Stepping into your first job is more than just about making money; it’s the start of a new adventure in adulting. As you embark on this exciting milestone, one essential companion in your financial planning journey is the Central Provident Fund (CPF). Think of CPF not just as a mandatory savings plan but as your financial buddy for the long haul – from helping you snag your first home to making sure you’re chilling comfortably in your golden years. Let’s dive into what CPF is all about and how to make it work better for you.

CPF 101: The basics

Most of us know CPF to be a key source of our housing funds, but it’s more than just that – it’s also a supercharged piggy bank that aims to help Singaporeans save towards their retirement. If you’re 55 years old and below, 37% of your salary (20% from you, 17% from your employer) gets tucked away into your CPF account, which can be used for big expenses in life – retirement, healthcare and your first home.

Update: The CPF Ordinary Wage (OW) ceiling will increase progressively to S$8,000 from 1 January 2026 onwards. In essence, this also means that employers contribute more to your CPF compared to before this change.

For example, if you’re earning a monthly income of S$8,000 in 2024, your monthly CPF contribution would be S$1,360, and your take-home pay would be $S6,640. But come 2026 when the OA wage ceiling increases to S$8,000, your monthly CPF contribution would increase to S$1,600 and your take-home pay decreases slightly to S$6,400. However, this also means that your employer will then contribute S$1,360 as opposed to S$1,156 in 2024.

Meet the “Fantastic Four” – OA, SA, MA, RA

The CPF Ordinary Account (CPF OA) is where the bulk of our CPF contributions go. It typically forms the foundation for young Singaporeans looking to buy their first home. Our OA funds can also be used for basic insurance premiums (Dependants’ Protection Scheme) and education investment. However, you can only invest OA funds in excess of S$20,000, and only up to 35% of that sum can be invested in stocks, and 10% in gold. Investment options for the OA are limited as it is not meant primarily for investments.

The CPF MediSave Account (CPF MA) is meant for hospitalisation expenses and approved medical insurance like the government-mandated MediShield Life, which covers large hospitalisation bills in subsidised, i.e. Class B2 or C wards, at public hospitals. Your MA can also be used to pay your premiums for IPs (Integrated Shield Plan) which provide additional coverage for higher class wards (Class B1 and above) and stays in private hospitals depending on your age. These are the Additional Withdrawal Limits, or how much of your MediSave you can use to offset your annual IP premiums:

• Age next birthday 40 and below: S$300
• Age next birthday 41 to 70: S$600
• Age next birthday 71 and above: S$900

As a young working adult, I didn’t see the need for medical insurance until I had to pay for hospital bills, but this is a must-have insurance plan. When I turn 30, I’ll be automatically enrolled into CareShield Life, a long-term care insurance scheme by the government. I’ll then boost my severe disability insurance coverage to ensure that my family is covered should anything happen to me.

The CPF Special Account (CPF SA) is meant for retirement savings and investments, which is why you get a higher interest rate on your SA than your OA. CPF interest rates are reviewed on a quarterly basis, and any funds above S$40,000 in your SA can be put towards a range of safer investments such as unit trusts, treasury bills, etc. A comprehensive list is available here.

When you turn 55, CPF transfers the savings in your SA and OA to your RA (Retirement Account), up to the FRS (Full Retirement Sum) for your retirement payouts. More information on CPF retirement sums here.

Deputy Prime Minister and Minister for Finance Lawrence Wong also announced some changes to CPF during the Budget 2024 announcement:

• MediSave bonus – up to S$300 for Singaporeans aged 21 to 50
• Majulah package – Earn and Save bonus, Retirement Savings bonus and MediSave bonus for seniors
• Closure of SA for members aged 55 and above – these funds will be transferred to their RA to continue earning long-term interest rates

The full list of announced changes can be found here.  

TLDR: OA is used for housing and any excess above S$20,000 can be invested. MA pays for the government-mandated MediSave Life and premiums for your supplement plans from private insurers. SA earns a higher interest rate, is primarily for retirement savings and investments, and you can choose to invest any amount above S$40,000. RA is used for monthly payouts that you receive in your golden years.

CPF Hacks to Combat Inflation

When we’re young, it might seem like our CPF money is lightyears away from being unlocked, but don’t let that detract from the value of your retirement savings. I’m no expert in optimising my CPF account, but here are some tips to help you make the best of your CPF:

1. Invest your CPF funds into Treasury Bills

Treasury bills (T-bills) are a safe, short-term investment option issued by the Singapore Government which can be used to diversify your investment portfolio. With T-bills offering more than 3% interest per annum these days, this might be a feasible option if you’re keen to earn more than the 2.5% on your OA balance.

2. Invest your CPF funds into ILPs

Investment-linked Plans (ILPs) are an investment option that can be purchased with your SA funds but note that this carries more risk than investing in T-bills. Depending on your risk appetite, you might already be satisfied with earning 4% on your SA.

3. Top up your CPF for tax relief benefits

Using cash to top-up your CPF account gives you tax reliefs of up to S$8,000, and you could get further tax reliefs of up to S$8,000 more if you top up the CPF accounts of your loved ones. Although this helps you save on taxes on S$16,000 of your income, remember that you’ll only be able to make CPF withdrawals from age 55 onwards.

Your CPF account isn’t just about deductions from your monthly salary, it’s a building block for your future housing, healthcare and retirement needs. Having the know-how to manage your CPF helps you better prepare for what’s to come.

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