The CPF system in Singapore is a valuable scheme. In fact, it is often cited on the international stage for being one of the best pension systems in the world, providing financial security for both individuals and society as a whole.
Individuals contribute up to 20% of their salary to their CPF accounts, employers contribute up to 17% of their employees’ salary into their CPF accounts. The government plays a part in boosting our CPF balances by paying a decent an annual interest return on CPF balances.
The CPF provides a lot of flexibility and offers diverse functions in the way individuals can use their CPF balances. This can be both a boon and a bane – making the system overly complicated and scary to those unable to keep track of the options they are able to make and the changes to its various schemes.
In this article, we highlight 15 things that most Singaporeans, even those who actively keep up with the CPF scheme, may not know about.
Read Also: [Beginners’ Guide] Understanding CPF LIFE And Your Monthly Payouts When You Retire In Singapore
#1 You Don’t Always Earn The Extra Interest Of 1% That CPF Claims To Pay On Your First $60,000 balances
CPF claims to pay an extra 1% interest per annum on the first $60,000 of our CPF balances. This is technically true, but we need to understand how it pays this extra 1%.
Only up to $20,000 in our Ordinary Account can enjoy this extra interest. This means that for most of us who just started working it will take several years to accumulate the $40,000 in our Special Account and MediSave Account, as these two accounts receive a significantly smaller portion of our monthly contributions compared to our Ordinary Account when we are younger.
This also means that young working adults can benefit more by topping up your CPF accounts since most may not have accumulated $60,000 in this specific way. For older working adults who already have the $40,000 in our Special Account and MediSave Account, choosing to top up your younger children’s CPF Accounts may be a more lucrative compared to topping up your own CPF accounts. Of course, you don’t enjoy the tax benefit of making contributions to your children’s CPF accounts.
Source: CPF
Read Also: Complete Guide To Your CPF Contributions In Singapore (2024): Salary Caps, Contribution Rates And Allocation Rates
#2 Extra Interest You Earn On Your Ordinary Account Balances Are Paid Into Your Special Account Or Retirement Account
As mentioned in the point above, we receive an extra interest of 1% on the first $60,000 of our combined CPF balances, of which up to $20,000 can come from our Ordinary Account. What is little known is that the extra interest that we earn on our Ordinary Account funds is credited into our Special Account (if we are under 55) or our Retirement Account (if we are 55 and above).
So, if we are hoping to use part of this extra interest to fund our property purchase, the reality is that we cannot rely on it. Also, if we are trying to “math out” whether CPF actually paid us what we are due, we should not be alarmed to find that we didn’t receive this extra interest component – because it was credited into our Special Account or Retirement Account.
Source: CPF
#3 CPF Interest Rates Are Not Fixed At 2.5% On Your Ordinary Account, And 4.0% On Your Special Account, MediSave Account And Retirement Account
Many of us assume we will earn 2.5% per annum on our Ordinary Account balances and 4.0% per annum on our Special Account, MediSave Account and Retirement Account balances. These are just the floor interest rates that we earn, and we’ve already seen interest rates for our Special Account, MediSave Account and Retirement Account rise to 4.05%.
This is reviewed quarterly.
Read Also: Here’s How Our CPF Interest Rates Are Calculated – And Why Those Rates Are Almost Never What We Actually Earn
Ordinary Account
The interest rate for our Ordinary Account is actually the higher of 2.5% or the 3-month average of major local banks’ interest rates. Given the rising interest rate environment currently, we may see interest rates climbing beyond the 2.5%-mark on our Ordinary Account balances.
Source: CPF
Special Account, MediSave Account, Retirement Account
The interest rate we earn on our Special Account and MediSave Account is the higher of 4.0% or the 12-month average yield of 10-year Singapore Government Securities plus 1.0%. Again, given that interest rates are rising, we may see Special Account and MediSave Account interest rates climbing above 4.05%.
As mentioned, higher interest rates may lead to the government paying a rate that is higher than the floor interest rates on our various CPF accounts. As reference, the last time we earned a higher interest rate on our CPF accounts was in 1999.
Source: CPF
Read Also: What Would It Take For CPF Interest Rates To Increase Beyond 2.5% (For OA) And 4.0% (For SA and MA)
#4 Interest Rates On Special Account And Retirement Account Were Only Aligned In 2024
The interest rates on the Special Account and Retirement Account were different previously, and only aligned to the same formula from 2024.
Source: CPF
Read Also: Why The Interest Rates Between The CPF Special Account (SA) & The CPF Retirement Account (RA) Are Different
#5 We Need To Pay Accrued Interest On Housing Grants Given To Us
When we sell our flat, we will have to pay back what we owe our CPF accounts. This amount may include the
# i initial downpayment;
# ii monthly instalment;
# iii the accrued interest on the downpayment and monthly instalment; as well as the
# iv any housing grant(s) we received; and
# v accrued interest on our housing grant(s).
Read Also: Here’s How CPF Accrued Interest On Your Home Affects Your Retirement Planning
We need to understand that housing grants are given to us via our CPF. When we use it to pay for our BTO or resale flat, we start accumulating accrued interest on these funds.
Source: CPF
To understand why we have to do this, we need to appreciate the fact that CPF is primarily meant for our retirement needs, rather than housing, education or investment.
Even though it seems like we have to refund a large sum back into our CPF accounts, it will likely not limit us as we will get to use majority of these sums for our next home purchase.
#6 You Can Stop Your Ordinary Account Balances From Being Transferred To Your Retirement Account At 55, To Continue Servicing Your Home Loan
Once we turn 55, balances from our Ordinary Account and Special Account will be automatically transferred to a new Retirement Account opened for us. Our Retirement Account is meant to grow our nest egg, and ultimately provide us a lifelong monthly payout from age 65.
This is done automatically to enable us to enjoy higher interest returns on our Retirement Account, compared to our Ordinary Account and Special Account without having to take any further actions.
If we want to continue servicing our home loan with our Ordinary Account funds, we can continue to do so from any new contributions we receive from working each month or apply to reserve our Ordinary Account balances.
We can reserve our Ordinary Account balances following the steps provided on the CPF website:
To reserve your OA savings to pay for your existing property, log on using your Singpass to my cpf Online Services > Click on “My Requests” > Select “Retirement (eg. Retirement Sum & Age 55 applications)” > Select “Decide on my CPF options for members reaching 55”
Read Also: Why Singaporeans Should Stop Using Their CPF Money To Pay Their HDB Home Mortgage
#7 Your CPF Monies Are Not Safeguarded From A Divorce
As stated on the CPF website, the Courts in Singapore treat CPF monies as part of a couple’s matrimonial assets. They can order the division of CPF monies as well as ordering the sale of a property or investments made with CPF monies in order to have the proceeds divided.
Source: CPF
Read Also: What Is The Process For Getting A Divorce In Singapore – And How Much Will It Cost?
#8 You Can Withdraw 20% Of Your Retirement Balances At 65
Most of us may already know we can withdraw $5,000 from our CPF balances when we turn 55. What majority of us may not know is that we can withdraw up to 20% of our Retirement Account (RA) balances when we turn 65 – or right at the moment when we can choose to start our CPF LIFE monthly payouts – inclusive of the first $5,000 we may have withdrawn at age 55.
Source: CPF
This ability to withdraw 20% of our retirement balance at age 65 is only important if we haven’t hit our Full Retirement Sum (FRS) or, if we choose to pledge our property, our Basic Retirement Sum (BRS). If we are able to hit these sums, we will be able to withdraw anything beyond it.
Finally, it’s important to note that just because we have the option of withdrawing these sums does not mean we have to withdraw these sums from our CPF balances. Leaving our funds in our CPF Retirement Account enables us to compound it for our retirement, which will give us bigger monthly payouts on CPF LIFE.
Editor’s Note: The allowable withdrawal amount excludes top-ups made under the Retirement Sum Topping-Up Scheme, Deferment and CPF LIFE bonuses.
Read Also: What Happens To Our CPF Accounts When We Turn 65
#9 Those Who Choose The CPF LIFE Basic Retirement Plan Will Only Contribute Around 10% Of Their Balances To CPF LIFE, And Make Monthly Withdrawals From Their Retirement Account
CPF LIFE is an annuity scheme meant to provide all of us with a monthly income in our retirement for as long as we live. In addition, we may also leave behind a bequest amount for our loved ones, depending on how long we live (and by extension, have withdrawn from our Retirement Account or CPF LIFE).
There are three main decisions we have to make with regards to our CPF LIFE payouts: i) choosing between the Full Retirement Sum (FRS), Basic Retirement Sum (BRS) or Enhanced Retirement Sum (ERS); ii) choosing to go on the CPF LIFE Standard Plan, CPF LIFE Basic Plan or CPF LIFE Escalating Plan; and iii) choosing when to start our monthly payouts between age 65 and 70.
This decision concerns point ii. If we choose to go on the CPF LIFE Standard Plan or CPF LIFE Escalating Plan, all our Retirement Account balances will be contributed to CPF LIFE. This means we would not have any Retirement Account balances, and our lifelong monthly payouts will come from CPF LIFE.
However, if we choose to go on the CPF LIFE Basic Plan, we would contribute only 10% to 20% of our Retirement Account balances to CPF LIFE, depending on our age and gender. This is to pay for the security of a lifelong monthly payout, once our Retirement Account balances have been used up as we draw down from it rather than CPF LIFE.
Source: CPF
Read Also: How Long Does It Take To Beat The “Break-Even” On Your CPF LIFE Plan?
#10 You Need To Apply To Start Your CPF LIFE Monthly Payouts
While CPF LIFE starts giving us a monthly payout from age 65, this is not automatic. CPF LIFE only automatically starts disbursing these monthly payouts when we turn 70. If we want to receive our monthly payouts as soon as possible, we need to apply to start receiving our CPF LIFE monthly payouts.
Editor’s Note: The option to defer CPF LIFE payouts at age 65 (and consequently the need to apply to begin payouts earlier) only applies to members who joined CPF LIFE after July 2015. Those who enrolled earlier automatically start receiving payouts at their Payout Eligibility Age.
Read Also: CPF Monthly Payouts Defaults To Age 70? Here’s What You Need To Know About The Viral CPF Letter Circulating Online
#11 You Can Defer Your CPF LIFE Payouts Even After Starting
After knowing that we need to apply to start receiving our CPF LIFE monthly payouts, we should also note that we can apply to halt our monthly payouts again – up to a maximum of when we turn 70.
This will enable us to receive up to 7% more for each year we choose to defer our payouts. If we are working or do not require the funds for our daily needs, this is a good option to compound our savings.
Children can also opt to give parents an allowance in order to take advantage of this method to compound savings by a substantial amount, of up to 6.0% per annum, while bearing no investment risks.
Source: CPF
Read Also: What Happens To Your CPF Savings When You Pass On?
#12 You Can Change Your CPF LIFE Plan Even After Starting
Within the first 30 days of our first policy letter, we can change our CPF LIFE plans to any of the available plans: Basic Plan, Standard Plan or Escalating Plan.
Even after we start our CPF LIFE payouts, we can change from the Standard Plan to the Escalating Plan. Unfortunately, this is only switch allowed, as other changes may affect CPF LIFE payouts for others on the scheme.
Those on legacy plans, such as Basic, Balanced, Plus or Income Plan, can also change their CPF LIFE plan to the Standard or Escalating Plan.
Source: CPF
#13 CPF LIFE Payouts Can Go Down And Up
Our CPF LIFE payouts may go up or down. This will be determined by two things: 1) our mortality rate and 2) interest rate levels.
If Singaporeans experience a higher mortality rate, CPF LIFE payouts may decrease. If we have a lower mortality rate, it can rise.
Similarly, if interest rates rise, CPF LIFE payouts can increase. If interest rates dip again after that, CPF LIFE payouts may decline too.
Source: CPF
#14 You Do Not Need To Join CPF LIFE At All
While CPF LIFE is our national annuity scheme, we may be fully exempted from joining CPF LIFE or setting aside the Full Retirement Sum if we are over 55 and i) already receiving a lifelong monthly pension; or ii) are receiving payouts from other life annuities bought using cash or via the CPF Investment Scheme.
Even if we are not fully exempted, we can be partially exempted depending on the amount we are collecting.
Source: CPF
Read Also: Here’s What Your CPF Full Retirement Sum Might Look Like When You’re 55
#15 Your CPF LIFE Contributions Continue To Earn An Interest Return
After reaching our Payout Eligibility Age (PEA), we can start receiving CPF LIFE payouts by contributing our Retirement Account balances as a premium into the Lifelong Income Fund. After doing so, we continue earning a base 4.0% interest on this premium. This premium can also form the first $60,000 that we can earn the extra interest of 1.0% and the first $30,000 that we can earn the additional extra interest of 1.0%.
However, this interest will be channeled into the Lifelong Income Fund rather than be paid into our Retirement Account balances. This helps to continue paying an income for elderly folks who live beyond their what their premiums would typically be able to afford them.
If we choose to go on the CPF LIFE Basic Plan, we can continue to earn the interest returns in our own Retirement Account balances.
Source: CPF
CPF Is Complicated, But It Is Still Very Relevant And Valuable To Singaporeans
Even though our CPF can seem overly complicated, it is only that way because of the flexibility and security it provides Singaporeans.
Many of the screenshots that we have taken earlier are no longer available on the CPF website after its revamp. Even though this is part of CPF’s efforts to help individuals understand the scheme better, it does remove some information that we can learn about the scheme.
Even so, we need to take the time to understand the various schemes available and leverage on them to make the most of our CPF accounts. If you have CPF-related ideas or questions, you can participate in the Personal Finance Discussion SG Facebook Group to engage a like-minded community.
This post was first published on 1 March 2019 and has been updated to include more little-known things we’ve learned about the CPF system since then. If you know of more, do reach out to us at [email protected]. Additional reporting by Angela Teng.
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