CPF 101

(Version 2019. Updated as of: 9 Nov 2019)

– Introduction (2 Nov), Retirement Scheme (2 Nov), Investment Scheme (9 Nov)

Please drop a comment if you spot any errors or leave a feedback.

INTRODUCTION

The Central Provident Fund (CPF) is a comprehensive social security savings plan. It inculcates forced savings in working Singaporeans with the main aim of setting aside funds for their retirement years. A secure retirement not only encompasses lifelong income, but also include the means for home financing, healthcare financing and enhancement of retirement nest through investment.

An employee receives CPF contribution from both self and employer, whose percentage varies according to his age. At age 30, he contributes 20% of his monthly salary to his own CPF account. His employer contributes an addition 17%. Together, 37% is credited to his CPF account, which is then allocated to his Ordinary Account (OA), Special Account (SA) and MediSave Account (MA).

Interest rates

Interest Rate for OA is reviewed quarterly, the higher of either legislated minimum interest of 2.5%, or 3-month average of major local banks’ interest rates. From 1 Oct 19 to 31 Dec 19, it remains at 2.5% as computed rate of 0.64% is lower than the legislated minimum interest rate.

Interest Rate for SA and MA is reviewed quarterly, the higher of either current floor interest rate of 4%, or 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%. Till 31 Dec 20, the Government has decided to further extend the 4% floor interest rate earned on all SMA monies in view of continuing low interest rate environment. From 1 Oct 19 to 31 Dec 19, both remains at 4% as computed rate of 3.24% is lower than the current floor interest.

Interest Rate for RA is reviewed annually, the higher of either current floor interest rate of 4%, or 12-month average yield of the 10YSGS plus 1%. Till 31 Dec 20, the Government has decided to further extend the 4% floor interest rate on all RA monies in view of continuing low interest rate environment. From 1 Jan 19 to 31 Dec 19, it remains at at 4% as computed rate of 3.38% is lower than the current floor interest.

Extra 1% Interest is currently paid on the first combined $60,000 balances (with up to $20,000 from OA). The order of extra interest earned is RA (including CPF LIFE premiums), OA, SA then MA. Extra interest earned on the OA will go into the SA or RA to enhance retirement savings.

Additional Extra 1% Interest is currently paid on top of the Extra Interest on the first combined $30,000 balances for Singaporeans aged 55 and above, thus potentially earning up to 6% interest per annum on their retirement balances. Additional extra interest earned on the OA will go into the RA to enhance retirement savings.

RETIREMENT SCHEME

Retirement Sum

When an individual turns 55, his Retirement Account (RA) is created first with monies from his Special Account (SA), then Ordinary Account (OA) up to his Full Retirement Sum (FRS). Any excess once the Retirement Sum is set aside is left in the Ordinary Account (OA) and free to be withdrawn any time. Otherwise, the excess in OA could continue to enjoy the attractive interest rate. This RA will provide monthly payouts when he turns 65.

There are three levels of Retirement Sum:

The FRS is two times the BRS, and the ERS is three times the BRS. These are subject to annual revisions to cater for long-term inflation and increase in standard of living.

Basic Retirement Sum (BRS) – If an individual wishes to withdraw most of his CPF monies, he may choose BRS as his option. This is relevant only if he has a property to pledge a CPF property charge against. He need only keep the BRS amount in his RA, and the excess can be withdrawn in cash. When he sells his pledged property, proceeds from the sale will first be used to top-up his RA to the FRS amount + accrued interest.

Full Retirement Sum (FRS) – If an individual does not have a property, or choose not to do a property pledge, he will need to keep his FRS in his RA, and the excess can be withdrawn in cash.

Enhanced Retirement Sum (ERS) – If an individual wishes to keep more money in his RA for a higher payout at age 65, he is free to top-up his RA with cash or transfer from OA/SA to RA up till ERS.

CPF LIFE

The CPF Lifelong Income For The Elderly (CPF LIFE) is an annuity scheme that provides an individual with monthly payouts for as long as he lives. His Retirement Sum (RS) will be used to buy CPF LIFE. He can choose to receive his monthly payout anytime from his Payout Eligibility Age, which is age 65 if he is born in 1954 and after, up to age 70.

Enrolment is automatic if an individual is a Singapore Citizen or Permanent Resident, and have at least $60,000 in his RA six months before reaching his Payout Eligibility Age. If he does not have the minimum required RA balance, he will stay on the CPF Retirement Sum Scheme. CPF Retirement Sum Scheme is an older scheme for individuals born before 1 January 1958, which an individual gets monthly payouts drawn from his RA till his balance is exhausted. This is estimated to last for about 20 years.

CPF LIFE’s lifelong payouts is more attractive than the CPF Retirement Sum scheme for the simple reason that one does not know his lifespan. The trade-off is the deduction of a lump sum premium from RA right from the start when an individual joins the scheme. An individual need only choose his preferred CPF LIFE plan at the point when he wishes to start receiving monthly payouts, which is anytime from his Payout Eligibility Age to age 70. If he does not choose a plan before age 70, he will be automatically placed on the Standard Plan.

There are three different CPF Life plans:

Note: For all CPF LIFE plans, the monthly payouts are estimates and may be adjusted to account for long-term changes in interest rates or life expectancy. Such adjustments (if any) are expected to be small and gradual.

An individual could choose to defer receiving monthly payouts up to age 70 and for each year deferred, the monthly payouts increases by up to 7%. No back payment will be made for the deferred payout period. The monthly payouts for each plan is a range estimate. How much an individual will actually get depends on:

  1. Which plan and how much is spent on the plan
  2. Gender, payout age, CPF interest rates, mortality rates

CPF LIFE, like any other annuity, will continue payouts for as long as the individual lives. It is important to note that the amount an individual (or his estate) get back from CPF LIFE, will never be lower than the initial principal (excluding earned interest) put in at age 55 when a preferred plan is chosen.

Upon death, monthly payouts stops and all unused annuity premium will be refunded, if any, back into his RA. The refund along with other remaining CPF savings will then be paid to his beneficiaries. Under CPF LIFE plans,. The interest earned on annuity premium is pooled together in the Lifelong Income Fund with the interest of all CPF LIFE participants. As such, any interest earned on annuity premium will not form part of the bequest.

INVESTMENT SCHEME

CPF Investment Scheme (CPFIS)

CPFIS is an investment scheme allowing an individual to use his Ordinary Account (OA) and Special Account (SA) savings in a wide range of investment instruments for the sole purpose of enhancing his CPF retirement fund. It includes insurance products, unit trusts, fixed deposits, bonds and shares.

It is not a must nor a recommendation to invest your CPF savings. All investments come with risk and you may lose all or a portion of the amount invested. Money left untouched in your CPF OA or SA accounts still earns a risk-free interest of 2.5% and 4% respectively.

Individuals who fulfil the following criteria are allowed to invest under CPFIS.

The CPFIS SAQ helps assess if CPFIS is suitable for an individual via learning modules on investment concepts, products and CPFIS charges.

You can check your investible amount for both CPFIS-OA and CPFIS-SA by logging into your CPF account. Your investible savings is as such:

Investible savings = OA Balance + Amount withdrawn for Investment & Education

Investing with CPFIS-OA

To invest your CPFIS-OA, you are required to open a CPF Investment Account with one of the following CPFIS agent banks with your CPF statement, identification documents and CPFIS SAQ results:

  • DBS Bank Ltd (DBS)
  • Overseas-Chinese Banking Corporation Ltd (OCBC)
  • United Overseas Bank Ltd (UOB)

You can invest your CPFIS-OA, after setting aside $20,000 in your OA, which includes the options of investing 100% of your investible savings in unit trusts, up to 35% in stocks, and up to 10% in gold.

Investing with CPFIS-SA

To invest your CPFIS-SA, you are not required to open any CPF Investment Account. You can approach the product providers directly to buy or sell your investments.

You can invest your CPFIS-SA, after setting aside $40,000 in your SA, which has no investible limits.

Administrative fees & charges

Changes in Administrative charges

In March 2018, the Ministry of Manpower announced the removal of sales charge (for new CPFIS purchases) and a reduction in wrap fees (for existing and new accounts) cap for CPFIS in two phases – Phase 1 from 01 October 2018 and Phase 2 from 01 October 2019. The second phase is deferred by one year to 1 October 2020, in response to industry feedback for more time by financial advisors to adjust to the revised CPFIS fees structure.

These fees were brought down to improve investment returns and counter undesirable practice of churning, to discourage financial advisers from selling unsuitable products at the expenses of investors.

Removal of sales charge under CPFIS

Financial advisors today can charge a sales charge of up to 1.5% for Investment-Linked Insurance Policies (ILPs) and unit trusts (UTs) offered under CPFIS. Currently, unit trusts are readily available to buy directly from online platforms for zero sales charge. The removal of the sales charge reduces cost of investing for CPFIS members and better align investment behaviour to members who have the time and knowledge to invest.

Lower cap on wrap fees under CPFIS

Financial advisors today can charge a wrap fee of up to 0.7% of assets under management (AUM) per annum for CPFIS members with wrap accounts. The cap will be lowered to 0.4% of AUM per annum, similar to the fees charged by online investment platforms in the cash market.

Investment products included under CPFIS

Before we go on, you may refer to this list for Fixed Deposit Banks, Bond Dealers, Insurance Companies, Investment Administrators and Fund Management Companies.

The list of UTs are:

The list of ILP Sub-funds are:

The list of Bonds and Treasury Bills

The list of ETFs

The list of Shares and Property funds

The list of Corporate Bonds. Currently, non are available.

The list of Gold ETFs

The list of Gold products

The list of Fixed Deposits. Currently, non are available.

The list of Statutory Board Bonds and Bonds guaranteed by the Singapore Government. Currently, non are available.

Which Service/Product Providers to approach for which investment instruments?

Cash top-up for insufficient CPF Investment Account OR CPF Balance

Cash top-ups are generally disallowed, except in cases of exceptions. These include taking up entitlements or conversion of entitlements. You may then top-up your CPF Investment Account through your agent bank if you have insufficient CPF savings or stock limit to subscribe for the entitlements or conversion. The cash top-ups are unidirectional – not withdrawable or refundable even if your applications are unsuccessful.

For insufficient balances or fall below for CPF Balance, you can still use your CPF balance to pay for quarterly agent banks charges. The restriction on the use of the first $20,000 in your CPF OA for the CPFIS – only applies to new investments, including payments for recurring single premiums (for insurance) and regular savings plans (for unit trusts).

Withdrawal of Investment Holdings (Reaching age 55)

From age 55, you can apply to CPF Board to withdraw your CPFIS-OA and CPFIS-SA investments as well as the cash balance in your Investment Account, as long as you have set aside your Full Retirement Sum (FRS) in the Retirement Account (RA).

CPF Board will inform the agent bank to close your CPF Investment Account once your investments are withdrawn. Your investments will be transferred to your own name in your Central Depository Account (CDP). A transfer fee of $10.70 (inclusive of GST) for every share counter transferred from your CPF Investment Account to your CDP Account. You may then either choose to keep or liquidate and have the sale proceeds paid to you directly.

Once withdrawn, your CPFIS investments and cash balance in your Investment Account will no longer be protected from any claims by your creditors and/or the Official Assignee.

However, if you are unable to set aside your FRS in the RA, your investments will liquidated instead and the sale proceeds will be credited to your CPFIS-OA or CPFIS-SA respectively.

Withdrawal of Investment Holdings (Leaving Singapore and West Malaysia)

If you intend to leave Singapore and West Malaysia permanently, you can apply to CPF Board to withdraw your CPFIS-OA and CPFIS-SA investments as well as the cash balance in your Investment Account

CPF Board will inform the agent bank to close your CPF Investment Account once your investments are withdrawn. Your investments will be transferred to your own name in your Central Depository Account (CDP). A transfer fee of $10.70 (inclusive of GST) for every share counter transferred from your CPF Investment Account to your CDP Account. You may then either choose to keep or liquidate and have the sale proceeds paid to you directly.

Once withdrawn, your CPFIS investments and cash balance in your Investment Account will no longer be protected from any claims by your creditors and/or the Official Assignee.

Overseas participation

There is no geographical restrictions as to your physical location when you participate in CPFIS transactions. However, there are investments which require your physical presence. You would have to assign an authorised person to act on your behalf by way of a Power of Attorney if you are unable to handle the transactions yourself.

22 thoughts on “CPF 101

  1. Quick question –

    If I set aside ERS sum at 55, when I reach 65 can I decide to apply for a CPF Life plan with payout based on FRS?

    If yes, what happens to the surplus amount? Does it remain in my RA where I can withdraw as and when I wish (like my CPF OA/SA monies after reaching 55)?

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    1. Your RA is meant to form your retirement sum which will provide you with monthly payouts. In other words, this “retirement sum” is meant to pay the annuity premium to kickstart the monthly payouts for your CPF LIFE plans.

      At age 55, only FRS amount is attempted to be set up by default. To reach ERS, you must either transfer from OA/SA to RA or top up. Both moves are irreversible and irrevocable. You cannot change your mind e.g. FRS instead of ERS at a later stage.

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  2. I have 2 further questions –

    (1) If I have ERS sum in my RA at 64 and decide on the ERS CPF Life Basic Plan at 65 (meaning only 10-20% of my RA used to buy CPF Life), how much of the remaining amount of my RA I can withdraw out (either one lump sum or partially as determine by me)?

    (2) If I have ERS sum in my RA at 64 and decide on the BRS CPF Life Standard Plan at 65, how much of the remaining amount of my RA I can withdraw out (either one lump sum or partially as determine by me)?

    My intention is to have a steady source of income post 65 (which may include drawing down my CPF OA/SA/RA gradually) but also the flexibility to withdraw the max posisble CPF out in the event of an emergency.

    Thanks!

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    1. Hi SWLG, as mentioned earlier, transfers from OA/SA to RA or cash top-ups to RA are both moves that are irreversible and irrevocable. You cannot draw out “excess” above FRS any time you like.

      Whether it is Basic or Standard plan:
      Basic plan – 10-20% of RA is deducted as CPF LIFE annuity premium, but your monthly payouts come from your remaining 90-80% first. Once it deccumulates to zero, your monthly payout comes from the Lifelong Income Fund (participation via the 10-20% annuity premiums paid in your earlier days). Members choose this so that they have a larger bequest (balance of RA that is not paid out yet in monthly payouts.

      Standard plan – ALL of your RA is deducted as CPF LIFE annuity premium, and monthly payout comes from the Lifelong Income Fund.

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  3. Hi Lyndon

    My wife will be turning 55 next year and plans to go for BRS ($93,000) with CPF property pledge. We both co-own a HDB valued over $200K which has been fully paid for and for which she had refunded her CPF used (around $50K inclusive of accrued interest).

    (1) She intends to do a CPF OA and SA shielding so that only max CPF $60K goes to her RA. Thereafter, she will top up the balance $33K in cash before returning her excess CPF funds back to her OA and SA accounts. Does this strategy work?

    (2) If we do sell the HDB later, what will happen to the proceeds? Will $93,000 go to her RA? What if we intend to purchase another HDB after that? Can she use this $93,000 to pay for the new flat and pledge the new HDB so that she continues to keep only the BRS cash amount in RA? Or alternatively, can the $93,000 be transferred to her OA (for instance, if we bought the new flat together without using her CPF)?

    Many thanks! Really appreciate your time in answering my many questions!

    Like

    1. (1) BRS for 2021 is expected to be $93,000 while FRS $186,000. By pledging property, it means that you just need to set aside BRS amount in your RA while being able to withdraw any excess amount above which from OA/SA.
      $60K + $33K makes up BRS amount of $93K: there isn’t any excess funds in this case?

      (2) When you do sell your property, the pledged amount will be returned to your CPF account, along with the CPF monies (and accrued interest) you used to pay for the property over the years. Yes, you can pledge your new flat. The pledged amount is never in RA, but in OA. The BRS amount is the only amount that is set aside in RA from the time of pledge.

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      1. Thanks, Lyndon.

        Re (1), the excess funds I am referring to is her OA and SA monies (above the $20K in OA and $40K in SA that cannot be taken out for investments) which she did CPF OA and SA shielding (for instance, by investing in a safe instrument like the Nikko AM Shenton Short Term Bond SGD).

        Or alternatively, if she did maximum CPF OA and SA shielding, the minimum amount that will go to her RA is $60K ($20K from OA and $40K from RA that cannot be invested). If she subsequently returned her excess OA and SA funds from shielding back to her CPF OA and SA accounts, will CPF automatically transfer the BRS shortfall ($33K for 2021) from her SA to her RA? This is assuming she selected BRS and pledged a property, and she did not top-up the shortfall of $33K in cash. Or will her RA amount remain at $60K and hence lower monthly payout under CPF Life when she turns 65?

        Re (2), I thought under BRS, the proceeds from the sale of property (pledged amount) will be refunded back to RA to top up to the FRS amount? So, if she had topped up her BRS with $33K cash, she can only withdraw $60K (i.e., FRS $186K – BRS $93K – $33K cash top up) from her RA when buying/pledging another property, or if she did not do cash top-up (meaning her RA only had $60K) then she would need to refund $126K back to RA (to top up to FRS) upon sale of property and thereafter only be able to withdraw $93K (i.e. FRS $186K – BRS $93K) when buying/pledging another property?

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      2. (1) Ahh yes! Clearer in this case, sorry for misunderstanding. When you de-shield, whatever investment amount that is returned to OA and SA respectively. There will not be any more automated transfers from OA/SA to RA. Only 1 transfer take place at age 55. No shortfall top up to RA automatically even if you sell your investment.

        The purpose of the pledging is to set aside BRS amount in RA. If BRS amount is not even being able to be set, I do not think that you will be allowed to pledge your property in the first place. Hence, $60K in RA will not allow you to pledge property. Also to draw from OA/SA at any time, you need to meet FRS or BRS (with property pledge).

        (2) Yes you are corrected, pledged amount is refunded back to RA (including accrued interest). The negative sides of responding at 1am in the morning. Apologies for the err. Do note: the cash topped up into your CPF under the RSTU scheme cannot be computed as part of your criteria to meet the BRS.

        Top-up monies will form part of your retirement sum. However, top-up monies in the RA will not be taken into account in computing how much RA savings can be withdrawn in cash (for property owners).

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      3. Haha, no worries.

        Just to clarify re your line “Also to draw from OA/SA at any time, you need to meet FRS or BRS (with property pledge).”

        Does this mean putting back the $33K shortfall (assuming with property pledge)? Or would the BRS be peg to the year of first withdrawal from OA/SA? In other words, if wife withdraws in 10 years’ time, the BRS in 2031?

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      4. Your retirement sum is fixed at the year you turn 55. So if your wife turns 55 next year, the BRS FRS ERS etc is fixed at 2021 prevailing amount for her in her lifetime.

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      5. Yes, accrued interest on the amount you use to buy or pledge property have to be returned to your cpf account when you sell. For RA, we have to set aside FRS for retirement by right.

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  4. Sorry, I was referring to your line “Also to draw from OA/SA at any time, you need to meet FRS or BRS (with property pledge).”

    For instance, if her first withdrawal is in 2031, would she just need to put back her BRS shortfall (i.e., $33K for BRS in 2021, assuming property pledged) or would she also need to put back accrued interest on the $33K shortfall (i.e. 4% annual interest accrued for 10 years from 2021 to 2031)?

    Like

    1. “Also to draw from OA/SA at any time, you need to meet FRS or BRS (with property pledge).”

      What I actually meant is the ability to draw from the excess monies or shielded OA/SA monies at any time once you meet FRS in your RA or BRS in your RA with a property pledge. The withdrawal of money in this case does not need to be paid back.

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      1. Thanks Lyndon and sorry for the many queries/clarifications. Really trying hard to understand the CPF rules!

        To confirm, if my wife only had minimum $60K in RA because of OA/SA shielding at age 55:

        (1) No automatic transfer to RA of returned investments to OA/SA after 55, to meet BRS/FRS (as mentioned by you earlier).

        (2) No automatic transfer to RA if she receives subsequent CPF contributions (either through work/voluntary contribution).

        (3) She can withdrawal the full amounts in her OA/SA at any time after 55 (which you seem to suggest above?)

        (4) No need to top up RA to FRS/BRS after sale of property, since property pledge does not apply since she did not meet BRS in the first place (which you seem to suggest earlier?).

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      2. No worries! Honestly, it is not the easiest system to understand, neither is it the hardest after much experience with it!

        (1) Correct
        (2) Correct
        (3) She can withdraw any amount (up to full amount) only if her RA has FRS ($186,000) amount inside OR has BRS ($93,000) amount inside after property pledge.
        (4) There is no property pledge in the first place, so there is no return of CPF RA monies + accrued interest

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  5. Many thanks for your patient replies!

    My conclusion here is that if you want maximum “liquidity”, then aim to do CPF OA/SA shielding so that your RA will only have the minimum $60K at 55. It is not real “liquidity” though because you still need to top back your RA by $126K/$93K to FRS/BRS before you can actually withdraw the remainder of your CPF funds. However, in the meantime (which can be quite long if you only start withdrawing from CPF at a much later date), your $126K/$93K is earning INTEREST in your CPF non-RA accounts which forms part of your liquid funds which you can withdraw at will from your CPF!

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    1. Yes, that is absolutely correct! Glad to have helped along the way, leading to the conclusion. Happy Retirement in advance!

      Like

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