Monday, December 24, 2012

CPF interests and CPF top-up

The year is coming to an end soon and your CPF accounts will have their interests credited. For your CPF-OA, you will be earning a 2.5% interest. For your CPF-SA and CPF-MA, you will earn a 4% interest.

In addition to this, an additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA). The additional interest received on the OA will go into the member’s SA or RA to enhance his retirement savings.

"Oh, I will earn an additional 1% on 60k. That is an extra $600 per year!" 
Hold on and read the above carefully again. Do you have 40k in your SA? If yes, that is true. However, for the younger folks out there, it is not likely that you have 40k in your CPF-SA. If you only have 60k in your CPF-OA and 20k in your CPF-SA, you will only earn an additional $400 under the additional 1% interest.
For ages below 35, the CPF contribution rates based on maximum contribution is $1800 (including employer contributions). Of which, only $300 goes to the CPF-SA. Calculating this for an entire year will be $3600 (excluding bonuses). That is less than 10% of the 40k. The calculation is based on the CPF income ceiling of 5k per month. Not many Singaporeans will begin their working careers with  starting pay of 5k. One will probably need to work for at least 10 years before his/her CPF-SA can even hit 40k to fully enjoy the benefits of the additional 1%.

"What can I do to enjoy the benefits of the additional 1% then?"
There are a few ways to do so:
1) Transfer from OA to SA
The first 20k in your CPF-OA will earn a 3.5% interest. Any additional balances earn a 2.5% interest.
If you have more than 20k in your CPF-OA, the first 40k in your CPF-SA will earn a 5% interest. Any additional balances earn a 4% interest.
Based on current interest rates, you will earn an additonal 2.5% if you transfer the monies from your OA to your SA!

However, do not that the transfer once made, is NOT reversible.
Therefore, it is not advisable to do so if you have intentions to use your CPF-OA for housing purposes. The CPF-SA cannot be used to repay your housing loans.

If you still intend to do so, there are some additional information for you:
a) To transfer your savings from OA to SA, you must:
  • be below 55 years old, and (At the age of 55, your OA and SA will combine to form your retirement account(RA), which gives you a 4% already. So there is no need to perform such a transfer )
  • have less than the prevailing Minimum Sum in your SA, which includes savings withdrawn under the CPF Investment Scheme - Special Account (CPFIS-SA) (Personally, I feel that the second criteria is not hard to hit at all. (if you know what I mean...))
b) What is the maximum amount you can transfer from CPF-OA to CPF-SA?
Prevailing Minimum Sum less total savings in your SA, inclusive of the amount withdrawn from your SA under the CPF Investment Scheme (CPFIS-SA) (Basically, after top-up, your CPF-SA cannot exceed the CPF minimum sum. The calculation takes into account of monies withdrawn for invetment purposes under the CPFIS-SA)

2) Top up CASH to your CPF-SA
Another alternative is to top up cash into your CPF-SA. Of course, this process is irreversible as well. If you intend to do so, do note that you earn tax reliefs for this.

For the tax reliefs, you can either top up to your own CPF-SA (or CPF-RA) account or make the top up to your spouse, sibling, parents' and grandparents' Retirement Account or Special Account.

a) For self
The maximum relief is 7k a year.

b) for spouse, sibling, parents and grandparents
The maximum relief is 7k a year as well. However they must NOT have an annual income of more than $4000 in the year preceding the top up.

If you top up to your own and your family's SA/RA accounts, you can earn up to a maximum of 14k of relief per year.

For more details,  you can visit the IRAS website:

Other notes
I will suggest to refrain from any such transfers for younger Singaporeans. You will still need to rely on your CPF-OA for housing loan repayments. For cash top up, you can still invest easily for a 5% or more yield in local blue chips or REITs. Topping up in cash will mean that the money is going to "locked-in" until you hit the retirement age. Unlike the SRS account, you will not have the flexibility to withdraw early with a penalty. The main benefit you will be getting is the higher interest rates on your CPF monies (which is also subjected to change, the interest rates are reviewed quarterly).

1 comment:

Anonymous said...

Good summary. Thanks.