement income plans.
- The older CPF Retirement Sum Scheme mandates that you have a certain minimum balance in your CPF accounts when you retire to guarantee that you would receive monthly payouts sufficient to maintain a minimum living level. The total amount in your RA determines the amount you receive each month.
- Payments will continue monthly under the redesigned CPF LIFE (Lifelong Income For The Elderly) plan. If you live long enough before commencing your expenses, you may rest assured that you will not deplete your CPF funds even if you live longer.
Singaporeans who meet the requirements below will be registered in CPF LIFE automatically.
Individuals who are 55 or older or who do not meet the RA conditions may apply to join the CPF LIFE plan by entering into my CPF Online Services website using their Singpass and submitting an online application.
Between 65 and 70 years old, you can decide when to start receiving your monthly payments.
How much do retirees receive from the CPF LIFE Scheme?
At age 55, your OA and SA will be combined into one Retirement Account (RA). You can take out a lump amount and then use the accumulated Retirement Sum in your RA as a source of income once you’ve retired.
A higher CPF Retirement Sum is required every year due to inflation. The CPF Retirement Sums between 2016 and 2022 are listed here. Any further Retirement Sums have not yet been disclosed.
Upon retirement age, your RA distributions will be based on whether or not your savings have accumulated to the Basic, Full, or Enhanced Retirement Sum (whichever is highest).
Look at this screen capture from the CPF website to get an idea of how your retirement savings could be distributed based on your accumulated amount. This means that even if you live a long time and your account drains, you will still get payments until you die.
When you reach 55, how much of your money can you take out all at once?
- In most cases, you’ll need to keep at least the Full Retirement Sum in your CPF. You’re free to take the remaining funds out at any time.
- If your retirement funds fall short of this amount, you can use the value of your home to reach the Full Retirement Sum (although you will need to meet the Basic Retirement Sum in CPF savings).
At 55, you’re eligible to take at least $5,000 from your retirement account, regardless of which amount applies or how much extra you have.