10 Things You Need to Know about CPF

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If you are college graduate entering the workforce, congratulations!

However, after securing your dream job, you realised that there are more things to worry about. Marriage, having children, getting a house, buying insurance and planning for retirement are next on your to-do list. So, welcome to Adulting.

When you were a student, you probably heard about Central Provident Fund (CPF), but you never really research about it as it didn’t concern you. As you enter the workforce, you find it important to know more about this complex acronym as it is so intertwined with your everyday life, be it buying a house or planning for retirement.

So, fret not! Here are 10 things that you need to know about CPF to guide you in managing your finances wisely.

1. CPF allocation

Most of us know that CPF has three different accounts, namely Ordinary Account, Special Account and Medisave Account.
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However, do you know how much of your CPF contributions are allocated to each account?

For employees age 35 and below, 23% of your contribution goes into your Ordinary Account, 6% to your Special Account, and 8% to your Medisave Account. The allocation rates change as you grow older. 

2. Grow your savings faster with Special Account
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Just like a marathon, preparing for retirement requires constant effort for a long period of time. You save a little each month to reach your end goal.

Here’s a tip for you to reach your end goal faster – transfer your CPF savings from Ordinary to Special Account.

This is because Special Account has a higher interest rate than Ordinary Account. The interest rate for Special account is 4% per annum, while the interest rate for Ordinary Account is 2.5% per annum.

But do take note that the transfer from Ordinary to Special account is irreversible. So, think twice before you transfer! 

3. CPF Lifelong Income For the Elderly (LIFE)
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There are 3 CPF LIFE Plan, namely Standard, Basic and Escalating, for you to choose from.

With the advancement in healthcare and technology, our life expectancy is increasing. Thus, we have to prepare sufficient CPF savings that can last us for our lifetime.

CPF LIFE was introduced in 2009 to ensure that you will receive monthly pay-outs for as long as you live. This prevents you from outliving your savings. However, if you did not choose any LIFE plans by age 70, you will automatically be given the Standard Plan. As different people have different needs, choose a plan that best suits your need!

4. Receive tax relief when you do a cash top-up

Cash top-ups in your own or your parent’s Special Account under CPF Retirement Sum Topping-up Scheme allow you to enjoy tax relief! However, the cap to the total amount of tax reliefs claimed is $7,000 per year.

5. Paying accrued interest for your CPF housing loan
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For those of you who plan to buy a house using your CPF savings to sell it in the future, think twice!

This is because you have to return what you have borrowed (i.e. the principal amount) plus the interest that you would have earned had the money not been taken out from your CPF account after selling the house. 

Thus, for those young couples who are planning to get a house and upgrade it in the future, do consider the accrued interest that you have to return to your CPF after selling your house!

6. Buying of insurance

Besides buying a house, you can use your CPF savings to buy insurance. CPF offers several investment schemes, such as Home Protection Scheme and Private Medical Insurance Scheme, to provide you with a sense of security for your retirement years.

7. CPF Investment Scheme (CPFIS)

Instead of waiting for your CPF savings to accumulate interests, why not accelerate your retirement plan by investing your savings?

Under CPFIS, you are given an option to invest your Ordinary Account and Special Account in products, such as unit trusts, annuities, and bonds. However, do remember that any returns that you get from your investments will go back to your CPF accounts. 
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8. Three levels of retirement sums

Many of you may not know that there are three levels of retirement sums. They are Basic, Full or Enhanced Retirement Sums. The different levels of retirement sums mean that there will different monthly payouts.

But all you need to know is, the more you put in your retirement sum, the more monthly payout you get!

9. Transfer of CPF Savings

Apart from cash top-ups, you can also transfer your CPF savings directly to your parents’ CPF account after you have set aside the basic retirement sum and made a property pledge to meet the full retirement sum.

However, this transfer of CPF savings does not entitle you to tax reliefs. So, you might want to consider whether cash top-up or direct CPF transfer would be a better option for you.

10. CPF Nomination

Have you ever wondered what happens to your CPF savings after you die?

It goes to the Public Trustee’s Office for distribution to your family members under the Intestate Succession Act or the Inheritance Certificate (for Muslims) if you didn’t make a CPF nomination.

The PTO charges your beneficiaries an administration fee for this distribution. Thus, make a CPF nomination today if you want your CPF savings to be distributed according to your wishes. It saves you the administration fee too!

There you have it! The top 10 things you need to know about CPF as a fresh graduate.


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