CPF or the Central Provident fund is a saving plan which is statutory for the Permanent Residents and Singaporeans to assist in funding their needs post-retirement. This is a saving plan which is employment based with the employees and the employers are making a contribution of a mandated amount to the Fund. This tends to be an absolute necessity for the social security system in Singapore and helps in different requirements like healthcare and housing besides the needs of retirement.
This catering to the requirements post retirement is possible only if the employees are forced to put away a specific percentage of their salary in this account.
Contribution Rates of the CPF:
Every month the employer withholds a certain amount of the salary which is deposited in the CPF fund. This is the employee’s contribution. You also have the employer’s contribution which is paid by the employer.
An employee who is below 55 years old makes a contribution of almost 20% of the salary and the employer contributes an additional 17% from his own pocket. The total CPF contribution works out to be 37%.
If an individual is anywhere between 55 years and 60 years old, the CPF contribution works out to be 13% and the employer contributes an additional 13%. The total contribution works out to 26%.
An individual who is between 60 and 65 years old makes a contribution of 7.5% and the employer contributes 9%. The total contribution works out to be 16.5%.
Any employee who is above the age of 65 years needs to contribute 5% of the salary with the employer contributing 7.5%. The total contribution works out to be 12.5%. The CPF contribution rate thus, depends on the age of the employee.
In a period of 10 years, the CPF contributions for those employees who are older will be adjusted in a gradual manner to ensure meeting the total contribution rate of 37% (Employee and Employer). The contribution rates of the CPF will drop only after the employee is more than 60 years old. This is not applicable to those who are self-employed. Any of the contributions of the CPF are voluntary, except the contributions of MediSave which you are prompted to pay each year after the income tax returns are filed.
CPF Contributions Cap for Employees:
The CPF Contribution Cap, also known as CPF Wage Ceiling, is the set limit to the contributions made to the CPF. There are two parts, Additional Wage Ceiling and the Ordinary Wage Ceiling.
The Ordinary Wage Ceiling:
The CPF Contribution Cap to the monthly salary is the Ordinary Wage ceiling and this is $6,000 presently. A percentage of the first $6,000 of your salary goes towards the CPF contributions. This means that the employer will also make contributions only on the first $6,000 of the salary.
The Additional Wage ceiling:
The CPF contribution cap on any additional wages, like your bonus, is the Additional Wage Ceiling. The Additional Wage Ceiling is calculated with $102,000 – Ordinary Wages which needs to go towards the CPF for that specific year.
Interest Earned on CPF:
My CPF contributions earn an interest which is risk-free and guaranteed. This works out to 2.5% per annum in the Ordinary Account, 4.0% on the Special Account and also 4.0% on the Medisave account. You also earn an additional 1.0% on the first 60,000 of the account balance of the CPF.
After you turn 55 you can have a Retirement Account, but the CPF contributions from your salary will not flow into this account directly. On the Retirement Account, you earn an additional 1.0% on the first $30,000 of the balances. This interest is given yearly.
CPF Contributions in Different Accounts:
The CPF contributions from your monthly salary go into three accounts, Ordinary Account, Special Account and the MediSave account. This also depends on your age.
When you are younger you contribute more towards the Ordinary Account for paying for your home. You also contribute to your Special Account which is more for your retirement and the Medisave account which is more for the healthcare.
With the passing of time when you are getting older, a lower percentage is for the Ordinary account with a larger part going towards the Special Account and the Medisave Account. You can earn a higher rate of interest with the Medisave account and the Special Account.
Additional Contributions to the CPF:
You have the freedom to make additional contributions to the CPF via the VC (Voluntary Contributions) up to the set limit of the CPF which is $37, 740 and also the RSTU (Retirement Sum Topping Up) scheme for those who are less than 55 years of age and for those who are 55 years of age and above, the Enhanced Retirement Scheme.
When to make CPF Contributions:
Employers can make the CPF contributions in a grace period of 14 days after the last day of the month. If this 14th day falls on a Public Holiday or the Weekend they can pay the CPF Contributions on the following working day.
If these CPF contributions are not made on time by the employers, they will have to pay a fine and also interest on the late payment.
- There is a possibility of the employer paying 18%per annum, which is 1.5% per month or makes a choice of paying 5%every month.
- Fines ranging from $1,000 and $5,000for every offence or 6 months imprisonment.
- Fines ranging from $2,000 and $10,000and up to 12 month imprisonment for the repeat offenders.
- Fines up to $10,000 and 7 years imprisonment.
You can use this CPF savings for various different requirements which include buying a home, pay for education or use this money to invest and make more money. You start receiving payouts depending on the Retirement Sum chosen. The payouts tend to continue even after the money is over in the account.
To ensure that the money you have saved is distributed and given to the right person, it is important that you make a CPF nomination.