In Singapore, our CPF accounts are opened from the time we are born and stay with us through every stage of our life. Like it or not, CPF is a crucial scheme to understand. Building our knowledge on CPF-related topics can help us optimise the way we, our children and our parents fully benefit from our CPF accounts.
One way to leverage on our CPF monies is to make periodical top ups to increase and compound our balances to ensure we have enough in our retirement.
Why Contribute More To Our CPF Accounts?
If you’re still skeptical on the benefits of contributing more funds to your CPF accounts, here are a few reasons why it could make sense.
# 1 We are able to put our funds in a virtually risk-free investment, guaranteeing our principal and interest returns. This guarantee is provided by the Singapore government, one of the few triple-A credit-rated countries in the world.
# 2 We earn a relatively good interest return of between 2.5% (on our CPF Ordinary Account) to 4.0% (on our CPF Special Account) or even up to 6.0% (if we contribute to our Retirement Account).
# 3 In most instances, we also enjoy tax savings when we contribute to our CPF accounts, whether from our employment or on a voluntary basis.
# 4 Our contributions form a forced savings to grow our retirement nest egg. At the same time, we need to understand that this is an irreversible process, so we need to be careful when planning to put more money into our CPF accounts. While this may sound like a disadvantage, our future retired-self may be very thankful that we made such a move when we were young.
# 5 A safety net that we can rely on no matter how dire our financial situation. This is because our CPF funds will kept safe from any legal liabilities we may have, especially if we have to declare bankruptcy.
# 6 Our principal and interest returns compound at the same rate* for a long period of time. In majority of other investments, our interest returns have to be reinvested, and we may not be able to receive a similar rate of return as our original investment.
* The interest rate for Ordinary Account, Special Account and MediSave Account are reviewed quarterly. The Retirement Account interest rate is reviewed yearly.
What Is The Maximum We Can Contribute To Our CPF Accounts?
Even if we want to enjoy the benefits of topping up our CPF accounts, there are caps in place that prevent us from putting too much funds into the system. Below are some ways we can contribute to our CPF accounts, as well as the caps on each method.
Ordinary Wages (OW)
Our salaries are broken into two categories – Ordinary Wages and Additional Wages. Within each category, there is a separate cap on the maximum amount we can contribute to our CPF each year.
Under the Ordinary Wages component, which is typically our monthly salaries, the CPF contribution ceiling is capped at $6,000 per month. This means only the first $6,000 of our monthly salaries require CPF contributions from us and our employers. If we earn more, any amounts above the first $6,000 will not attractive any employer or employee CPF contributions.
Depending on our age, the yearly amount on our CPF Contributions from our Ordinary Wages can vary:
|Age||Employee Contribution Rates||Employer Contribution Rates||Total||Annual CPF Ordinary Wage Contributions Ceiling|
|55 and below||Employee: 20%||Employer: 17%||Total 37%||$26,640|
|55 to 60||Employee: 14%||Employer: 14%||Total 28%||$20,160|
|60 to 65||Employee: 8.5%||Employer: 10%||Total 18.5%||$13,320|
|Above 65 to 70||Employee: 6%||Employer: 8%||Total 14%||$10,080|
|Above 70||Employee: 5%||Employer: 7.5%||Total 12.5%||$9,000|
The Additional Wages component is usually a component that we do not receive on a monthly basis, such as performance bonuses, annual bonuses or leave pay.
The total amount of Additional Wages that requires CPF contributions in a year is ($102,000 – Total Ordinary Wages).
Assuming we earn $6,000 a month, our maximum Additional Wages (AW) will be $30,000. Following the formula above, we can calculate that only $102,000 – $72,000 = $30,000 of our Additional Wage will attract CPF contributions. That means even if we get a bumper bonus worth more than $30,000 a month, only the first $30,000 will attract employer and employee CPF contributions.
|Age||Maximum Additional Wage (if we earn $6,000 a month)||Contribution Rates||Total CPF Contributions for Additional Wage ($30,000)|
|55 and below||$30,000||Employer: 17%
|55 to 60||$30,000||Employer: 14%
|60 to 65||$30,000||Employer: 10%
|Above 65 to 70||$30,000||Employer: 8%
|Above 70||$30,000||Employer: 7.5%
As we can see, even though we may be earning the same amount, we could be contributing different sums to our CPF accounts depending on how we receive our wages and our age.
If we earn less than $6,000 a month, our maximum Additional Wage that will attract CPF contributions will increase.
Voluntary Contributions (VC)
The next thing we have to note is that there is an Annual Limit of $37,740 for our CPF Mandatory Contributions and Voluntary Contributions to all three of our CPF accounts. This can be derived from the earlier formula, where the figure of $102,000 was used. From this, we can calculate that 37% of this figure equates to $37,740 – which is also the CPF Annual Limit.
If we have not hit the cap, we can make Voluntary Contributions up to the Annual Limit. If we make Voluntary Contributions to all 3 of our CPF Ordinary Account, CPF Special Account and CPF Medisave Account it will be non-tax deductible.
We can also make Voluntary Contributions to only our MediSave Account, up to our Basic Healthcare Sum (BHS) of $66,000 in 2022. While we also receive tax deductions for MediSave Account contributions, it is capped at $8,000 from 2022. This tax relief component will also be shared with our contributions via RSTU (explained below).
Retirement Sum Topping Up Scheme (RSTU)
We can also tap on the Retirement Sum Topping Up scheme to top-up via CPF transfers or cash to our own or our loved ones’ Special Account (up to the Full Retirement Sum for recipients below 55) or Retirement Account (up to the Enhanced Retirement Sum for recipients 55 and over).
While we can do this with a cash top-up at one shot, we need to note that we only enjoy tax relief of up to $8,000 a year if we top up our Special Account or Retirement Account, and an additional $8,000 a year if we top our loved ones’ Special Account or Retirement Account. On top of this, the combined $16,000 potential tax relief is subjected to a personal income tax relief cap of $80,000. From 2022 onwards, the maximum $16,000 tax relief we receive must be shared with any Voluntary Contributions we make to our MediSave Account.
In addition, we will only qualify for tax reliefs on top-ups to our spouse’s or siblings’ CPF accounts if their income does not exceed $4,000 a year or if they are handicapped. There is also a tax relief cap on:
1. Recipients below 55: Current FRS less the sum of SA savings and net SA savings withdrawn under CPF Investment Scheme for investments that have no been completely disposed of;
2. Recipients above 55: Current FRS, less RA savings.
In this case, our loved ones must be either our spouse, parents, parents-in-law, grandparents, grandparents-in-law and siblings. If we top up our children’s CPF accounts, we will not receive any tax relief.
Additional Medisave Contribution Scheme (AMCS)
This little-known scheme allows employees to receive further Medisave Account contributions from employers, up to a limit of $2,730 a year. This is beyond the CPF Annual Limits that typically apply, and are tax-free for employees as well as give tax benefits to employers.
Employers may opt for such contributions as additional medical benefits to employees, either to compensate them for remaining medical benefits not consumed or so that employees can purchase personal medical insurance.
Voluntary Refund Of CPF Withdrawn For Housing
If we are uncomfortable with the CPF Property Charge and Accrued Interest we see ballooning in our CPF account, we can refund any amount, capped at the full principal amount and accrued interest (including any housing grants we received) for our home purchase.
We Need To Ensure We Know Why We Want To Make Any Additional Top-Ups To Our CPF Accounts
As we can see, there are various ways we can contribute funds to our CPF accounts. While the amounts that are contributed from our salaries and bonuses are mandatory, the rest of the schemes can be done on a voluntary basis. Our company can also chip in via various contribution schemes.
If we are making top-ups, we will want to ensure that we get the maximum benefit out of it. This includes ensuring we are able to receive tax relief on our contributions, as well as earning the best interest return – which may mean deciding whether to top-up our own or our spouse’s/ parents’/ grandparents’ or in-laws’ CPF accounts. For example, there is a change for the maximum relief we can receive for making RSTU top-ups – from $7,000 to $8,000. However, with this increase, we are also capped on the amount of tax relief we can get for making MediSave Account top-ups.
Lastly, we can also make large sums of top-ups via the Retirement Sum Topping Up (RSTU) scheme, Voluntary Contributions (VC) to our MediSave up to the Basic Healthcare Sum (BHS), and to Voluntarily refund CPF withdrawn for our housing – all without receiving substantial tax relief. Nevertheless, this can give us greater peace of mind as well as enable our funds to earn good interest returns in the various CPF accounts. This beats letting the money sit idle in a bank account or even fixed deposit, especially if we have already set these funds aside for our retirement.
The one thing we need to know before making top-ups is that this is an irreversible process, and we cannot withdraw funds that we decide to put into CPF.
This article was originally published on 11 March 2019 and updated with new information.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.