Singapore Central Provident Fund (CPF) Contribution is mandatory for its Citizens and Permanent Residents. Therefore, if you are planning on applying for either the status, you should really get to know what CPF is, how it works and what you can eventually do with your contribution.
Or if you are planning to open a company in Singapore and hire locals to work for you, you will also need to know about CPF since it is one of your duties to comply with.
1. Overview of CPF Contribution in Singapore
Let’s get familiar with some of the aspects of CPF:
1.1. What is CPF?
Definition
The term CPF stands for Central Provident Fund and it is one of the most common funds in Singapore. Having been established since July 1955, the CPF still remains its functions as a comprehensive social security system that enables working employees in Singapore to set aside funds for their retirements.
Other than the main purpose, which is retirement savings, this fund also financially supports people to address health-care, home ownership, or buying assets through beneficial schemes.
Who is responsible for CPF contribution in Singapore?
Please take note that not every employee has to contribute to CPF. In fact, as aforementioned, only Singaporeans and Permanent Residents are entitled to contribute to CPF monthly. Moreover, the employers of citizen or PR employees have to contribute to this fund as well.
How does the CPF contribution work?
If you are an employee (citizen or PR) then every month, a part of your salary will be deducted by a regulated percentage (the rate will be discussed later in this blog) to put in your CPF accounts. Therefore, you should not be surprised if your take-home or actually-received salary is quite lower than the official salary stated in the contract.
It is the responsibility of the employer to automatically withdraw this proportion from your salary and contribute it for you, along with their contribution as well.
Types of CPF Accounts
An employee’s contribution to CPF in Singapore will be put in 4 types of accounts for different uses:
| Types | Usage |
|---|---|
| Ordinary Account (OA) | For housing, education, insurance and investment |
| Special Account (SA) | For old age and retirement-related investment |
| MediSave Account (MA) | For hospitalisation and approved medical insurance |
| Retirement Account (RA) | This account will be automatically created on the 55th birthday. And at that time, the savings in OA and SA will be transferred into this account. |
1.2 All of The CPF Rates in Singapore That You Should Know
There are several types of rates regarding the Central Provident Fund in Singapore:
CPF Contribution Rates
In addition to employees, the employer must also contribute a proportion to the fund. Therefore, there are two kinds of contribution rates for both targets. The rates will gradually decrease according to age of employees. To be more specific:
| Age of Employee | CPF Contribution Rates (% of Wage) | ||
|---|---|---|---|
| Employer | Employee | Total Contribution | |
| Up to 55 years old | 17% | 20% | 37% |
| Above 55 to 60 years old | 13% | 13% | 26% |
| Above 60 to 65 years old | 9% | 7.5% | 16.5% |
| Above 65 years old | 7.5% | 5% | 12.5% |
Note that the above CPF contribution rate applies for non-pensionable employees with monthly wages ≥ $750.
Example
An employee has a monthly salary of $1000. Then each month his employer will withdraw $200 from his salary (20% of $1000) and contribute it to CPF, along with the employer’s contribution of $170 (17% of $1000).
Eventually, the actual salary that the employee will get is $800 and the total contribution of $370 will be put into CPF.
CPF Allocation Rates
The CPF contributed money then will be divided into the accounts by the following ratio depending on the age of non-pensionable employees those earning monthly wages of ≥ $750. To be specific:
| Age of Employee | Allocation Rates (% of CPF Contribution) | ||
|---|---|---|---|
| For Ordinary Account (OA) | For Special Account (SA) | For MediSave Account (MA) | |
| Up to 35 years old | 23% | 6% | 8% |
| Above 35 to 45 years old | 21% | 7% | 9% |
| Above 45 to 50 years old | 19% | 8% | 10% |
| Above 50 to 55 years old | 15% | 11.5% | 10.5% |
| Above 55 to 60 years old | 12% | 3.5% | 10.5% |
| Above 60 to 65 years old | 3.5% | 2.5% | 10.5% |
| Above 65 years old | 1% | 1% | 10.5% |
It can be seen that the older an employee gets, the less money will put into OA and SA, and more money will be put into MediSave Account since the need for health-care will be likely to rise considerably.
CPF Interest Rates
It is interesting that a person can also earn interest when contributing to CPF accounts. The purpose is to encourage people to save for retirement and avoid unnecessary withdrawals. The current interest rates for 4 types of accounts are described in the table below:
| Account Type | Interest Rate (per annum) |
|---|---|
| Ordinary Account (OA) | 2.5% (max up to 3.5%*) |
| Special Account (SA) | 4% (max up to 5%*) |
| MediSave Account (MA) | 4% (max up to 5%*) |
| Retirement Account (RA) | 4% (max up to 5%*) |
*An account owner can also earn an extra interest of 1% in the following cases:
- On the first $60,000 of combined CPF balances, with up to $20,000 from the OA;
- On the first $30,000 of combined balances, with up to $20,000 from the OA, when reaching the age of 55 or above.
This can make the interest rates increase up to 3.5% for OA and up to 5% for the rest.
1.3. Central Provident Fund Contribution Ceilings
There is a limit for the wage that is subject to Singapore CPF contribution. This is called Wage Ceiling, including two parts: Ordinary Wage Ceiling and Additional Wage Ceiling.
The Ordinary Wage (OW) Ceiling is the maximum amount of an employee’s monthly salary that is subject to CPF contribution in Singapore and it is capped at $6,000 currently. For example, if an employee’s salary is $7,000 per month, then the first $6,000 would attract CPF contributions, meanwhile the remaining $1,000 would not.
The Additional Wage (AW) Ceiling is the maximum amount of an employee’s additional wages (such as bonus or incentives) that is subject CPF contribution. The AW Ceiling is normally applied on a yearly basis. The formula to calculate Additional Wage Ceiling is:
[AW Ceiling = $102,000 – Total OW subject to CPF for The Year]
Let’s have an example to apply what you have just read:
Peter earns $7,000 a month, and gets an annual bonus of $35,000. Then, only the first $6,000 of his monthly income will be subject to CPF contributions. As for his annual bonus, the [Additional Wage Ceiling = $102,000 – ($6,000 x 12) = $30,000]. Since his bonus amount is more than the AW Ceiling, only $30,000 will be subject to the CPF contributions; the remaining $5,000 will not.
2. How Can an Employer Register for CPF Contribution in Singapore?
Assume you have just established a company in Singapore and you are planning to hire local employees. The first thing you need to do is registering for CPF (to make contributions for your employees later). The process of registration is rather easy thanks to electronic submission:
a. Apply to e-submit your CPF contribution details via CPF e-Submit@web. You need to use your SingPass or the company’s CorpPass to login and use the company’s Unique Entity Number (UEN) to apply.
b. Recieve the result via email. If your application is approved, you will also receive a hardcopy letter that contains your CPF Submission Number (CSN) and a Direct Debit Authorisation form.
c. Filling in the Direct Debit Authorisation form to use the Direct Debit method to pay CPF contribution. You will then need to send back the completed form to the CPF Board. Upon the receipt of such form, the board will forward it to your bank for processing.
The due date to pay CPF contributions is the last date of each calendar month. You will need to use the CSN when transacting with the CPF board. After your payment has been processed, you will receive a notification via email to view the electronic Record of Payment (eROP).
A late CPF contribution payment will be charged an interest of 1.5%. Further enforcement action may be taken against you if you are unable to pay by the 14th of the following month.
3. What Can an Employee Use The Singapore CPF Contribution For?
Now, assume you are a local employee, how can Singapore CPF contributions help you? As mentioned above, the funds can be used for your retirement or other personal purposes.
3.1. Retirement
Let’s have an insight into how the Central Provident Fund in Singapore affects your old-age retirement.
The Available Retirement Schemes
When you hit the age of 55, the Retirement Account (RA) will be created and the savings from OA and SA will be transferred to RA up to an amount called Full Retirement Sum, which will be discussed later. The total saving in your RA, which is known as Retirement Sum, will decide what retirement payout schemes applied to you when reaching 65 years old. There are two main kinds of payout programs:
- The original CPF Retirement Sum Scheme requires you to have a minimum amount in your CPF accounts to ensure you receive monthly payouts that can support a basic standard of living. You will get payouts until your Retirement Account balance is depleted.
- The CPF Lifelong Income For The Elderly Scheme (CPF LIFE) which was introduced in 2009 will give you monthly payouts for the rest of your life, as long as you are able to accumulate enough the required amount.
Generally, CPF LIFE is much more beneficial than the other. And luckily, you will automatically enroll in the scheme to enjoy payout for life, if:
- You are a Singapore Citizen or Permanent Resident born in 1958 or after; and
- You have at least $60,000 in your Retirement Account six months before you reach your payout eligibility age (65 years old).
If you are not qualified for CPF LIFE, you can apply to join anytime between your payout eligibility age and before you turn 80 years old or remain on the Retirement Sum Scheme
Retirement Payouts
Under CPF LIFE, the amount you get when retiring depends on which of the CPF Retirement Sums you satisfy, among Basic Retirement Sum, Full Retirement Sum and Enhanced Retirement Sum.
Please note that different Retirement Sum has different required amount and the regulated amount for each kind of Retirement Sum will increase every year to account for changes in interest rates and life expectancy. For example, the Full Retirement Sum was $176,000 in 2019 but increased to $181,000 in 2020 and it is expected to go up in 2021.
The table below provides you with the standard monthly payout you will receive in retirement based on the Retirement Sum set aside at age 55:
| Retirement Sum | Retirement sum amount at age 55 (regulated for 2020) | Standard monthly payout (starting age 65) |
|---|---|---|
| Basic Retirement Sum | $90,500 | $750 – $810 |
| Full Retirement Sum | $181,000 | $1,390 – $1,490 |
| Enhanced Retirement Sum | $271,500 | $2,030 – $2,180 |
If you don’t even manage to meet the Basic Retirement Sum? Then you will receive your monthly retirement payouts will then be pro-rated based on how much you have or remain on CPF Retirement Sum Scheme.
The amount you can withdraw from CPF savings from 55
Normally, under CPF LIFE, you will be required to leave at least the Full Retirement Sum (currently $181,000) in your Retirement Account. You can withdraw the rest. As a result, for the rest of your life, you will receive around $1,400 every month.
Only if you’re a property owner and agree to pledge your property to CPF can you withdraw and leave at least Basic Retirement Sum (currently $90,500).
The table below summarizes the amount you can withdraw at any time after you reach 55:
| Balance of your OA and SA savings | Withdrawal amount |
|---|---|
| $5,000 or less | All your OA and SA savings |
| Between $5,000 and Full Retirement Sum | $5,000 Plus Retirement Account Savings above Basic Retirement Sum should you own property with leasing terms that can afford your living up to 95 years old. |
| More than Full Retirement Sum | $5,000 or your OA and SA savings above Full Retirement Sum, whichever is higher Plus Retirement Account Savings above Basic Retirement Sum should you own property with leasing terms that can afford your living up to 95 years old. |
3.2. Other Purposes
In addition to retirement savings, CPF contribution can be also used for housing, health-care and investment through many beneficial schemes.
Housing
- Public Housing Scheme: You can use your CPF Ordinary Account (OA) savings to buy a new or resale HDB flat.
- Private Properties Scheme: You can use the CPF Ordinary Account (OA) savings to buy or build private residential properties in Singapore for their own occupation or investment.
- Home Protection Scheme: This is mortgage-reducing insurance that protects you and your family against losing your HDB flat in the event of death, terminal illness or total permanent disability.
Health-care
- MediShield Life: This is a health insurance plan which can help you pay large hospital bills and some specific costly outpatient treatments such as cancer.
- Private Medical Insurance Scheme: This allows you to spend your MA savings on Integrated Shield Plans for yourself and your dependants. An Integrated Shield Plan (IP) is a medical insurance plan which offers additional benefits on top of that provided by MediShield Life.
- ElderShield: This is a disability insurance scheme that offers financial protection to those who are not able to do simple daily activities and need long-term care, especially in their old age.
Investment
CPF Investment Schemes: This scheme allows you to invest your OA and SA savings in a wide range of investments to enhance your retirement nest egg.
For more schemes and their details, click here.
Disclaimer
While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. BBCIncorp would like to inform readers that we make no representation or warranty, express or implied. Feel free to contact BCCIncorp’s customer services for advice on specific cases.
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