The Central Provident Fund (CPF) is a mandatory social security savings scheme in Singapore. It is a defined contribution plan, where both employees and employers contribute a percentage of the employee’s salary into various CPF accounts. These accounts include the Ordinary Account (OA), Special Account (SA), MediSave Account (MA), and Retirement Account (RA), with each account serving different purposes such as housing, healthcare, and retirement. CPF savings attract interest rates ranging from 2.5% to 5% per annum, and CPF members can also enjoy various tax reliefs and government incentives for saving and investing in their CPF accounts.
CPF plays an important role in providing retirement income for Singaporeans, with CPF LIFE (Life Income for the Elderly) providing monthly payouts for life starting at age 65.
Employees and employers contribute a percentage of the employee’s salary to their CPF account. The contribution rate varies depending on the age of the employee and their income level. The funds in the CPF account are then invested by the CPF Board to generate returns, which are credited to the account.
When a CPF member reaches the age of 55, they can withdraw a portion of their CPF savings as a lump sum or choose to receive a monthly payout. The amount of CPF savings that can be withdrawn depends on the member’s age, the amount in their CPF account, and the prevailing CPF withdrawal rules.
After the age of 65, CPF members are eligible to receive monthly payouts from their CPF LIFE (Lifetime Income for the Elderly) scheme, which provides a steady stream of income for their retirement years. The amount of monthly payout depends on the CPF savings balance and the payout scheme selected.
- The Basic Retirement Sum, Full Retirement Sum, and Enhanced Retirement Sum are specific amounts set by the Central Provident Fund (CPF) Board in Singapore to help individuals plan and save for their retirement. It is the minimum amount of retirement savings that a Singapore citizen or permanent resident needs to set aside in their CPF account before they can start receiving monthly payouts from their CPF LIFE (Lifetime Income For the Elderly) scheme. As of 2021, the BRS is set at $93,000.
- The Full Retirement Sum is a higher amount that individuals can choose to set aside in their CPF account, which will increase their monthly payouts when they start receiving CPF LIFE payouts. As of 2021, the FRS is set at $186,000.
- The Enhanced Retirement Sum is an even higher amount that individuals can choose to set aside in their CPF account, which will provide them with even higher monthly payouts when they start receiving CPF LIFE payouts. As of 2021, the ERS is set at $279,000.
The latest Household Expenditure Survey (HES) is used as a reference to determine the Basic Retirement Sum (BRS), which is based on the expenses of a retiree household in the lower-middle income bracket. The BRS calculation takes into account that the member has a property that can sustain them until the age of 95, and they will not have to pay rent during their retirement.The Full Retirement Sum is set at twice the amount of the BRS, while the Enhanced Retirement Sum is set at three times the amount of the BRS.
|55th birthday in the year of
|Basic Retirement Sum (BRS)
|Full Retirement Sum (FRS)
2 x BRS
|Enhanced Retirement Sum (ERS)
3 x BRS
It’s important to note that these amounts are subject to change based on factors such as inflation and changes in the CPF Board’s policies. Additionally, the Basic Retirement Sum, Full Retirement Sum, and Enhanced Retirement Sum amounts are based on a cohort’s age group, with younger cohorts typically having higher amounts due to longer life expectancies and higher expected healthcare costs.
How much CPF can you withdraw?
To determine the amount of CPF savings you can withdraw, you may log in to your Retirement dashboard for information.
In general, members can withdraw a minimum of $5,000 or any amount exceeding their Full Retirement Sum from the age of 55. Once members reach the age of 65 and were born in 1958 or later, they may withdraw up to an additional 20% of their retirement savings at 65. For more information on withdrawal rules, please refer to the relevant guidelines.
If you own a property in Singapore, you may also apply to withdraw CPF savings that exceed your Basic Retirement Sum.
Cash top-ups or CPF transfers to your retirement savings, as well as government grants like CPF LIFE Bonus and Deferment Bonus, cannot be withdrawn as a lump sum as they are intended to increase your retirement payouts. You can find out how your withdrawable amount is computed through relevant channels.
How does Retirement Account work?
When we turn 55, our Retirement Account (RA) will be established, and the savings in our SA and OA will be transferred to the RA, up to the Full Retirement Sum (FRS). This sum will be utilized to enroll in CPF LIFE, which is a form of longevity insurance.
Based on the amount saved as the retirement sum, we will receive monthly payouts from CPF LIFE for as long as we live, even beyond the age of 100. The more we save in our RA, the higher our monthly payouts will be.
Therefore, it is advisable to reconsider withdrawing our CPF savings at 55.
What are some ways to reach your desired Retirement Sum earlier?
Let’s start by reviewing the base interest rates that our CPF accounts offer (accurate as of March 2020):
- Ordinary Account: 2.5% per annum
- Special Account: 4% per annum
- MediSave Account: 4% per annum
- Retirement Account: 4% per annum
Additional interest rates:
- An extra 1% interest per annum on the first $60,000 of a CPF member’s combined balances
- An additional extra 1% interest per annum on the first $30,000 of the combined balances for CPF members aged 55 and above, on top of the additional 1% interest on the first $60,000
Now, here are some strategies to achieve your desired Retirement Sum earlier, whether it’s the Basic Retirement Sum, Full Retirement Sum, or even Enhanced Retirement Sum:
- Consider paying for your house using more cash instead of CPF
If possible, avoid using your CPF savings to pay for your property. Instead, consider using more cash, and perhaps refinancing your mortgage every few years to obtain a better interest rate. By doing so, you can retain more money in your OA, which can earn up to 3.5% interest per annum. Additionally, if you plan to upgrade your property or purchase a condominium, try not to exhaust all your OA savings, as this will decrease your retirement sum and lower your monthly payouts.
- Make partial capital repayments on your housing loan using cash
Avoid relying entirely on CPF to pay off your monthly housing loan. Instead, consider making partial repayments using cash, or a combination of cash and CPF. Over time, this will help you set aside more savings for your retirement, and allow your OA to earn up to 3.5% interest per annum.
- Transfer money from your OA to your SA
If you don’t plan to use your OA savings for housing in the future, consider transferring your excess OA funds to your SA. The SA offers up to 5% interest per annum, which can significantly accelerate the pace at which you reach your FRS. However, be aware that this transfer is irreversible, so make sure you won’t need your OA funds anytime soon.
- Consider the Retirement Sum Topping-Up Scheme
You can also top up your SA using cash (for members below age 55), up to the prevailing FRS. You don’t need to make a large lump-sum contribution to your SA; small and regular top-ups can also help your retirement nest egg grow. For example, a $100 monthly top-up at an interest rate of up to 5% per annum can increase your retirement savings by over $24,000 in 15 years. Additionally, you can enjoy tax relief of up to $7,000 per calendar year for cash top-ups up to the prevailing FRS.
- You don’t need to retire immediately
If you don’t want to stop working, you don’t have to. Continuing to work allows you to receive employer contributions to your CPF accounts. If you’re still working after age 65 and don’t need extra income, you can delay the start of your monthly payouts until later (up to age 70), which will increase the amount you receive each month by 7%.
CPF is a good system because it provides a strong foundation for retirement savings, healthcare funding, and home ownership in Singapore. CPF offers attractive interest rates on savings and provides various schemes and subsidies to help Singaporeans achieve their financial goals. It also offers a safety net for Singaporeans who are unable to work due to illness or disability. And it is important to pay attention to CPF because it is a significant part of Singapore’s social security system and has a direct impact on the financial well-being of Singaporeans. Understanding how CPF works and how to use it effectively can help Singaporeans achieve their financial goals and prepare for a comfortable retirement.
Budget 2022: Increase in Basic Retirement Sum and how it affects you
Finance Minister Lawrence Wong announced during Budget 2022 that the CPF Basic Retirement Sum will increase by 3.5% every year from 2023 to 2027. This means the Basic Retirement Sum will be $96,000 this year and will rise to $114,100 by 2027 for those who turn 55 in that year. If you are worried about how much your Basic Retirement Sum will be in the future, you can use the table provided to estimate it. However, the CPF system is designed to help most median-income earners retire, based on steady contributions to their Special Account and the power of compound interest.
The median salary for a young person aged 25 to 29 is about $3,500 per month, which means being able to contribute about $210 per month to your SA. Using the CPF Analyser, such a young person would be able to accumulate close to $340,000 in their Special Account alone by the time they turn 55. This is more than sufficient to meet the Basic Retirement Sum by then. Even if the Basic Retirement Sum continues to increase annually, there is no need to worry. The CPF system is designed to help you keep pace with the increase easily.
When your Basic Retirement Sum increases, your future CPF LIFE payout will also increase to ensure your purchasing power is the same by the time you reach 65 years old. However, if you do not have the Basic Retirement Sum, you can still get a CPF LIFE payout, although it will be a lower amount. The Basic Retirement Sum increase is good news for those who want to top up their CPF to earn the good risk-free interest, build up their retirement savings, and earn tax relief. It could be bad news for those who want to withdraw more money from their CPF under the various schemes. A higher Basic Retirement Sum simply means more needs to be set aside in RA, translating to slightly less which can be withdrawn in lump sum cash at 55. The Basic Retirement Sum is also the benchmark used to determine whether you can transfer some of your CPF balances to your loved ones. When BRS is raised, it means less can be transferred to them.