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Should you be topping up your CPF account?

Felicia Tan
Felicia Tan • 8 min read
Should you be topping up your CPF account?
All these questions and more answered.
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The Central Provident Fund (CPF) is a savings system established by the Singapore government that helps citizens with their housing, medical bills and retirement, in a nutshell.

CPF members will have three accounts — the Ordinary Account (OA) for retirement, housing, insurance and investment; Special Account (SA) for retirement and retirement-related financial products; Retirement Account (RA), where citizens aged 55 and above get to receive monthly payouts; and the Medisave Account (MA) that’s used for hospitalisation expenses and approved medical insurance.

Monies in the OA will earn an annual interest rate of 2.5% while the SA, RA and MA will earn CPF members an annual interest of 4.05% in the 2Q2024. The interest rate for the latter three accounts is pegged to the 12-month average yield of the 10-year Singapore government securities (10YSGS) plus 1%.

In his Budget speech on Feb 16, deputy prime minister (DPM) Lawrence Wong, who double-hats as Singapore’s finance minister, announced that the SAs of CPF members aged 55 years and above will be closed.

At the same time, Wong announced that the enhanced retirement sum (ERS) will be increased to four times the basic retirement sum (BRS) from 2025, up from three times previously. The current ERS, which is the maximum amount that CPF members can contribute towards their CPF Life retirement payouts, is $308,700 for 2024. The ERS is increased yearly. In 2025, the ERS will be at $426,000. The ERS will be raised to $440,800 in 2026 and $456,400 in 2027.

The Edge Singapore spoke to Winston Lim, head of deposits and wealth management at United Overseas Bank U11 -

(UOB) about putting more money into one’s CPF account, opting for the ERS, and more.

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The Edge Singapore: What does it mean for investors (or people who want to make the most use out of their CPF) with the closure of the SA account for those aged 55 and above?

Winston Lim (WL): From early 2025, CPF members aged 55 and above will have the balance in their CPF SA transferred to their RA up to the full retirement sum (FRS), with the RA funds continuing to enjoy attractive long-term interest rates.

Following the RA transfer, any excess SA funds will be placed into the OA, remaining withdrawable but earning a lower interest rate.

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To enjoy long-term interest rates and receive higher monthly payouts following retirement, CPF members can consider topping up their RA via cash or conduct OA transfers up to the prevailing ERS.

Such top-ups and transfers to the RA are irreversible, so CPF members should ensure that they accept the CPF LIFE payout structure, and have sufficient non-CPF disposable funds for rainy days.

Should Singaporeans aged 55 years and above opt for the ERS?

CPF members who have met the FRS requirements and set aside sufficient cash resources for their daily needs from age 55 to age 65 can opt to increase their RA balances beyond the FRS to the prevailing ERS limit.

The increase will translate to higher monthly CPF LIFE payouts from age 65. For example, with the recent announcement that the ERS will be raised to $426,000 in 2025, a member turning 55 years old next year can receive about $3,330 per month of CPF LIFE payouts at age 65 under the CPF LIFE standard plan if he caps his ERS.

CPF members who ascertain that they may not have sufficient resources for their living needs for the period from age 55 to age 65 should not overstretch themselves by topping up to the ERS cap. They should prioritise their living expenses by using OA withdrawals, especially if they do not have much cash savings or are unable to monetise their assets.

Closer to age 65, they can then decide to deploy any spare resources into their RA, after setting aside emergency funds of at least three to six months. CPF members can then enjoy a higher monthly payout after age 65.

For more stories about where money flows, click here for Capital Section

How will the closure of the SA account of CPF members aged 55 and above affect the way one makes the most use of the interest rates and how much money should one allocate in their CPF in an ideal portfolio (i.e. one with maxed out returns)?

CPF members could consider the following to maximise the most of their savings:

  • a) Use cash top-ups or OA transfers to their own RA to enjoy higher interest rates. These top-ups are eligible for tax reliefs.
  • b) Top up their MA for future healthcare needs. MA top-ups are also eligible for tax reliefs.
  • c) Use monies in OA to pay down outstanding housing loans (if any) to lower monthly mortgage loan instalments with interest rates higher than 2.5%
  • d) Use monies in OA for investments into products such as T-bills and unit trusts for potentially higher returns, subject to risk appetite. Do note that top-ups to SA, RA and MA are irreversible.

What can investors do with their CPF payouts when they reach 55?

CPF members will not receive their monthly CPF LIFE payouts until they turn 65. However, they can withdraw up to $5,000 unconditionally from their OA and SA when they turn 55, together with any remaining OA and SA savings above the FRS.

For CPF members who have met the FRS, they can treat their CPF OA account as a deposit account where monies can be withdrawn on demand. The CPF OA interest rate is currently higher than bank deposit rates in general, so investors may find it more attractive to keep their monies there.

For investors who are confident of generating returns that outperform the OA interest rate, they can withdraw CPF funds in excess of the FRS and place them in higher-yielding financial instruments. Investors must be aware of the risks presented by these higher-yielding instruments, and weigh them against the guaranteed returns of the OA.

CPF members who intend to place their monies withdrawn from CPF accounts in a normal deposit account may run the risk of falling prey to scammers.

To mitigate this risk, all three local banks offer a “money lock” feature on their accounts where a designated portion of savings can be “locked away” from unauthorised digital intrusion and rash decisions. For example, the UOB LockAway Account ringfences earmarked funds from all online transactions such as digital payments and outbound transfers, while still earning interest.

When should people start putting money into their CPF account, and should they put it in their OA, SA, RA or Medisave?

CPF members should start practicing discipline in saving as early as possible, preferably from the moment they start working.

As CPF contributions are made, savings accumulate in three accounts: the OA, MA and SA. An RA will be created when CPF members reach 55 years of age. When members are younger, a larger proportion of CPF contributions are allocated to their OA to support home purchases. As members grow older, more CPF contributions are allocated to their SA and MA to meet growing healthcare and retirement needs.

Given the higher interest rates for the SA and RA, top-ups to SA or RA over a longer period of time will mean that the monies will benefit from the power of compounding interest, helping investors to exponentially grow their savings.

Besides topping up one’s own account, members can also consider topping up the CPF accounts of their loved ones. Deputy Prime Minister and Minister for Finance Lawrence Wong announced in his FY2024 Budget Statement on Feb 16 that the income threshold to qualify for tax relief for cash top ups made to spouse and siblings will be increased from $4,000 to $8,000 in the Year of Assessment 2025 for top-ups made from Jan 1, 2024.

How much should they put in per month?

For voluntary contributions, CPF members should determine the quantum they should place into their CPF accounts based on their financial circumstances, bearing in mind the long-term, irreversible nature of CPF top-ups and transfers. Investors should scrutinise their finances closely, and allocate monies for daily expenses, short-term investment goals and longer-term savings based on their needs and risk appetite.

For longer-term savings, monies that go into CPF accounts will mean more predictable returns but less liquidity, while monies that are invested in instruments such as unit trusts, exchange-traded funds (ETFs) and bonds have higher liquidity but generally do not have guaranteed returns. As such, investors should balance their longer-term savings approach based on their risk-return needs and liquidity requirements.

When it comes to the normal employee’s contribution, CPF contribution rates can range from 12.5% to 37% of monthly wages depending on age.

How can the SRS and high-yield accounts like the UOB One account or fixed deposits complement CPF contributions?

Investors who have additional resources after allocating their CPF contributions can consider contributing to their SRS, especially since it is able to reap even more tax relief for them. However, investors should factor in the fact that withdrawals from SRS accounts will only be penalty-free if they take place on or after the statutory retirement age.

High interest-yielding accounts, such as the UOB One Account, are suitable for individuals who prefer liquidity, and are able to qualify for bonus interest by meeting certain criteria, for example minimum credit card spends, salary credit and/or GIRO bill payments. Such accounts complement CPF contributions as a shorter-term tool for investors to enjoy attractive interest rates, while the latter is used as a longer-term retirement account.

For fixed deposits, individuals can take advantage of prevailing promotional interest rates to lock in funds for a specified tenor. Upon maturity of fixed deposits, there is no restriction on fund usage, and the interest generated can supplement individuals’ retirement needs, be it a holiday trip or to meet household expenses. They can also roll over the maturity proceeds to a new fixed deposit to further enhance their savings.

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