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CPF Series Part 2: Overview of CPF Accounts

If you’re asking a friend about his/her wages in Singapore, you’ll usually qualify the question by asking “Is that including CPF or not?” Working adults who have started on a career would know that this point is significant because CPF contributions rates are 20% of wages for the employee and 16% for the employer until the workers reach the age of 50. After that age, CPF contribution rates are gradually reduced.

These monthly CPF contributions are placed into three accounts: the Ordinary Account (OA), Special Account (SA) and Medisave.

CPF Ordinary Account

Funds in the OA can be used for a wide variety of purposes, but earn lesser interest that SA funds. You can use your OA to:

1. Pay for your new/re-sale HDB home (for a BTO buying guide, visit this article)
2. Buy CPF-approved insurance (for a recap of insurance types, look at this article)
3.  Pay for local tertiary education tuition fees of yourself, your spouse or your children
4. Do investing in approved financial products.

The balance in your OA earns a guaranteed interest of 2.5% . From now till the end of 2012, the first $20,000 OA balance earns an additional 1% interest. This bonus is subject to regular review in parliament.

CPF Special Account

Funds in the SA are specifically earmarked for retirement, so there isn’t much you can do with them, except to use them in low-risk investments. There is a difference between investments you can do with your OA and SA. There is a guaranteed 4% interest on SA funds, plus an additional 1% interest on the first $60,000, minus any overlap of the bonus accrued on OA balances (the one capped at $20,000).

As with the OA, these interest rates are regularly reviewed. CPF members can opt to transfer OA balances to their SA to get higher guaranteed interest (and less flexibility), provided the balance in the SA have not reached the Minimum Sum (currently at $139,000).

About the Minimum Sum

Young men and women
Why art thou reading about retirement
When thy bones are still strong
And thee can still toil?

If that little verse has not shamed you into closing your browser yet, here’s some information on the Minimum Sum. Basically, when you reach the age of 55, funds from your SA and OA are withdrawn  and placed in a special Retirement Account (RA). The minimum sum that needs to be in the RA is the Minimum Sum (duh). Should you not have enough balance in your SA and OA, there are ways to make-up for the shortfall. These include pledging property you own, topping up with cash/CPF, or selling your kidney (not endorsed by either the CPF or DollarsAndSense).

The money in your RA will be used to give you monthly payouts for life if you are under a life annuity such as CPF LIFE. Otherwise, payouts cease once your RA funds are expended or when you are expended (i.e. you pass away). The balance of which will depend on whether you made a CPF nomination and prevailing laws.

In the next installment, we look at the third pillar of CPF: Medisave. We answer questions like: what is Medisave, MediShield, ElderShield, Medifund, and whether Medisave can be used to pay for kidney surgery for illegal human organ sales. Stay-tuned!


Original photo by Kang Heong. Used with permission.


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