The Singapore government has put in place various social security benefits to improve the living standards of its citizens. One such fabulous option is the CPF, which allows one to save for retirement and other needs. 

If you are an expat who is now eligible for CPF contributions, you surely have numerous concerns about the scheme. In this article, we've covered all you need to know about CPF.

What is CPF?

The Central Provident Fund (CPF) is Singapore’s comprehensive social security system which is meant to cover only Singapore citizens and permanent residents. It was created to aid employees with retirement savings, family protection, and basic healthcare.

Expats are exempted from contributing to the CPF. However, expats can begin making monthly contributions to CPF after obtaining Permanent Residence status in Singapore. 

Eligibility 

An expat is eligible for contributing to CPF only under the following conditions - 

• If the expat has obtained permanent residence status in Singapore

• The CPF Act classifies the expat as an employee.

• If the expat earns more than S$ 50 every month.

According to the CPF Act, an employee is a person who is employed in Singapore under a Contract of Service (COS), i.e. in an employer-employee relationship with a Singapore-based company. The definition also includes anyone working as a master, seaman, or apprentice on any vessel in Singapore. A full-time, part-time, temporary, contract or casual employee also falls under the purview of CPF.

The following are the wages that are eligible for CPF contributions:

• Basic salary

• Overtime compensation

• Additional monetary incentives

• Any additional allowance

• Commission

• Bonus pay

Reimbursements are exempted from CPF considerations.

Contributions

If you are entitled to contribute to CPF, your employer must make the total CPF payments every month, which is the sum of the employer's contribution and your contribution. Your employer is entitled to deduct your share of the monthly CPF contribution from your salary.

There is no employee's portion of CPF payments if the monthly salary is between S$50 and S$500. Your employer must still pay their share of CPF payments on your behalf.

Rate of contribution

The rate of CPF contribution is determined by whether you are a Singapore Citizen or Permanent Resident, your age, and your total earnings. For the first two years, the CPF board permits both employees and employers to contribute at discounted rates to help employees adjust to the lower take-home pay. 

The change in contribution rate due to the employee's age is effective on the first day of the month following the employee's birthday. For example, if your birthday is on February 5, 2023, and you turn 35, your allocation rates for February 2023 will be based on the "35 years and below" age group, while your allocation rates for March 2023 would be based on the "Above 35 to 45 years" age group.

Option for withdrawal

Expats with no intention of returning to Singapore for re-employment or residence, or who are permanently handicapped, are eligible to withdraw their CPF savings.

Permanent residents have the option to withdraw the CPF amount after setting aside a Minimum Sum in their Retirement Account.

CPF Account Types

The CPF contributions are divided into many accounts for various objectives such as housing, medical, and retirement needs. CPF accounts are classified into four types:

Ordinary Account (OA)

This type of account is intended for housing, insurance, investment, and education. Using this account, you can purchase financial products such as ETFs and unit trusts. You can pay for the education of self and your dependents. You can utilize your OA funds to purchase a Housing & Development Board (HDB) flat, as well as to purchase or construct private and residential properties in Singapore. OA savings can also be used for a down payment on your home loan, stamp duty, legal costs, and Home Protection Scheme premiums (for HDB flats only)

Special Account (SA)

Created for retirement funds and investments in retirement-related financial products. Your SA earns higher interest rates than your OA, allowing your retirement money to grow more quickly.

MediSave Account (MA)

It is designed for health insurance and hospitalization bills. You can use your MA to pay for medical expenses, hospitalization, and surgery fees for yourself and your dependents at recognized medical institutions. Premiums for the Integrated Shield Plan and Medishield Life can be paid by your MA.

Retirement Account (RA)

When an employee reaches the age of 55, RA is automatically created. The money from your OA and SA is used to fund the account which is used for payment towards the CPF Life annuity scheme.

When you're younger, more of your CPF contributions are sent to your OA to help you buy a property. More CPF contributions are allocated to your SA and MA as you get older to cover your growing healthcare and retirement demands.

CPF Interest Rates

You can expect to earn about 5% to 6% interest per annum on your CPF funds. The rate of interest varies from time to time and is reviewed by the CPF board every quarter. The earnings are derived from the returns which CPF earns by investing in Special Singapore Government Securities (SSGS). SSGS are guaranteed by the Government and are non-tradable bonds. This ensures that CPF savings remain safe, regardless of financial market conditions. 

You can also make your CPF savings grow further by investing in the CPF Investment Scheme. The CPF Investment Scheme (CPFIS) allows you to invest your Ordinary Account (OA) savings after you have put aside S$20,000 in your OA and Special Account (SA) savings after you have set aside $40,000 in your SA in a variety of investments to augment your retirement savings.

Takeaway

CPF is a great avenue to start saving up for the big milestones of life. It provides social security that allows a person to focus on their job and personal life without the nagging worries of an uncertain future.

If you have more questions about CPF go ahead and book a free appointment with us and put your mind at ease!