[SINGAPORE] Congratulations on obtaining your Permanent Resident (PR) status in Singapore! As you settle into your new life in the Lion City, one of the most important aspects you'll need to understand is the Central Provident Fund (CPF) system. This comprehensive social security savings scheme is a cornerstone of Singapore's financial landscape, designed to ensure retirement adequacy for its members. In this guide, we'll walk you through everything new PRs need to know about CPF, from contribution rates to withdrawal options.
The Central Provident Fund is a mandatory savings and pension plan for working Singaporeans and Permanent Residents. It's a key pillar of Singapore's social security system, providing a framework for retirement, healthcare, and housing needs.
"CPF is Singapore's national retirement saving scheme that helps to ensure retirement adequacy for its members."
As a new PR, you'll be required to contribute a portion of your monthly salary to your CPF accounts. These contributions are automatically deducted from your paycheck, with your employer also making contributions on your behalf.
CPF Accounts: Where Your Money Goes
Your CPF savings are distributed across three main accounts:
Ordinary Account (OA): Used for housing, insurance, investment, and education.
Special Account (SA): Primarily for retirement savings and related investments.
MediSave Account (MA): For healthcare expenses and approved medical insurance.
Understanding these accounts is crucial for effective financial planning as a PR in Singapore.
CPF Contribution Rates: A Graduated Approach for New PRs
One of the most significant changes you'll notice as a new PR is the impact on your take-home pay. CPF contributions can be substantial, but the system is designed to ease you into it gradually.
"Currently, all active CPF members contribute up to 37% (including up to 17% employer's contribution) of their gross wages to CPF. This amount will be capped at a salary of $6,000 and is deducted automatically from their salary."
However, new PRs benefit from a graduated contribution rate system for the first two years:
First Year Contribution Rates
"If you are currently employed, it also indicates when employers have to start making CPF contributions. As an employee, you would also start seeing a sizeable chunk taken off your salary – and channelled into your newly-opened CPF accounts."
For the first year, the standard rates are:
Employee contribution: 5% of Ordinary Wage (capped at $300)
Employer contribution: 4% of Ordinary Wage (capped at $240)
Second Year Contribution Rates
In the second year, the rates increase:
Employee contribution: 15% of Ordinary Wage (capped at $900)
Employer contribution: 9% of Ordinary Wage (capped at $540)
These graduated rates allow new PRs to adjust to the CPF system gradually, minimizing the initial impact on their take-home pay.
Full CPF Contribution Rates
From the third year onwards, PRs are subject to the full CPF contribution rates, which are the same as those for Singapore citizens:
Year Of Application With Employer Or Third Year Onwards
Employee's share of CPF contributions: 20% of Ordinary Wage (Capped at $1,200) + 20% Additional Wage
Employer's share of CPF contributions: 17% of Ordinary Wage (Capped at $1,020) + 17% Additional Wage
Total CPF contributions (Employer's & Employee's share): 37% of Ordinary Wage (Capped at $2,220) + 37% Additional Wage
It's important to note that these rates apply to employees below 55 years old. Contribution rates decrease for older workers to encourage continued employment.
Opting for Higher Contribution Rates
Some PRs may wish to contribute at higher rates earlier. This is possible through a joint application with your employer:
"If your employer wishes to contribute higher CPF rates for you, both parties need to jointly apply for higher rates. The higher contribution rate can vary between full employer-graduated employee (Table #2) or full employer-full employee (Table #3)."
This option can be beneficial for those who want to maximize their CPF savings and take full advantage of the system's benefits sooner.
CPF Benefits for PRs
While the initial adjustment to CPF contributions might seem challenging, the system offers numerous benefits:
Retirement Planning: CPF provides a structured way to save for retirement, with attractive interest rates.
Housing: You can use your CPF OA savings to purchase a HDB flat or private property.
Healthcare: MediSave funds can be used for various medical expenses and insurance premiums.
Education: OA funds can be used for approved educational courses.
Investment: The CPF Investment Scheme allows you to invest a portion of your savings in various financial instruments.
CPF LIFE: Lifelong Income for the Elderly
As a PR, you'll also be eligible for CPF LIFE, a national longevity insurance annuity scheme that provides lifelong monthly payouts starting from your payout eligibility age.
"For those that are covered by CPF LIFE, you can choose to withdraw your unused premium or continue on the scheme. Continuing the scheme will allow you to receive monthly payouts (at the eligible age) through your Singapore bank account for the rest of your life."
This scheme ensures that you have a steady income stream in your retirement years, providing financial security and peace of mind.
CPF Withdrawal for Departing PRs
If you decide to leave Singapore permanently and give up your PR status, you have the option to withdraw your CPF savings:
"In the event, you are not continuing your PR status in Singapore, and you plan to leave Singapore permanently, you can apply to withdraw your CPF monies."
The withdrawal process involves submitting an application to the CPF Board, either online through Singpass or in person at a CPF Service Centre. For PRs living overseas, there's a specific process involving the Singapore Overseas Mission.
It's important to note that if you later decide to return to Singapore and regain PR status or become a citizen, you'll need to refund the withdrawn amount with accrued interest.
Maximizing Your CPF as a New PR
To make the most of your CPF savings:
Understand the system: Familiarize yourself with CPF rules, contribution rates, and benefits.
Plan for higher contributions: Budget for the increase in CPF contributions over the first three years.
Consider voluntary contributions: You can make additional contributions to boost your CPF savings.
Explore the CPF Investment Scheme: Consider investing a portion of your CPF savings for potentially higher returns.
Use CPF for property purchase: Leverage your OA savings for housing, a key asset in Singapore.
Stay informed: Keep up with CPF policy changes and new schemes that may benefit you.
The Central Provident Fund is a fundamental part of financial planning in Singapore. As a new Permanent Resident, understanding and maximizing your CPF can significantly enhance your financial security and help you build a strong foundation for your future in Singapore. While the system may seem complex at first, its benefits in terms of retirement planning, healthcare coverage, and housing support make it an invaluable tool for long-term financial well-being.
Remember, CPF is not just a mandatory savings scheme – it's a comprehensive system designed to support you throughout your life in Singapore. Embrace it, understand it, and use it wisely to secure your financial future in your new home.
