A Mandatory Savings Scheme for Life's Needs
Established in 1955, the Central Provident Fund (CPF) has evolved into a comprehensive system designed to ensure financial security for Singapore Citizens and Permanent Residents. It addresses three primary pillars: housing, healthcare, and retirement, by automatically channeling a portion of your monthly income into dedicated accounts. Unlike many private retirement funds, the CPF is a government-backed system with risk-free interest rates, offering a stable and reliable foundation for financial planning.
The Three Core Accounts
When you are under 55, your CPF contributions are split into three main accounts, each serving a specific purpose:
Ordinary Account (OA)
The OA is the most flexible account, intended for shorter-term financial needs.
- Housing: You can use your OA savings to pay for your property, service housing loans, and for various housing schemes.
- Education: It can be used to pay for approved tuition fees for your own or your children's tertiary education.
- Investment: A portion of your OA savings can be invested under the CPF Investment Scheme (CPFIS).
- Interest: The OA currently earns a base interest rate of 2.5% per annum.
Special Account (SA)
The SA is specifically for retirement and long-term investments, earning a higher interest rate than the OA. The higher compounding interest rate helps your retirement nest egg grow more quickly. Funds in the SA can be invested in retirement-related financial products but cannot be used for housing. For those turning 55 from 2025 onwards, the SA will be closed and its savings transferred to the Retirement Account (RA) or OA.
MediSave Account (MA)
The MA is a dedicated healthcare savings account that covers medical expenses, from hospitalisation and day surgery to approved outpatient treatments. It can also be used to pay premiums for national insurance schemes such as MediShield Life and CareShield Life. Savings in the MA grow with a competitive interest rate. Once the Basic Healthcare Sum is met, any additional contributions will flow into your other accounts to boost retirement savings.
Reaching Key Milestones
As a CPF member, you will reach several key milestones that alter how your funds are managed:
Age 55: Creating the Retirement Account
On your 55th birthday, a new Retirement Account (RA) is created. Your savings from the SA, followed by the OA, are transferred to the RA up to the Full Retirement Sum (FRS). Any savings above the FRS will remain in your OA and become withdrawable. If you own a property, you can opt to pledge it and set aside a lower Basic Retirement Sum (BRS) to withdraw more of your savings. You can also make a lump-sum withdrawal of up to $5,000. The RA earns the same high interest rate as the SA, and is the source of your future monthly payouts.
Age 65: Starting CPF LIFE Payouts
From age 65 onwards, your RA savings will be used to pay premiums for CPF LIFE, Singapore's national longevity insurance annuity scheme. CPF LIFE provides a stream of monthly payouts for the rest of your life, protecting you against the risk of outliving your savings. You can defer starting your payouts up to age 70, with each year of deferment increasing your future payouts by up to 7%. You can also choose from different plans, including one with escalating payouts to help hedge against inflation.
Maximising Your CPF
There are several ways to get the most out of your CPF:
Make voluntary top-ups
Under the Retirement Sum Topping-Up (RSTU) Scheme, you can make voluntary cash top-ups to your own or your loved ones' Special or Retirement Account. This can help you achieve higher retirement payouts and may also entitle you to tax relief. Eligible seniors also benefit from the Matched Retirement Savings Scheme (MRSS), where the government matches cash top-ups dollar-for-dollar up to an annual limit.
Monetise your home
Seniors can use schemes like the Lease Buyback Scheme (for HDB flats) to unlock the value of their property. The proceeds are used to top up your RA to boost your monthly CPF LIFE payouts.
Invest your savings wisely
For those with a higher risk appetite, the CPF Investment Scheme (CPFIS) allows you to invest a portion of your OA and SA savings. However, it's essential to research and understand the risks involved, as leaving your savings in CPF accounts offers a guaranteed, risk-free return.
What if you're not a Singapore Citizen or PR?
CPF is generally only for Singapore Citizens and Permanent Residents. For foreigners, CPF accounts were closed from April 2024, with remaining funds earning a commercial interest rate until a specific period. Foreign workers do not contribute to CPF.
CPF Accounts at a Glance
| Feature | Ordinary Account (OA) | Special Account (SA) | MediSave Account (MA) | Retirement Account (RA) |
|---|---|---|---|---|
| Purpose | Housing, education, investments | Retirement & long-term investments | Healthcare expenses & insurance premiums | Retirement income (for those 55+) |
| Interest Rate (Base) | 2.5% p.a. | 4.04% p.a. | 4.04% p.a. | 4.04% p.a. |
| Extra Interest | Yes, on the first $60k of combined balances (capped at $20k for OA) | Yes, on the first $60k of combined balances | Yes, on the first $60k of combined balances | Yes, higher rate for those 55+ |
| Used For | Housing loans, insurance, investments, education | Retirement, investments | Hospitalisation, insurance premiums, outpatient care | Lifelong monthly payouts (CPF LIFE) |
| Availability | All members | Members under 55 (to be closed at 55) | All members | Members aged 55 and above |
Conclusion: A System for Lifelong Financial Security
Understanding what is CPF and how it works is vital for anyone planning their financial future in Singapore. It provides a robust, government-backed framework for managing major life expenses, from owning a home to financing healthcare and ensuring a steady income stream in your golden years. By being aware of how the different accounts function and the options available at key ages, you can make informed choices to maximise your CPF savings and secure a comfortable retirement. Staying engaged with your CPF account and exploring strategies like top-ups and payout deferrals can significantly enhance your financial position later in life. For more official details and tools, visit the Central Provident Fund Board (CPFB) website.
