Understanding CPF: A Guide for PRs
By Shawn Lee
If you’ve only got a minute:
- As a Permanent Resident (PR) in Singapore, you benefit from the CPF, which is a comprehensive social security system to support you in your retirement, healthcare and housing needs.
- Your CPF accounts earn attractive interest rates of up to 6% per annum.
- For new PRs, your CPF contributions will follow a graduated scale for the first 2 years, allowing you to adjust to the changes in your take-home pay.
Congratulations on achieving Permanent Residency (PR) in Singapore! This is a significant milestone and opens up a wealth of opportunities for you in our beautiful garden city. As a new PR, one of the most valuable benefits you’ll experience is the Central Provident Fund (CPF). Understanding the advantages of CPF will help you make the most of your new status and plan effectively for your future.
The CPF: An Overview
The CPF is a comprehensive social security system that supports Singapore Citizens and Permanent Residents in their retirement, healthcare and housing needs. As a PR, you are eligible to participate in this system, which can play a crucial role in your financial planning.
Your CPF account is automatically created when you receive your first CPF contribution or make your first top-up. You should inform your employer when you become a PR.
If you are below age 55, your monthly contributions go into 3 main accounts: the Ordinary Account (OA), the Special Account (SA), and the MediSave Account (MA). Each of these accounts serves a specific purpose, providing you with a well-rounded financial safety net.
1. Ordinary Account (OA)The Ordinary Account is designed for a range of purposes, including retirement savings, housing, investments and specified insurance such as the Dependant Protection Scheme and Housing Protection Scheme.
Your OA savings can be used to buy a HDB flat, or buy or build private and residential properties in Singapore. OA savings can also be used for downpayment, housing loan taken for the property purchase and stamp and legal fees.
Read more: 5 tips for first-time home buyers
The CPF Investment Scheme (CPFIS) allows you to invest your OA savings in CPF-approved investments after setting aside S$20,000 in your OA. In addition, you can invest up to 35% and 10% of your investible savings in stocks and gold.
Read more: Do more with your CPF
The flexibility of the OA allows you to address immediate financial needs while still planning for your future.
The Special Account is dedicated to your retirement savings and investments in retirement-related financial products. You can invest your SA savings in specified approved products after setting aside S$40,000 in your SA.
The funds in this account are meant to support you in your later years, ensuring that you have sufficient nestegg to maintain your standard of living during retirement.
3. MediSave Account (MA)The MediSave Account is used to cover medical expenses and approved medical insurance premiums. As healthcare costs can be significant, especially as you age, having a dedicated account for medical expenses provides peace of mind.
Interest Rates of CPF Accounts
One of the standout features of CPF is its attractive interest rates, which help your savings grow over time.
If you are age 55 and above, you enjoy up to 6% per annum (pa) on the first S$30,000 of combined CPF balances (up to S$20,000 from Ordinary Account), and up to 5% on the next S$30,000 (up to S$20,000 from Ordinary Account). The balance in the Special Account (SA) and Medisave Account (MA) attracts 4% while Ordinary Account (OA) savings earn 2.5% pa.
For those who are under age 55, the first S$60,000 of combined CPF balances (up to S$20,000 from Ordinary Account) earn an additional 1% interest or up to 5%. The monthly CPF interest on our OA, SA, MA, and RA is credited into our accounts on 1 January each year.
These interest rates are risk-free and compounded, meaning your savings will grow steadily and securely over the years.
CPF Contribution Rates
As a new PR, your CPF contributions will follow a graduated scale for the first 2 years. These graduated rates help ease you into the system, allowing you to adjust to the changes in your take-home pay.
If you are age 55 and below, in the first year of obtaining the PR status, you will contribute 4% of your salary to CPF, while your employer contributes 5%. In the second year, your contribution rate will increase to 9%, with your employer contributing 15%. From the third year onwards, the contribution will be at full rates, 20% for you and 17% for your employer which can significantly boost your savings and enhance your financial stability (see tables below).
CPF Contribution Rate Table from 1 January 2024 for Singapore Permanent Residents aged 55 and below
|
|
Employee’s share of CPF contributions |
Employer’s share of CPF contributions |
|---|---|---|
| Year 1 | 4% | 5% |
| Year 2 | 9% | 15% |
| Year 3 and onwards | 20% | 17% |
However, you and your employer have the option to apply jointly to CPF Board to contribute at higher rates. Your employer and you could contribute to CPF at full rates, at 20% and 17% respectively or your employer could contribute at 17% while you contribute at graduated rates according to the table below:
CPF Contribution Rate Table from 1 January 2024 for Singapore Permanent Residents aged 55 and below
|
|
Employee’s share of CPF contributions |
Employer’s share of CPF contributions |
|---|---|---|
| Year 1 | 5% | 17% |
| Year 2 | 15% | 17% |
| Year 3 and onwards | 20% | 17% |
If you are age above 55, your contribution rates will follow a graduated scale as well, but they will differ depending on your age band. Find out more on CPF’s website.
CPF Lifelong Income: CPF LIFE
An important CPF scheme is CPF LIFE, which helps retirees avoid the risk of outliving their savings and maintains their financial stability. CPF LIFE is a national longevity insurance annuity scheme that provides you with lifelong monthly payouts from age 65.
Under CPF LIFE, there are 3 plans to choose from: Escalating, Standard and Basic. Those who turn 55 in 2024 and set aside the Full Retirement Sum (FRS) of S$205,800, can expect to receive lifelong monthly payouts of S$1,540-S$1,650 from age 65 with the Standard plan.
You can also set aside up to the Enhanced Retirement Sum (ERS) of S$308,700 at age 55, where the CPF LIFE monthly payout will be S$2,280-S$2,450 from age 65. The ERS will be raised to 4 times of the Basic Retirement Sum in 2025 or S$426,000.
Read more: CPF Changes – What you need to know
Retirement Sum at age 55
|
Year that members reach age 55 |
|
|
|
|
|---|---|---|---|---|
| Basic Retirement Sum (BRS) | S$102,900 | S$106,500 | S$110,200 | S$114,100 |
| Full Retirement Sum (FRS) | S$205,800 | S$213,000 | S$220,400 | S$228,200 |
| Enhanced Retirement Sum (ERS) | S$308,700 | S$426,000 | S$440,800 | S$456,400 |
Estimated monthly payouts at age 65*
| Basic Retirement Sum (BRS) | S$900 | S$930 | S$950 | S$980 |
| Full Retirement Sum (FRS) | S$1,670 | S$1,730 | S$1,780 | S$1,840 |
| Enhanced Retirement Sum (ERS) | S$2,450 | S$3,330 | S$3,430 | S$3,540 |
Assumes male member under CPF LIFE Standard Plan, starting payouts at age of 65
Basic Insurance Coverage
As a PR, you are automatically enrolled in MediShield Life and CareShield Life. These schemes which are administered by CPF ensure that you have the financial support for basic hospitalisation coverage and payout for long-term care needs. The premiums for both of these insurance schemes can be paid out from your MediSave account.
MediShield Life provides basic lifelong health insurance coverage, protecting against large hospital and surgical bills, including the very old and those who have pre-existing conditions. MediShield Life payouts are pegged at B2/C-type wards in public hospitals and will cover a portion of your bill.
Read more: Navigating healthcare costs
CareShield Life is a long-term care insurance scheme for those aged 30 and above and provides basic financial support should you develop severe disability or difficulty performing basic daily activities. It offers monthly cash payouts (S$649/month in 2024 and increases by 2% each year but it’s a fixed payout once a claim is made) for as long as the policyholder remains disabled. The payout is handy to provide for caregiving needs and personal and medical care for a prolonged duration.
Read more: CareShield Life in a summary
In Conclusion
Becoming a Permanent Resident in Singapore and gaining access to CPF is a significant advantage that can enhance your financial security and overall well-being. By understanding and utilising the benefits of CPF, you can effectively plan for your retirement and manage healthcare costs.
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
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