Seth’s Blog on Finance

Topping Up CPF (and my TV Appearance)

Singaporeans should be quite familiar with our Central Provident Fund (CPF) accounts.

The Ordinary Account (OA) is mainly meant for housing and investment. The Special Account (SA) is primarily for old age and retirement-related investments. The Medisave Account (MA) is reserved for payment of medical bills and approved insurance schemes. At age 55, the savings in OA and SA form the Retirement Account (RA), which as the name suggests, is to provide for retirement.

The current interest rates of the three accounts are 2.5% for OA and 4.0% for SA and MA. There is also an extra 1.0% interest for the first $60,000 of the combined balances of the accounts, with up to $20,000 from the OA.

Presently, the working class contributes 20% of their gross salaries to CPF while employers contribute 16%.

CPF as a savings tool

The current interest rates are relatively attractive considering the low interest rate environment and are guaranteed by the government (until end of this year when it would be revised). It can be a tool to be considered for saving towards CPF’s specified goals of housing and retirement.

The general lack of liquidity of CPF funds is a weakness while also being an advantage as it becomes a form of disciplined savings.

Types of top ups available

CPF members may hence opt to top up their CPF accounts, above and beyond their usual compulsory contributions.

There are two main types of CPF topping up schemes. They are Voluntary Contribution and the Minimum Sum Topping Up (MSTU) Scheme.

What is Voluntary Contribution?

A person may choose to voluntarily contribute to all three of his CPF accounts, or just to his Medisave.

The maximum amount of Voluntary Contribution (VC) is the difference between the CPF Annual Limit (currently $30,600) and the amount of mandatory contributions (MC) made within the year:

Maximum amount of VC = $30,600 – MC

The maximum amount of contribution to one’s Medisave is subject to the CPF Annual Limit or the Medisave Contribution Ceiling (currently $41,000), whichever is lower.

What is the Minimum Sum Topping Up Scheme?

The MSTU Scheme is to allow CPF members to top up their own or their family members’ Special Account or Retirement Account (if the recipient is 55 years and older) mainly for retirement purposes.

If the top up is made in cash, the CPF member can also enjoy up to $7,000 of tax relief a year for topping up his own account, and up to an additional $7,000 of tax relief a year for topping up eligible family members.

The maximum amount of top up that can be done is as follows:

Maximum amount of top up = Prevailing Minimum Sum (currently $139,000) – Total balances of OA and SA – CPF withdrawn for investments

My first time on television!

A few weeks ago, I was on the Mandarin finance talkshow Money Week on Channel U talking about the subject matter.

It was quite a fun experience for me and rather unforgettable as it was my first time on television. You can watch the video here (click on the captions button for English subtitles).