CPF impacts all aspects of our lives. We contribute a large chunk of our monthly salaries into it, and use for our housing, investing, insurance, future retirement and loved ones’ education needs.
Besides this, we also use CPF for our healthcare. This includes paying for the premiums on our MediShield Life and any complementary private Integrated Shield Plans (IPs), as well as getting severe disability coverage via CareShield Life (formerly known as ElderShield). Additionally, we can also utilise our Medisave Account balances to pay for a large variety of treatments, including approved inpatient hospitalisation, day surgeries, rehabilitative care, palliative care, outpatient treatments, vaccinations, health screenings and radiotherapy.
This shows just how important our Medisave Account (MA) is in providing a safety net for Singaporeans. What many of us may not know is that the Basic Healthcare Sum (BHS) enforces a cap on how much money we can have in our Medisave Account.
How Much Do We Contribute To Our Medisave Account?
Depending on our age, we contribute between 8% and 10.5% of our monthly salaries into our Medisave Account. Here are the allocation rates:
|Employee’s Age (Years)||Allocation Rates From 1 Jan 2016 (For Monthly Wages ≥ $750)|
|Ordinary Account (% Of Wage)||Special Account (% Of Wage)||Medisave Account (% Of Wage)|
|35 and below||23||6||8|
|Above 35 to 45||21||7||9|
|Above 45 to 50||19||8||10|
|Above 50 to 55||15||11.5||10.5|
|Above 55 to 60||12||3.5||10.5|
|Above 60 to 65||3.5||2.5||10.5|
* From the CPF website
As we can see from the table, our contribution rate to our Medisave Account increases as we age. This is directly opposite to the Ordinary Account (OA), which decreases as we age. For our CPF Special Account, contribution rates increases until we hit 55, when it then decreases. The overall CPF contribution rates progressively decline from 37% after we hit 55.
This highlights the importance the government has put on securing ourselves in terms of our healthcare needs for our old age. While this is true, there is also a cap on our Medisave Account – the Basic Healthcare Sum (BHS).
What Is The Basic Healthcare Sum?
The Basic Healthcare Sum caps the amount of money we can have in our Medisave Account for life when we hit 65. This is meant to provide for our basic subsidised healthcare needs in our old age, as well as our MediShield Life premiums.
The Basic Healthcare Sum replaced the Medisave Contribution Ceiling since 1 January 2016. This move also saw the old Medisave Minimum Sum completely abolished.
What Happens If I’m Turning 65 Next Year?
Currently, the Basic Healthcare Sum is capped at $54,500 for CPF members born in and after 1953. This cap will continue to rise, accounting for increasing life expectancy and healthcare costs, until we hit 65. After we turn 65, our Basic Healthcare Sum does not increase anymore.
For reference, the Basic Healthcare Sum was $52,000 in 2017 and $49,800 in 2016. The Basic Healthcare Sum has increased 4.6% on an annual compounding growth basis.
|Year We Turn 65||Basic Healthcare Sum|
* From the CPF website
And What Happens If I’m Not Turning 65 Next Year?
Today, the Basic Healthcare Sum is $54,500. This means we cannot continue contributing to our Medisave Account beyond this limit. If we’re not turning 65 next year, our Basic Healthcare Sum continues to increase and gets locked-in once we hit 65.
In the situation we aren’t 65 but have already reached the Basic Healthcare Sum, we can no longer contribute to our Medisave Account. Any monies that would have gone into our Medisave Account, will instead flow into our Special Account, or Retirement Account (RA) if we are over 55. In the event our Special Account or Retirement Account has hit the Full Retirement Sum (FRS), the overflow will go into our Ordinary Account.
Do I Have To Meet The Basic Healthcare Sum Before I Am Able To Withdraw My CPF Monies?
There are two main instances in which we can withdraw our CPF monies – 1) when we turn 55 and 2) when receiving CPF LIFE payouts. In both instances, we can withdraw our eligible balances and monthly payouts, respectively, even if we have not met our Basic Healthcare Sum.
What Will My Basic Retirement Sum Look Like When I Turn 65?
To determine how much we may need to be setting aside in our Medisave Account by the time we hit 65, we’ll have to rely on certain indicators. At best, these will be wide estimates of how much we will need when we turn 65. This is because there’s so much time between now and when we finally hit 65, and many things can happen.
Firstly, we can rely on information from the government. In recent news reports, it’s been stated that healthcare spending will be approximately $10 billion in 2018, and will rise to nearly $13 billion in 2020. This is roughly a 14.0% compounded annual growth rate. We won’t even be taking these figures into our computation, as the results will really not be humanly possible to achieve.
Of course, we could also base it on the current 4.6% trajectory it’s been rising at. Just to bear in mind, this is quite close to the annual increase in the Full Retirement Sum (FRS), which has been increasing at a compounded annual growth rate of 4.9% since 2003. However, this too would be too hard to achieve.
More realistically, based on information by the Singapore Department of Statistics, in the past 20 years, the cost of healthcare has actually risen 62.8%, or 2.5% per annum, on a compounded annual growth rate basis. This could be a realistic forecast of the inflation levels of our healthcare needs.
|Age In 2018||Basic Healthcare Sum|
|67||$49,800 (Set in 2016)|
|66||$52,000 (Set in 2017)|
|65||$54,500 (Set in 2018)|
|Based on 2.5% increments|
As you can see, this figure is quite substantial for anyone aged 30 this year. Compounding by levels greater than 2.5% per annum would deliver figures that are simply unattainable. Perhaps we may see a change in contribution levels to our Medisave Accounts that are much more substantial to achieve this in future.
Don’t Get Too Worried Just Yet
These numbers may seem intimidating, and even scary, especially when combined with the Full Retirement Sum we have to set aside in our Retirement Account. But you should not get too worried just yet.
Firstly, as stated, these numbers are merely projections into the future. We don’t really know what will transpire over such a long period of time.
Secondly, and more importantly, these figures are NOT a minimum amount we need in our Medisave Account. Instead, they are a “maximum” amount that we cannot exceed.
Many mistake the Basic Healthcare Sum as a minimum sum we need to accumulate in our Medisave Account. In fact, the Medisave Minimum Sum (MMS) was abolished since 1 January 2016, and we don’t have a minimum amount that we need to have in our Medisave Account.
What this did was allow us to withdraw our monies from our accounts, beyond the required levels, without having to first contribute to a mandatory Medisave Minimum Sum.
In fact, the CPF Board clearly states on their website that there isn’t a minimum amount that we need to have in our Medisave Account. It even goes on to say that while we are not required to top up our Medisave Account, we can consider doing so on a voluntary basis as the Basic Healthcare Sum is an indicator of how much we may need for our healthcare in old age.
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