Every month, our CPF monthly contributions will flow into three main accounts, Ordinary Account (OA), Special Account (SA) and MediSave Account (MA). For those aged 55 years old and above, we also have a Retirement Account.
While OA, SA, RA is meant for our retirement, MediSave is focused on covering our healthcare needs. However, that is not the only difference for Medisave.
Unlike the Basic Retirement Sum (BRS), which is the minimum CPF savings we should set aside for our retirement, the Basic Healthcare Sum (BHS) is the maximum amount we can set aside in MediSave. Given that there is a limit to our MediSave account, we may be wondering what happens to our mandated MediSave contributions when we have met our BHS.
Our Medisave Has A Limit Which Is Basic Healthcare Sum And It Is Fixed For Life
The savings in our MediSave earns a yearly interest of 4%.
Depending on our age, the percentage contributed to MediSave varies as shown in the table below.
Assuming that we continue our MediSave contributions and do not need to use our MediSave, it is likely that we will eventually hit the maximum amount we can keep in our MediSave account. This limit is known as the Basic Healthcare Sum.
In 2016, CPF Board abolished the need for a MediSave Minimum Sum to simplify the rules of the scheme. Instead, MediSave continued with the Basic Healthcare Sum (BHS) which is adjusted yearly for each cohort to accommodate the rising healthcare cost. Each cohort’s BHS is set at the age of 65. Once the BHS is set, the amount is fixed and will not change for the rest of our lives.
With that, the current 2021 BHS is set at $63,000. This amount is expected to provide for our basic subsidised healthcare needs in our old age, as well as our MediShield Life premiums. MediSave also allows us to pay for other national insurance schemes such as CareShield Life and ElderShield Life.
Amounts Excess Of Basic Healthcare Sum Will Flow To Special Account or Retirement Account (And Even Ordinary Account)
In the event we have managed to hit the BHS in our MediSave, our excess contribution and interest earned on MediSave would still be kept as savings in CPF.
Any amount above the BHS ($63,000 for 2021) would flow over to our other CPF accounts. This measure was put in place to prevent over-savings for MediSave. The spill-over follows a specific order which depends on our age and the amount we have in each CPF accounts.
If we are aged above 55 years old, the excess funds would flow into our RA first. However, if our RA account has already reached the Basic Retirement Sum (BRS) or Full Retirement Sum (FRS), the excess amount will go into our OA. For example, if our RA already has the required FRS ($$186,000 for 2021), the excess MediSave amount would eventually flow into our Ordinary Account.
On the other hand, if we are aged below 55 years old, the excess funds would flow into our SA first. If our SA account has already reached the FRS, the excess MediSave amount would then flow into our Ordinary Account.
This means that our monthly contribution allocated for MediSave (ranging from 8% to 10.5% of our salary) plus the accumulated interest of 4% per annum on our BHS can potentially be funnelled into our OA.
While the interest in OA is at 2.5% which is relatively lower than SA, RA or even MediSave, our OA savings can be used for other essential needs. This includes housing, healthcare, eligible insurance payments, eligible investments, and education. Additionally, once we have hit our FRS or BRS, we can withdraw the excess CPF savings once we reach 55 years old.
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