Your guide to the new CPF scheme

There were several recommendations made for the Central Provident Fund (CPF) scheme last year with more to follow this year.

Some of the enhancements have just kicked in, aimed at boosting our savings so we can enjoy more retirement income in our golden years.

The enhancements that came into effect on Jan 1 include different payout options to better suit our needs and the flexibility of deferring payouts up to age 70 so as to receive more cash later.

More CPF savings from employment

At least 544,000 CPF members stand to accumulate more savings while working due to the salary ceiling rising from $5,000 to $6,000 on Jan 1. In addition, workers over age 50 will see their CPF rates increase by between 0.5 percentage point and two percentage points.

The CPF rate for members in the 50 to 55 age band has gone up two percentage points. That will be split equally between employees and employers, a move that restores the CPF rate fully to the level of younger workers at 37 per cent.

A 50-year-old worker earning $6,000 or more will now reap a $370 increase in monthly contribution in his CPF account – $200 from his own pocket and an extra $170 from his employer.

That additional $370 will add up to about $30,000 more when the 50-year-old reaches 55, based on the higher CPF salary ceiling and the two-percentage-point hike in the contribution rate. But he will have $200 less in disposable income every month, so that needs to be taken into account when budgeting.

The CPF rate for workers in the 55 to 60 age band has risen by one percentage point on the employer's side to 13 per cent while workers from 60 to 65 are getting a 0.5 percentage-point rise by the employer to 9 per cent.

The employee contribution is placed in the Ordinary Account, which can be used to service home loans, while the employer's contribution goes to the Special Account to boost retirement savings. 

Earn more interest on your CPF savings in your Retirement Account 

Members over age 55 are getting an additional 1 per cent interest on the first $30,000 of their CPF savings, making 6 per cent interest a year.

This is on top of the 1 per cent extra interest on the first $60,000 in CPF combined balances, which everyone enjoys. 


Different Retirement Sums for different retirement needs

Basic Retirement Sum: $80,500, which allows estimated monthly payouts of $660 to $720 at 65. It applies to property owners. CPF members can halve their Full Retirement Sum to withdraw more savings.

Full Retirement Sum: $161,000, allowing estimated monthly payouts of $1,220 to $1,320 at 65. This is for those who do not own a home or want higher payouts. The $161,000 sum will not be revised until January next year.

Enhanced Retirement Sum: $241,500, allowing estimated monthly payouts of $1,770 to $1,920 at 65. This will be suitable for CPF members who want to top up their CPF savings and get higher payouts.

It is not a requirement for you to top up to any of the three Retirement Sums, as your retirement payouts solely depend on how much you can and wish to save.

Members with amounts falling between the three Retirement Sums listed here will have their payouts pro-rated accordingly. For example, if your retirement sum is $60,000, the estimated monthly payout will be $528 to $570. If your retirement sum is $120,000, the monthly payouts will be about $940 to $1,018.

These payouts are estimates based on the CPF Life Standard Plan. 

Increased Basic Retirement Sum for future cohorts

The Basic Retirement Sum for CPF members turning 55 from 2017 to 2020 will be increased by 3 per cent yearly for each cohort, to account for inflation and rising  standard of living.

The sum is made known ahead of time to allow for better retirement planning. It is set at $80,500 for members aged 55 this year, rises to $83,000 for those turning 55 next year and $85,500 for the next cohort of 55-year-old members in 2018. 


Option to withdraw up to 20% of CPF savings at 65 

Previously, members who did not own property and did not meet their cohort's Retirement Sum could withdraw only $5,000 on turning 55.

But if you turned 55 in 2013 or later, you can withdraw up to 20 per cent of your Retirement Account savings at 65 – this amount includes the $5,000 sum – on top ofmonthly payments.

However, withdrawals from your Retirement Account will affect your monthly payouts, so work out your sums first.

Let’s assume CPF member Andrew Tan withdrew $5,000 at 55 and has $60,000 left in his Retirement Account. In 10 years, this will grow with interest to $90,000.

He can either withdraw another $13,000 (20 per cent of $90,000 minus $5,000) at 65, which results in a lower $450 monthly payout for life, or leave the money in his Retirement Account and receive $530 for life. Choose CPF


Life plan once payouts start 

Rules were relaxed on Jan 1 to allow members to choose CPF Life plans only when they start receiving payouts, that is, between the payout eligibility age and up to 70.

This gives us a better idea of our retirement needs and allows a more informed choice as to whether we should opt for the CPF Life Standard or Basic plan.

The payout eligibility age for those born in 1954 and after is 65 while for those born up to 1943, it is 60. If you were born between 1944 and 1949, your payout eligibility age is 62.

For those born between 1950 and 1951 it is 63, and it is 64 for those born between 1952 and 1953. 


Higher monthly payouts if members start CPF Life payouts later 

Based on the Labour Force Survey 2014, 40 per cent of residents between the ages 65 and 70 continue to work. So if your financial situation allows it, you can opt to defer your CPF Life payouts from your eligibility age up to 70 years old.

Doing so means you would enjoy 6 per cent to 7 per cent more in monthly payouts for each year deferred. 


Topping up your spouse's account 

Before the changes on Jan 1, savings above the Full Retirement Sum could be transferred to your spouse. There is now a lower threshold so members can transfer CPF funds above the Basic Retirement Sum to top up their spouse's CPF account.

Both will benefit from the extra interest that will be paid in the respective accounts and there is peace of mind as the spouse will have her/his own source of retirement payouts.


Medisave for retirement 

This year sees the introduction of the Basic Healthcare Sum (BHS) of $49,800, which is the permanent amount for those turning 65 this year.

For those below 65, the BHS will be adjusted yearly. But there is no requirement to top up to meet the BHS when withdrawing CPF savings. Savings above the BHS will flow over to your other CPF accounts, according to your age.

Meanwhile, the Medisave Minimum Sum has been removed.

Source: The Sunday Times © Singapore Press Holdings Limited. Permission required for reproduction.

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