Central Provident Fund (CPF) is a scheme which is compulsory for Singapore Citizens (SC) and Singapore Permanent Residents (PR) who are employed, to build up their retirement nest. Under this savings scheme, employers and employees will have to contribute a percentage of the employee’s wage to their CPF accounts. The amount saved in CPF can be used to purchase a house, retirement, healthcare services, and in CPF investment. Currently, upon reaching 55 years old, you will be able to start withdrawing your CPF savings.
Source: https://www.cpf.gov.sg/Members/
What are the differences between OA, SA, and MA?
Amounts contributed to the CPF are split into three accounts – Ordinary Account (OA), Special Account (SA), and MediSave Account (MA).
Ordinary Account
As the name implies, the Ordinary Account is the most basic savings account out of the three. It is used to fund housing purchases, tuition fees, and it can also be used for CPF investment scheme (CPFIS). Home purchase costs include the down payment, housing loans, and stamp duty. By utilizing OA for property purchase, it helps to lower the cash amount that needs to be forked out and increases the chances of having a fully paid for home when you retire.
In addition, OA can also be used to pay for your, your child’s, your spouse’s, your sibling’s, or relative’s education fees, though the latter two are subjected to a case-by-case basis. A criteria to utilise the OA for the CPF Education Loan Scheme is that the student must be under a full-time subsidised diploma or degree courses. After graduation from the course, the student will have to make repayments to your CPF account one year with the principal amount and the interest that would have been accrued over the years.
Special Account
The Special Account is primarily built for retirement. It is also possible to use SA to invest in CPFIS. In order to do so using your SA, you must be above 18 years old, not be undischarged bankrupt, and have more than $40,000 in your SA. As of writing, you can invest in a list of products that are considered to be of a lower risk than cryptocurrency such as Exchange Traded Funds (ETFs), Singapore Government Bonds (SGBs), and gold ETFs.
However, before investing in CPFIS-OA or CPFIS-SA, it is important to understand your risk appetite and always do your own research to understand the potential risks of the investment.
MediSave Account
MediSave Account can only be used for approved hospitalization expenses and medical insurances. This account is especially important as one ages and requires more medical care. MA can be used on yourself, dependents, and siblings, on acute care, outpatient treatment, rehabilitative care, radiotherapy, and end-of-life care. The list of the types of treatments and withdrawal limits can be found here.
The interest rate for MA is at 4% currently. This risk-free interest rate might sound alluring, causing you to want to deposit more money into your MA. Though it is possible to deposit a large sum into your MA, there is a limit on how much you can have in your MA – known as the Basic Healthcare Sum (BHS). The BHS is reviewed annually, and it stands at $63,000 in 2021, an increase of $3,000 from 2020. This BHS amount is fixed at its current amount in that year for those who turn 65. Additional amounts deposited above the BHS will be directed to SA.
CPF contribution rates for new PR and SCs
As a new PR in Singapore, the government adjusted the PR CPF contribution rates to help the PR employees to adjust a lower take-home pay.
Full employer and employee refers to the employer and employee paying the Singapore Citizen equivalent CPF rate. Graduated employer and employee refers to paying a partial rate. In most cases, companies will typically use the G/G rates. If you prefer the other options, your company will have to seek approval from CPF.
The 1st year rates are applicable on the day which the employee receives the PR status. The 2nd and 3rd year rates will start on the first day of the month following the anniversary. For example, if you become a PR on 13 August 2021, the 2nd and 3rd year rates will be applicable from 1 September 2022 and 1 September 2023 respectively.
If this is too confusing for you, you can use the CPF contribution calculator to calculate the employer’s and employee’s contribution amount (for 1st and 2nd year PR).
Interest rates of OA, SA, and MA
The interest rates of OA, SA, and MA are 2.5%, 4%, and 4% respectively, and it is reviewed quarterly. In addition to the base rates, there is an extra interest of 1% on the first $60,000 of the combined amount in the three accounts (up to $20,000 must be from OA). If you are 55 years old or older, the first $30,000 of the $60,000 will have an additional return of 2% instead.
Retirement Account at the age of 55 years old
Upon reaching 55 years old, the amount in the OA and SA will be transferred to a new account –Retirement Account (RA). This will be automatically processed on your 55th birthday. The interest rate for RA is currently at 4% and will be revised annually.
As of 2021, the Basic Retirement Sum (BRS) is $93,000. This amount will be revised annually and you will be able to withdraw the first $5,000 of your OA and SA even if you did not meet the BRS.
The registration process to be a Permanent Resident or a Singapore Citizen might be confusing at times, but it does not have to be so! With the help of Fergus Consultancy Group, you will be able to have a smooth application journey as we have years of experience in this field. We are also trusted by over hundreds of clients to make the PR/SC application process hassle free. Get in touch with us via our form or WhatsApp today.