There are two kinds of Singaporeans. There are those who harbour inexplicable suspicion of the Central Provident Fund (CPF) system and want nothing to do with it, aside from what’s legally mandated.
And there’s the rest of us, who want to make the most out of CPF – including making top-ups to earn additional risk-free interest and income tax reliefs.
If you’re planning to top-up your CPF funds with cash, you should understand the two schemes under which you can do so – Retirement Sum Topping-Up Scheme (RSTU) and CPF Voluntary Contributions – and the differences between them.
Overview Of Retirement Sum Topping-Up Scheme (RSTU)
The Retirement Sum Topping-Up Scheme (RSTU) is meant to help you boost your retirement adequacy by allowing you to top-up your own or your loved ones’ CPF Special Account (for those who are below the age of 55) or CPF Retirement Account (for those aged 55 and above).
These monies will contribute to your retirement sum and will be used to provide monthly payouts under the Retirement Sum Scheme, or CPF LIFE once you reach your Payout Eligibility Age.
Overview Of CPF Voluntary Contributions
CPF Voluntary Contributions is meant to supplement the regular, mandatory CPF contributions that you make to your Ordinary Account, Special Account and MediSave Account.
These additional funds you contribute will allow you to earn the prevailing guaranteed CPF interest rates at virtually no risk, and can be used in accordance to the rules of the respective CPF accounts.
Differences Between Retirement Sum Topping-Up Scheme (RSTU) And CPF Voluntary Contributions
Now that we’ve introduced both topping up mechanisms, you can start to see hints of the differences between the two. Here are 4 of the differences in detail.
#1 Difference In Where The Topped-Up Money Goes
Top-ups made under the Retirement Sum Topping-Up Scheme can only be made to the Special Account (for those who are below the age of 55) or CPF Retirement Account (for those aged 55 and above).
On the other hand, there are two kinds of CPF Voluntary Contributions: you can opt for your topped-up funds to go to the MediSave Account only, or all three CPF accounts.
#2 Difference In Source Of Top-Up Funds
Under the Retirement Sum Topping-Up Scheme, you can choose to make contributions either in cash, or by transferring it from your CPF Ordinary Account (OA). Doing so will allow you to earn higher base interest of 4%, compared to a base interest of 2.5% from your OA.
However, CPF Voluntary Contributions can only be made using cash.
#3: Limits On How Much You Can Top-Up Are Calculated Differently
Under the Retirement Sum Topping-Up Scheme, you can top-up your CPF Special Account up to the Full Retirement Sum if you’re below the age of 55, and up to the Enhanced Retirement Sum if you’re aged 55 and above.
For those who are 55 and below as of 2020, the Full Retirement Sum is $181,000 and the Enhanced Retirement Sum is $271,500.
In contrast, there is an annual cap on the top-ups you can make under the CPF Voluntary Contributions, which is the CPF Annual Limit (currently $37,740) minus the mandatory contributions (MC) already made for that year.
Furthermore, Voluntary Contributions made specifically to the MediSave Account (MA) are also subject to the Basic Healthcare Sum (BHS), after which no further contributions to the MA can be made.
For CPF members turning 65 in 2021, the BHS is $63,000.
[Update] From 1 January 2022, the Voluntary Contributions to MA top-up limit will be based on the prevailing BHS and we would no longer need to check the CPF Annual Limit, making it much easier to calculate the maximum amount we can top-up annually.
#4 Not All CPF Top-Ups Are Tax-Deductible
A major incentive for many people to top-up their CPF accounts is for the tax benefits. However, it is worth noting that only top-ups made under the Retirement Sum Topping-Up Scheme and Voluntary Contributions specifically to the MediSave Account are tax-deductible.
This means that Voluntary Contributions made to all three CPF accounts do not qualify for tax reliefs. This is an important difference for those who are planning their CPF contributions with an eye to reducing their income tax, since all accepted CPF contributions are not refundable.
While we’re on the topic of tax reliefs, you should also note additional situations where tax reliefs will not be granted. For CPF members above the age of 55, cash top-ups beyond the Full Retirement Sum less Retirement Account savings will not be eligible for tax reliefs.
[Update] From 1 January 2022, the top-ups via Voluntary Contributions to Medisave Account (VC-MA) and Retirement Sum Topping-Up Scheme (RSTU) will qualify the person who makes the top-up (the giver) for tax relief. Currently, VC-MA top-ups qualify the recipient for tax relief while RSTU top-ups qualify the giver for tax relief.
The cap for tax relief will be combined for both RSTU and VC-MA top-ups and raised from $7,000 to $8,000 for top-ups for self and to $8,000 for top-ups for loved ones. Voluntary Contributions to other CPF accounts (i.e. OA or SA) would not qualify for tax deductions.
More Similarities Than Differences
While we’ve delved into the differences between the two ways in which you can supplement your CPF funds, it is worth remembering that both mechanisms share the same purpose of giving us additional options to optimise our CPF savings and better prepare ourselves for retirement.
Understanding both top-up schemes will allow you to select the most appropriate scheme to utilise based on your objectives.
This article was originally published on 6 January 2020 and updated to reflect the latest changes to RSTU and VC-MA.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.