Understand CPF Before Applying Permanent Resident

These days I read an article about Singapore Central Provident Fund (CPF). The author, Roy Ngerng, deeply thinks he knows the truth about Singapore CPF and he find out something insidious about the CPF. On May 19, Singapore Prime Minister Lee Hsien Loong has demanded an apology from blogger Roy Ngerng for this post. As a foreign who actively wants to join Singapore society, it is quite necessary to have some knowledge about Singapore CPF.

What is CPF?

CPF is Central Provident Fund in Singapore. It is an old-age savings scheme for employees. It is designed to meet the three key needs of retirement expenditure, healthcare and home ownership. CPF is made up with three accounts:

  • Ordinary Account – For housing, insurance, investment and education.
  • Special Account – For investment in retirement-related financial products.
  • Medisave Account – For hospitalisation and approved medical insurance.

How much do I need to pay for CPF?

Just image if I was Singapore citizen, I will contribute 20% of my salary to CPF and my employer will contribute another 16% of my salary to CPF. To credit 36% of my salary to 3 account, 23% will be credited to ordinary account, 6% will be credited to special account and 7% will be credited to medisave account. Please keep in mind, this credit ratio is change basing on age. In this example, I am imaging I was a Singapore citizen and I was age 35 and below.

Can I get benifit to put my money in CPF account?

As a normal person without any investment experience, put money in CPF is the best choice. Money in CPF account will get better interest than commercial bank. In 2014 April, the ordinary account will get 2.5% interest per year. The special & medisave accounts will get 4.00% interest per year, while the commercial banks only give 0.1% you have 1 million in your saving account (for normal person, the interests rate is 0.05% – 0.075%).

When can I retire?

In Singapore, the statutory retirement age is still 62. But employers are required to offer re-employment to eligible employees who turn 62, up to the age of 65.

What can I got after I retired at age 62?

As I know, if I don’t have any other income for job or commercial insurance, I will get nothing from Singapore government if I choose to retire in my age 62. In Singapore, there is a national annuity scheme called “CPF LIFE”. It will pay people who join this scheme from the CPF drawdown age for as long as they live. The funny thing is the drawdown age is changed every year. Currently the drawdown age is 63. But it is set to increase to 64 in 2015 and 65 in 2018. If you are eligible to join the CPF LIFE scheme, you can only get monthly payout if you are 63 or older in this year.

How can I join CPF LIFE scheme?

Not everyone can join this national annuity scheme. First, you must be Singapore citizen or Permanent Resident. At age 55, Singapore government will create a Retirement Account by using the savings in your Ordinary Account and Special Account. Only when your savings in retirement account is at least S$40,000, you will be automatically placed on CPF LIFE.

How much can I get if I am placed in CPF LIFE scheme?

After using the calculator provided by CPF Board, if I have S$40,000 in my retirement account and I am at age 63. I will get a monthly payout at S$219 to S$232, S$225.5 on average. That means Singapore government will pay me for 14.7 years, not including interest earned. Ideally, I will be fed by Singapore government at my age 68. Noted, the payouts are not fixed. It will be reviewed and adjust annually by government.

It is not over. There are several concepts we have to understand including CPF Minimum Sum, Medisave Minimum Sum. I will talk about them in later post.

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