Initially, both employees and employers contributed 5% of an employee’s pay to the scheme. The CPF was designed to be self-financing, with a member’s benefits consisting only of their contributions over their working life and the accrued interest earnings.
The primary objective of the CPF was to ensure that workers could support themselves in retirement, as many employees, except those in the civil service or larger companies, lacked retirement benefits from their employers. This mandatory savings system was implemented to address the problem of insufficient personal savings for retirement among workers.
The Central Provident Fund (CPF) is a cornerstone of Singapore’s social security system, designed to provide financial security for citizens and permanent residents in their retirement years. This comprehensive scheme offers various options and benefits that cater to different life stages and financial needs.
What began as a tool to provide a safety net for retirement had over the years developed into the country’s biggest asset financial resource for the people covering insurance, investment, education and home ownership.
The Central Provident Fund (CPF) in Singapore consists of three main accounts: Ordinary Account (OA), Special Account (SA), and MediSave Account (MA). Each account serves specific purposes and has different usage options and perimeters.
1. Ordinary Account (OA)
The OA is the most versatile of the CPF accounts, with funds primarily used for housing, insurance, and investments.
Usage options:
- Housing:Purchase of public or private property
- Insurance:Payment of premiums for basic insurance schemes
- Education:Funding for tertiary education (personal or children’s)
- Investments:Participation in the CPF Investment Scheme (CPFIS)
Limitations:
- A minimum balance of S$20,000 must be maintained in the OA when taking a housing loan.
- Only funds exceeding S$20,000 can be used for investments.
- Up to 35% of investible savings can be used for stocks and property funds
- Up to 10% of investible savings can be used for gold-related products
Benefits:
- Earns a base interest rate of 2.5% per annum
- Provides flexibility for major life expenses like housing and education
2. Special Account (SA)
The SA is dedicated to retirement savings and investments in retirement-related financial products. At age 55, a Retirement Account (RA) is created and the SA is closed.
Usage options:
- Retirement savings
- Investments in retirement-related products through CPFIS
Limitations:
- Cannot be used for riskier investments like shares or gold-related products
- Only funds exceeding S$40,000 can be used for investments
Benefits:
- Earns a higher interest rate of 4.08% per annum (as of Q3 2024)
- Provides a dedicated source of retirement savings
3. MediSave Account (MA)
The MA is specifically for healthcare expenses and approved medical insurance.
Usage options:
- Hospitalization expenses
- Payment for approved medical insurance premiums (e.g., MediShield Life)
- Payment for Integrated Shield Plans (IPs) premiums
Limitations:
Usage is restricted to approved medical expenses and insurance
Additional Withdrawal Limits for IP premiums based on age:
- Age 40 and below: S$300
- Age 41 to 70: S$600
- Age 71 and above: S$9004
Benefits:
- Earns an interest rate of 4.08% per annum (as of Q3 2024)
- Provides a dedicated source of funds for healthcare needs
Investment and Protection Options
1. CPF Investment Scheme (CPFIS):
Allows investment of OA and SA funds in various financial products
The CPF Ordinary Account (OA) funds can be invested in a wider range of products through the CPF Investment Scheme – Ordinary Account (CPFIS-OA). Here are the key guidelines for investing OA funds:
Eligibility and Minimum Balance:
- You must maintain a minimum balance of S$20,000 in your OA before investing.
- You need to complete the Self-Awareness Questionnaire (SAQ) [1]on the CPF website using your Singpass.
- Investment Limits:
- Up to 35% of your investible savings can be used for shares, property funds, and corporate bonds.
- Up to 10% of your investible savings can be invested in gold ETFs and other gold products [2].
Approved Investment Products:
- Shares listed on the Singapore Exchange (SGX)
- Property funds and Real Estate Investment Trusts (REITs)
- Corporate bonds
- Unit trusts
- Gold ETFs (specifically SPDR Gold Shares)
- Other gold products such as gold certificates, gold savings accounts, and physical gold
Investment Account:
You must open a CPF Investment Account (CPFIA) with an approved agent bank.
For gold products other than ETFs, the Investment Account must be opened with UOB.
Fees and Charges:
Various fees apply, including broker’s commission, SGX fees, and agent bank charges
For unit trusts, while sales charges have been removed since October 1, 2020, you’ll still incur a Total Expense Ratio (TER)
Diversification:
Funds must be reasonably diversified in terms of investment type, market, industry, and issuer.
Sale Proceeds:
When you sell investments, proceeds are initially refunded to your Investment Account
You can instruct your agent bank to transfer the proceeds to your CPF OA, or they will be automatically transferred after two months of inactivity.
2. Insurance:
OA funds can be used for basic insurance premiums like the Dependants’ Protection Scheme
MA funds can be used for health insurance premiums like MediShield Life and Integrated Shield Plans
3. Education:
The CPF Education Loan Scheme allows members to use their Ordinary Account (OA) savings to pay for tuition fees for themselves or their children at approved educational institutions.
Eligibility:
Full-time undergraduate students who are Singapore Citizens or Permanent Residents can use this scheme.
- Members can use their own, their spouse’s, or their parents’ CPF savings.
- Use of siblings’ or relatives’ CPF savings is considered on a case-by-case basis.
Coverage:
- Up to 100% of MOE-subsidized tuition fees for undergraduate programs.
- Does not cover compulsory miscellaneous fees, hostel fees, or non-subsidized tuition fees.
Application:
- Apply online via the CPF Board Portal [3].
- Only one application is required for the entire course of study.
Limitations
Withdrawal Limit:
Members can use up to 40% of their accumulated OA savings, excluding amounts withdrawn for housing.
A minimum balance of S$20,000 must be maintained in the OA.
Course Restrictions:
Only applicable for MOE-subsidized tuition fees.
Some specific programs may have limitations (e.g., Biomedical Sciences & Chinese Medicine program at NTU is only covered for the first three years).
Administrative Fee:
An administrative fee of S$10.90 (inclusive of GST) is charged for each deduction from the payer’s OA.
Repayment:
The student must repay the withdrawn amount plus interest in cash.
Repayment starts one year after graduation or leaving the course, whichever is earlier.
Can be repaid in one lump sum or monthly instalments over a maximum of 12 years.
Minimum monthly repayment is S$100 for outstanding amounts up to S$10,000.
4. Interest:
Interest is computed from the date of withdrawal at the prevailing CPF interest rate.
The Basic Retirement Sum (BRS), Full Retirement Sum (FRS), and Enhanced Retirement Sum (ERS) serve as important benchmarks for retirement planning, with the BRS set at S$106,500 for those turning 55 in 2025.
The CPF LIFE scheme ensures lifelong monthly payouts, with the amount varying based on the retirement sum set aside. Additionally, the Matched Retirement Savings Scheme (MRSS) has been enhanced to provide greater support for seniors with lower retirement savings, offering a dollar-for-dollar matching grant of up to S$2,000 per year from 2025.
The article above should not be taken as financial advice. Investments and their corresponding products have risks. Please seek advice from a financial adviser representative before making any investment decisions. In the event that you choose not to seek advice from a financial adviser representative, you should consider whether the investment or product in question is suitable for you.
References:
[2] https://www.cpf.gov.sg/service/article/how-much-cpf-savings-can-i-invest
[3] https://www.cpf.gov.sg/member/tools-and-services/forms-e-applications/apply-for-cpf-education-loan