10 Things You Might Not Know About CPF
Introduced in 1955, the Central Provident Fund (CPF) is a scheme whereby employers and employees have to contribute a portion of salary into the pension account. The CPF account was originally designed to help citizens with their retirement needs but has since been liberalised to allow them to use it for other purposes, such as education and housing.
For most, CPF might seem like a second bank, but in fact, the CPF system is much more complex and has more to offer compared to banks. Read on to find out what are the 12 things which you might not have known about your CPF account!
On Interests
1. Extra 1% interest on first $60,000 in CPF
In addition to the 2.5% interest earned on Ordinary Account (OA), 4% on Special Account (SA), and 4% on MediSave Account (MA), members will earn an extra interest.
For those below 55 years old, an extra interest of 1% on the first $60,000 can be earned. For those who are 55 years old and above, they can earn up to 2% of the extra interest – 2% on the first $30,000 and 1% on the remaining $30,000.
However, the 1% does not simply apply to the first $60,000 in the CPF account. Out of the $60,000, there is a cap of $20,000 for the OA.
Simply put, it is not that easy, especially for those who just entered the working world, to get the 1% as $40,000 has to be in the SA and MA in order to be able to receive the 1% interest. This is largely due to a smaller percentage that goes into the SA and MA.
2. Extra interest is paid into Savings Account or Retirement Account
If you think that the interest earned on the $20,000 in OA will be credited into your OA and you can use it for your property purchase, you are wrong. The interest earned from the additional 1% goes towards the SA or Retirement Account* (RA).
According to the government, the additional interest earned is directed into SA or RA to enhance the retirement savings.
*Retirement Account is only applicable for members above the age of 55.
3. CPF interest is not fixed
Many assume that the interest rate by CPF is fixed, but this is actually untrue.
Ordinary Account
The minimum interest rate for OA is 2.5%, as stated in the legislature. However, it can go higher than 2.5% if the 3-month average of major local banks’ interest rates is higher than 2.5%.
Special Account and MediSave Account
SA and MA have a slightly higher minimum interest rate than OA – 4%. It is calculated using the 12-month average yield of 10-year Singapore Government Securities or 4%, whichever is higher.
Retirement Account
The interest earned on monies in RA is also at 4%. It is calculated using the 12-month average yield of the 10-year Singapore Government Securities plus 1% or a floor rate of 4%, whichever is higher.
In view of the low interest rate environment, all the accounts in the CPF scheme are currently earning the minimum interest rate.
On Housing
4. Amount payable on housing grants
For those who have paid for down payment, monthly loan repayment, or any other housing grants, through CPF, it is a must to pay back the same amount + interest earned during that period into our CPF account after selling off the property.
5. Balances in OA and SA will be transferred to RA at 55 years old
Upon turning 55, a RA will be automatically set up. Balances in RA and SA will also be transferred to RA so as to allow members to earn a higher rate of interest on their savings.
However, if you are using OA to service your home loan, it is possible to reserve the monies in OA through the steps below:
Log into my CPF Online Services My Requests Property Use CPF for my property Select the property address Reserve OA monies for housing
On Withdrawals
6. Withdrawing up to 20% from RA at 65
Upon reaching 55, members will be able to withdraw $5,000; and at 65, a lump sum of 20% can be withdrawn (inclusive of the $5,000). The 20% withdrawal is only possible if the Full Retirement Sum (FRS) and Basic Retirement Sum (BRS) are achieved.
On CPF LIFE
CPF LIFE scheme provides a monthly payout during retirement years and there are three types of CPF LIFE – CPF LIFE Standard Plan, CPF LIFE Basic Plan, and CPF LIFE Escalating Plan. There are also three types of payout – Full Retirement Sum (FRS), Basic Retirement Sum (BRS), and Enhanced Retirement Sum (ERS). Members are able to choose when they want to start receiving the monthly payouts, between 65 to 70 years old.
7. CPF LIFE is not entirely compulsory
There are two exemptions to CPF LIFE:
1) You are receiving a lifelong monthly pension; or
2) You are receiving payouts from your life annuity bought using cash or CPF investment scheme
8. The type of plan determines your contribution from RA
CPF LIFE Basic Plan
Choosing the basic plan will mean that you will have to contribute 10% to 20% of your RA. The actual percentage depends on the age and gender. Contribution from the RA will go towards payment of the premium.
Under this plan, the member will be able to have a lifelong monthly payout, even after the RA is used up.
CPF LIFE Standard Plan & CPF LIFE Escalating Plan
Unlike the basic plan, these two plans will move your balance in RA into your CPF LIFE. The monthly payout will be drawn from CPF LIFE instead of RA.
9. CPF LIFE payout is not automatic
The monthly payout can be obtained upon reaching 65. However, the payout will only be distributed automatically after turning 70. Members between the age of 65 and 70 will have to apply to get the CPF LIFE monthly payout.
10. Payout can be postponed
After applying to receive the monthly payout, it is possible to defer it till the age of 70 if you change your mind. The deferred payout will be eligible to receive an increase of 7% interest.
Disclaimer: The information is not advice and should not be treated as advice. You must not rely on the information in this blog. If you have any specific questions about any such matter you should consult an appropriately qualified professional or visit www.cpf.gov.sg for more information.
William Lee / Eileen Au
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Ideal Home is well-liked by both local and international clients for their friendly yet professional approach in the way it goes about helping them with their real estate goals in Singapore. They welcome the opportunity to have a no-obligation chat with you to see how they can help you to achieve your real estate goals in Singapore.
Contact us today @ +65 8666 4333 (William) or +65 8686 4333 (Eileen).