CPF

Why You Should Make a Voluntary CPF Contribution and How to Do it in 4 Simple Steps

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  • Any CPF member can make voluntary CPF contributions to take advantage of higher compounding interest and build a retirement nest egg
  • Voluntary Medisave contributions qualify for tax relief
  • All it takes is 4 simple steps

Image showing Ordinary, Medisave and Special Accounts, each with a secret door opening out to a beautiful garden

As a recently turned self-employed person, not only do I have to submit my own tax returns, I also have to start taking care of my own Central Provident Fund (CPF) contributions.

While I only have to make a mandatory annual Medisave contribution based on my age and business income, I also contribute to all three of my CPF accounts – Ordinary, Medisave, and Special Accounts.

Why? Because contributing to my CPF forms a foundation for my retirement planning. We will discuss more below.

Any CPF member can make a voluntary CPF contribution. There is no minimum voluntary top-up amount so I can contribute whatever I can afford at any time.

Before we go into the details of voluntary CPF contributions, let’s refresh our memory on the fundamentals, such as how CPF contribution allocation works and what are the interest rates.

How CPF contribution and allocation work

CPF contribution rates for private sector and non-pensionable employees

Here’s how much you and your employer have to contribute monthly to your CPF, depending on your age and income:

Table of CPF contribution rates for Singaporeans and Permanent Residents

CPF allocation rates for private sector and non-pensionable employees

Here’s how the CPF Board allocates your total monthly CPF contributions across the three accounts:

Table of CPF allocation rates

The above applies to both your mandatory and voluntary CPF contributions. Whatever amount you contribute to CPF will be split between your three accounts according to the current ratio of your age group.

Here’s why the contribution and allocation rates are as such:

How CPF contribution and allocation rates change as I grow older

How much interest does each account yield?

  • Ordinary account: 2.5 to 3.5% per annum (p.a.)
  • Medisave and Special accounts: 4 to 5% p.a.
  • Retirement account: 4 to 6% p.a.

The interest rates include an additional 1% p.a. on the first $60,000 of your combined balances (with up to $20,000 from the Ordinary Account).

For those aged 55 and above, they will receive an additional 1% extra interest p.a. on the first $30,000 of their combined balances. This is on top of the extra 1% interest on the first $60,000 of their combined balances (total 6%).

Here’s the priority of the accounts that make up the $60,000 and $30,000 combined balances:

  1. Retirement Account, including balances for the CPF LIFE annuity premium payment
  2. Ordinary Account, up to $20,000
  3. Special Account
  4. Medisave Account

What is voluntary CPF contribution?

The voluntary CPF contribution allows you to contribute more than what you are required to as an employee or self-employed person. You can contribute to:

  1. all three of your CPF accounts or
  2. solely to your Medisave Account

This is separate from the Retirement Sum Topping-Up Scheme, where you can make cash top-ups or CPF transfers to your own or your family member’s Special (below age 55) or Retirement (above age 55) Account for higher interest (up to 5%) and tax relief (for cash top-ups only). Conditions apply. Learn more here.

Why you should make a voluntary CPF contribution

Whether you are self-employed or working as an employee, there are benefits to topping up your CPF.

1. Take advantage of high compounding interest rates

If you have extra cash that’s on top of your emergency fund and you don’t have a better alternative to grow your money, topping up your CPF is a risk-free way to leverage on the compounding interest rates offered.

For the self-employed, topping up your CPF is a passive way to grow your nest egg.

To give you some context, let’s do some simplified and conservative calculations. Say you don’t have any funds in your Ordinary Account today and with your contribution, $3,600 goes into it each year. At a 2.5% interest rate p.a., you will have about $123,000 in 25 years in your Ordinary Account alone.

If you are not a savvy investor or disciplined saver, just contributing a little more to your CPF every year can make a difference to your CPF savings, which are there to support your home purchase, your children’s education, your medical expenses, your retirement, etc..

You can also transfer any amount you don’t need from your Ordinary Account to your Special Account, which earns more interest. You can top up your Special Account (for those below age 55) up to the current Full Retirement Sum (which is $166,000 in 2017), or Retirement Account (for those aged 55 and above) up to the current Enhanced Retirement Sum (which is $249,000 in 2017).

Related: Investing With Your CPF Savings: A Quick Guide to Get Started

2. Build a stronger financial safety net

If you know how much you want to get from your monthly CPF payout in your golden years and your calculations show that your current compulsory contributions are not meeting it, it’s time to contribute more to your CPF as soon as possible.

For Singaporeans working overseas, you can also contribute to your CPF to build your retirement fund. This is particularly important if you plan to retire in Singapore.

Related: Is Your Retirement Nest Egg Really Enough?

3. Tax deduction for Medisave contributions

When you top up your Medisave account you enjoy tax relief (a personal income tax relief cap of $80,000 applies).

For self-employed persons, both mandatory and voluntary contributions are tax-deductible, up to 37% of your annual Net Trade Income (NTI) or the CPF Annual Limit of $37,740, whichever is lower.

How much can you contribute and how is it allocated?

If you wish to contribute to all three CPF Accounts, the current allocation rates mentioned above applies.

The amount you can contribute for the year is the difference between the CPF Annual Limit of $37,740 and the amount of mandatory contributions. You can use the VC Allocation Calculator to calculate the allocation amounts.

If you wish to contribute to your Medisave Account only, the amount you can contribute is subject to the current CPF Annual Limit or the current Member’s Basic Healthcare Sum (BHS) of $52,000, whichever is lower.

For self-employed persons with an annual NTI of more than $6,000, you have to top up your Medisave Account if your voluntary CPF contributions allocated to Medisave Account is less than your compulsory contribution amount.

How to make a voluntary CPF contribution in 4 steps

1. Choose your payment method

You can make a voluntary CPF contribution via:

  • e-NETS Debit via e-Cashier
  • GIRO
  • Cheque
  • NETS
  • CashCard (for self-employed only)
  • Cash at any Singapore Post Office (for self-employed only)

For more information on:

  • voluntary CPF contribution payment modes, click here.
  • self-employed CPF contribution payment modes, click here.

For the rest of the steps, we will be using e-Cashier as it is the easiest and most convenient payment mode.

2. Fill up your details and select which CPF accounts you want to contribute to

Step 1 of making a voluntary CPF contribution

Once you are on the e-Cashier page, you just have to do three things.

  1. enter your NRIC number
  2. select whether you are contributing as an employee or self-employed
  3. and select whether you are contributing to all accounts or just your Medisave Account.

Step 2 of making a voluntary CPF contribution

3. Enter the amount you want to contribute

After which, fill in the amount you would like to contribute.

Step 3 of making a voluntary CPF contribution

4. Make payment

Now you just have to make payment via your preferred bank account. The participating banks are DBS/POSB, UOB, Citibank, OCBC and Standard Chartered Bank.

Step 4 of making a voluntary CPF contribution

And before you know it, it’s all done!

What do you think of voluntary CPF contributions? Share your thoughts with us!

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