Traditionally, most of us would only receive our first CPF contributions after we start working. This will be made to us by the first employer we work for.
For myself, I got my first CPF contributions at a part-time job that I worked while waiting for Full-time National Service (NS) enlistment. Back then, I didn’t even realise that I was receiving CPF contributions from my then-employer.
Receiving our first CPF contributions can be seen as a milestone in life but the person who gets the honour of making the CPF contributions doesn’t need to be a random employer that we just happened to work with for our first job.
In fact, it can be us, parents, who become the first contributors to our child’s CPF accounts.
This could be a good way to commemorate a milestone (e.g. first birthday). Also, when our children grow up and understand the value of CPF, they may be pleasantly surprised to know that they are already starting off with a small amount in their CPF accounts, thanks to the contribution that we, their parents made, decades ago.
The contributions that we make today also earn us a compounded, risk-free interest rate of between 2.5 to 5.0% p.a.
The Government Contributes $4,000 As MediSave Grant For Newborns
If you didn’t already know, the Singapore government contributes a $4,000 MediSave Grant into the MediSave account for all Singaporean newborns. This can be used to pay for eligible medical expenses, MediShield Life or private integrated shield plan premiums.
What this also means is that there is no minimum age for your child to open their CPF account. As long as they are a Singaporean or PR, they are eligible to receive CPF contributions at any age in any of their three CPF accounts – Ordinary Account (OA), Special Account (SA) and MediSave (MA).
Do note there is no tax relief for topping up your child’s CPF account.
Are There Tangible Benefits For Topping Up Our Child’s CPF Accounts?
Topping up our child’s CPF accounts may seem like an unorthodox thing to be doing. However, besides the novelty of being able to claim that we are the first contributor to our child’s CPF accounts (technically the government can claim they are the first to contribute to MediSave), there are tangible benefits to making a top-up to our child’s CPF account when they are young.
Enjoy Higher Risk-Free Interest Rates
Mathematically speaking, contributions to our child’s CPF accounts is likely to be a more efficient way to earn risk-free interest from CPF than our own accounts.
CPF interest rates currently earn us 2.5% (OA) to 4.0% (SA, MA) p.a. However, since the first $60,000 of combined CPF balances (of which a maximum of $20,000 can be from OA) earn an additional interest of 1% p.a., and your child is unlikely to be working at a young age and thus, is unlikely to exceed $60,000 until they start working (unless you do something extreme like a handful of Singaporeans have done and make your child a baby millionaire), what this means is that in all likelihood, they will be getting an interest of 3.5% (OA) or 5.0% (SA, MA) p.a. And this will compound annually.
In contrast, for working adults below age 55, additional contributions above $60,000 of our combined CPF balances will earn us between 2.5% to 4.0%, or 1.0% less than what our children could have earned in their CPF accounts.
Ways We Can Use Our Child’s CPF Accounts
Utilising our child’s CPF accounts is probably something that hardly any parents consider doing so, but usage of the funds isn’t as obsolete as we may think. Beyond building up for their retirement that may only happen 65 years from now, there are other ways CPF savings in our child’s CPF account can be used earlier.
For a start, MediSave savings can be used to pay for the premiums for MediShield Life or a private integrated shield plan. In the event of hospitalisation, approved outpatient, day surgeries and recommended vaccinations, a child’s MediSave savings can also be used.
We can argue that as parents, the amount should be deducted from our own MediSave instead, but it’s important to note that there is a withdrawal limit we can use from our own account. Moreover, as highlighted in our earlier point, our child’s CPF account is actually a more efficient way to grow CPF savings than our own.
When our child becomes older and starts tertiary education. They can also use their OA savings to pay for university and polytechnic fees under the CPF Education Loan Scheme. Usually, it’s usually the parents that may use their CPF savings to fund their child’s education. However, there is no reason why our children can’t use their own CPF savings to pay for their education if they have sufficient savings.
Lastly, when they decide to purchase a home, their OA savings that have been accumulated and earning interests since young will come in handy to help them pay the initial down payment.
Types Of Voluntary Contributions We Can Make To Our Child’s CPF Accounts
Similar to topping up our own accounts or those of our spouses and parents, Voluntary Contributions (VC) to CPF accounts can come in three different forms.
– We can contribute to only our child’s SA via the Retirement Sum Topping-Up Scheme (RSTU). This means the funds go only into their CPF SA.
– We can contribute only to our child’s MediSave.
– We can contribute to all three CPF accounts for our child. This means the contributions go into the OA, SA and MediSave.
How To Contribute To All Three CPF Accounts For Our Child
For this article, we will be contributing to all three CPF accounts for our child. I won’t go into the advantages of why I prefer to contribute to all three accounts but if you want a quick explanation, making contributions to all three accounts allow for the funds to be used for a wider range of purposes that include retirement, housing, healthcare and education.
Step 1: Go to the CPF website. Use the e-Cashier option.
The Payer’s CPF Account Number/NRIC should be your child’s NRIC.
Remember not to log in to your CPF account when doing so. Otherwise, you won’t be able to change the Payer’s CPF Account number. I was stuck on this step for a while because I accidentally log in to my CPF portal already and hence, could not change the NRIC from mine to my child’s NRIC.
Step 2: Fill in the details required. This would be your mobile number and the amount you wish to contribute.
If you like, you can “Check Allowable Contribution” and that would tell you how much you can contribute. Since our kids don’t work, this should be $37,740.00, less any amount that has already been contributed to them for the year.
Step 3: Make Payment. You can do so via PayNow or eNETS
That’s all. Contributions to your child’s CPF accounts is done. You can check the details under “Child” on my CPF tab. The transfer is instant. Your child will thank you…in the future.
Making contributions to your child’s CPF accounts is one simple way to help them save for their future, and to leave them a legacy that could last time a lifetime. Even if the amount is small, it can still compound over time to help them.
Personally, for me, I see this as a way to deposit cash gifts given to them by their grandparents and relatives. Since these are gifts for them, I may not want to invest the money directly and putting it into a savings account won’t earn them any meaningful interest.
By topping up to their CPF accounts, we know that the money given to them will eventually be theirs to use, whether it’s for their future housing, retirement or medical expenses.
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