CPF in Singapore: What It Is and How It Works
Introduction:
If you’re living and working in Singapore, you’ve probably heard of CPF or Central Provident Fund. It’s a mandatory social security savings scheme designed to provide working Singaporean Citizens and Singapore Permanent Residents(SPRs) with retirement, healthcare, and housing benefits. However, understanding the ins and outs of CPF can be overwhelming, especially for those who are new to Singapore. In this post, we’ll provide a comprehensive guide to CPF and answer some of the most common questions about it.
What is CPF?
CPF stands for Central Provident Fund, which is a mandatory social security savings scheme in Singapore. It’s a comprehensive system that helps Singaporeans save for their retirement, healthcare, and housing needs. Introduced on 1 July 1955, CPF is a social security savings scheme in Singapore that is funded by both employees and employers. Both parties contribute a percentage of the employee’s salary to the CPF.
The table below shows the contribution rates from 1 January 2023 where monthly wages > $750
| Employee’s age (years) | By employer (% of wage) | By employee (% of wage) | Total (% of wage) |
| 55 and below | 17 | 20 | 37 |
| Above 55 to 60 | 14.5 | 15 | 29.5 |
| Above 60 to 65 | 11 | 9.5 | 20.5 |
| Above 65 to 70 | 8.5 | 7 | 15.5 |
| Above 70 | 7.5 | 5 | 12.5 |
The ordinary wage ceiling for CPF contribution is currently capped at $6,000 per month. For example, if you earn $8,000 a month, only the first $6,000 of your monthly income will be subject to CPF contributions. In the recent Singapore Budget 2023, the finance minister has increased this amounts to $8,000.
- Sep 2023: $6,300
- Jan 2024: $6,800
- Jan 2025: $7,400
- Jan 2026: $8,000
Besides that, there are Additional Wages aka performance bonuses which will be subjected to CPF too. The Annual CPF ceiling cap is $102,000. For example, besides the $8, 000 salary, you also earn an annual bonus of $20,000 bonus. For this, $102 000 – $6 000 x 12 = $30 000, which means your $20,000 bonus are subjected to CPF. If your bonus is $40 000, then only up to $30 000 is subjected to CPF.
How does CPF work?
CPF contributions are divided into three accounts: the Ordinary Account (OA), the Special Account (SA), and the Medisave Account (MA). The OA is used for housing, education, and investment, the SA is for retirement, and the MA is for healthcare expenses such as hospitalization and outpatient treatments. The contribution rates vary depending on the employee’s age, with higher rates for older employees. The Retirement Account (RA) is created when an individual turns 55 and is used to provide a monthly payout during retirement. It is a combination of Ordinary and Special Accounts.
| Employee’s age (years) | Ordinary Account (Ratio of Contribution) | Special Account (Ratio of Contribution) | MediSave Account (Ratio of Contribution) |
| 35 & below | 0.6217 | 0.1621 | 0.2162 |
| Above 35 to 45 | 0.5677 | 0.1891 | 0.2432 |
| Above 45 to 50 | 0.5136 | 0.2162 | 0.2702 |
| Above 50 to 55 | 0.4055 | 0.3108 | 0.2837 |
| Above 55 to 60 | 0.4069 | 0.2372 | 0.3559 |
| Above 60 to 65 | 0.1709 | 0.317 | 0.5121 |
| Above 65 to 70 | 0.0646 | 0.258 | 0.6774 |
| Above 70 | 0.08 | 0.08 | 0.84 |
What are the benefits of CPF?
One of the biggest benefits of CPF is that it helps Singaporeans save for their retirement, ensuring that they have enough funds to live on when they stop working. CPF also provides healthcare and housing benefits, making it easier for Singaporeans to afford these essential expenses. It can also be used as a CPF Education Loan Scheme which enables us to utilize your savings in the Ordinary Account (OA) to cover the subsidized tuition fees of yourself, your children, spouse, siblings, or other relatives. With the CPF Investment Scheme (CPFIS), you have the opportunity to invest the funds in your Ordinary Account (OA) and Special Account (SA) in various investments, which can help boost your retirement savings.
You will also get interest when the money is kept in CPF.
For members below age 55
| Up to 5% on the first $60, 000 of combined CPF balances – capped at $20,000 for OA | ||
| OA | SA | MA |
| 2.5% p.a. | 4% p.a. | 4% p.a. |
For members age 55 and above
| up to 6% on the first $30, 000 and up to 5% on the next $30, 000 of combined CPF balances – capped at $20,000 for OA | |||
| OA | SA | MA | RA |
| 2.5% p.a. | 4% p.a. | 4% p.a. | 4% p.a. |
Besides that CPF savings can be used in these investment schemes with certain criteria to be met first.
You can invest under CPFIS if you:
- are at least 18 years old;
- are not an undischarged bankrupt;
- have more than $20,000 in your OA*; and/or
- have more than $40,000 in your SA**; and
- have completed the CPFIS Self-Awareness Questionnaire (SAQ)
(applicable to new investors with effect from 1 October 2018)
* You can invest your OA savings after setting aside $20,000 in your OA
** You can invest your SA savings after setting aside $40,000 in your SA.
Conclusion
The CPF is an important social security system in Singapore that helps individuals save for their future needs and provides a safety net for unexpected circumstances. Understanding how CPF works and the benefits it offers can help you make informed decisions about your financial future.