CPF Life is crucial to every Singaporean’s retirement planning. There are people who protested and demanded the government to “Return Our CPF”, but there are also many people who have good faith in our national pension system and want to top up more into CPF for their own retirement planning.

cpf-top-up-for-more

What are the benefits of topping up CPF, how much more can you top up? This article will give you the answers you need.

The benefits of CPF top up

There are two main benefits of topping CPF.

  1. Earn more interest
  2. Enjoy more tax relief

These will help you boost your retirement funds. Before we get into the details of these benefits, we need to first understand the CPF Retirement Sum scheme. Because all the figures which we are going to talk about are based on this framework.

CPF Retirement Sum Scheme

CPF has three accounts:

  1. Ordinary Account
  2. Special Account
  3. Medisave Account

Ordinary Account and Special Account are designed for your retirements. Before you are age 55, the Special account is your main account for retirement as most people will use Ordinary Account balance to pay their mortgage.

On your 55th birthday, CPF will create a new account called “Retirement Account” for you. Savings from your Special Account and Ordinary Account will be transferred to your Retirement Account to form your Retirement Sum which will provide you with monthly payouts. And this is called CPF Life.

Don’t worry if you are a bit confused. These are just some terminologies. You can read here to have a better understanding of the whole system.

In summary, you need to make one of these 3 choices for your retirement based on how much CPF balance you have. If I were to put it in layman’s terms

  • Basic Retirement Sum (BRS) – you do not have much CPF left. It is either because you did not work or earn much or you used too much CPF to pay for your house
  • Full Retirement Sum (FRS) – you have a reasonable CPF balance left
  • Enhanced Retirement Sum (ERS) – you have more than average CPF balance due to either past high salary or less utilisation of CPF for property purchase, or both
cpf-retirement-sum-payouts
CPF Retirement Sum Estimated Monthly Payout under CPF Life Standard Plan

Please remember these acronyms (BRS, FRS and ERS) as we are going to refer to them shortly.

The Retirement Sum will eventually be converted to a monthly retirement income to you. Intuitively, you know higher Retirement Sum will result in a higher monthly payout when you retire.

According to CPF,

Your CPF savings in the Ordinary Account (OA) earn guaranteed interest rates of 2.5% per year, while savings in the SA, Medisave Account and RA currently earn interest rates of 4% per year. The first $60,000 of your combined CPF balances, of which up to $20,000 comes from your OA, earn an additional 1% interest per year. Since 2016, an additional 1% interest is paid on the first $30,000 of combined CPF balances for all members aged 55 and above.”

Because of these higher interests and tax relief benefits which we will talk about later, you may be tempted to allocate more of your retirement sources into CPF retirement scheme.

Retirement Sum Topping-Up Scheme

The Retirement Sum Topping-up Scheme allows you to build your retirement savings. You can also help to build up your loved ones’ retirement savings by topping up into their CPF account under this scheme.

Remember what we talked about earlier? Your CPF retirement savings is called Special Account before you are age 55 and Retirement Account after from age 55 onwards. The top up limits are:

  • Up to FRS (currently $161,000) for recipients below age 55
  • Up to ERS (currently $241,500) for recipients aged 55 and above

How to top up CPF

There are two ways of topping up.

  1. CPF transfers – to specific family members only.
  2. Cash top-ups – to anyone.

CPF Transfers

If you wish to transfer your CPF savings to your loved ones, your net CPF balances and net amounts withdrawn for investments must exceed the FRS applicable to you. The people whose CPF account you can top up are:

  • Your siblings
  • Your parents or parents-in-law
  • Your grandparent’s or grandparents-in-law

Since 2016, you have additional flexibility to transfer your CPF savings above the BRS to your spouse’s CPF account.

Cash top-ups

If you are using cash to make top-ups. You can enjoy tax relief. Under the current scheme, you can enjoy tax relief of up to

  • $7,000 per calendar year if you are topping up for yourself
  • Another $7,000 of tax relief per calendar year if you are topping up for your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings.

However, to qualify for tax relief for cash top-ups made to your spouse’s or siblings’ CPF accounts, your spouse or siblings must meet either of the following conditions:

  • Income not exceeding $4,000 in the year preceding the year of top-up; or
  • Handicapped (incapacitated mentally or physically)

CPF defines “Income” of a person as the income from all sources, such as

  • Tax-exempt income (e.g. bank interest, dividend and pension)
  • Foreign-sourced income remitted into Singapore
  • investment income/rental income/directorship income etc

As you can see, CPF encourages you to top up to your parents’ CPF as they are not subject to such restrictions.

It is better to top up your parents' CPF for retirement planning purpose instead of giving them all in cash
It may be better to top up your parents’ CPF for retirement planning purpose instead of giving them all in cash

CPF cash top up limit for tax relief purpose

Only cash top-ups within the following caps, which are computed based on the current FRS and the recipient’s CPF savings, will be eligible for tax relief:

Recipient below age 55Current FRS less the sum of Special Account (SA) savings and net SA savings withdrawn under CPF Investment Scheme for investments that are still active
Recipient age 55 and aboveCurrent FRS less Retirement Account (RA) savings

RA savings refer to the cash set aside in the RA (excluding amounts such as interest earned, any government grants received) plus amounts withdrawn such as monthly payouts and payout eligibility age lump sum withdrawal.

In summary, the tax relief cap is based on current Full Retirement Sum (FRS), rather than the Enhanced Retirement Sum (ERS). This, according to CPF, is to keep tax benefits focused on supporting basic retirement needs. But not to worry, you can check out this article for other means of additional tax relief.

CPF top up is irreversible

You need to be extremely careful when you plan to top up your CPF. This is because the cash top-ups made under the Retirement Sum Topping-Up Scheme (RSTU) cannot be refunded.

At the same time, you need to note that there will be a personal income tax relief cap of $80,000 from Year of Assessment 2018. This cap applies to the total amount of all tax reliefs claimed, including any relief on cash top-ups made under the RSTU made on or after 1 Jan 2017.

In another word, if you do not plan properly, you may not get the tax relief which you expected.

If you are still confused…

Retirement planning can be intimating and confusing sometimes. As an independent financial adviser, I can help you navigate through the uncertainty and build sustainable retirement incomes.

If you are keen to find out more, complete the form below for a non-obligatory retirement discovery meeting.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • Hi Ivan,
    You have talked much about using OA to pay off our HDB loan monthly loan amount. I agree with you that it is really not a wise thing. But I am also sucked into this unwise practice.

    Now after working for a few years, I only have the cash to pay off either a) the remaining loan itself; b) the OA amount which I borrowed from myself plus the accrued interest. At this stage of my repayment of the HDB loan, a is approximately equal to b. I have done the calculations and I find that option b) seemed to be better for my situation. But I am still hesitant because ultimately repaying back to OA will only grow the amount of money by 2.5% which is quite easily accomplished by putting that same amount of money in a good stable reit. Do you think it is still wise to do b) or I just continue with my unwise practice of using my OA to pay off the loan and try to invest that same pot of money in a dividend paying REITS or stocks?

    Many thanks.
    Dave

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