cpf life vs retirement sum scheme

CPF LIFE vs Retirement Sum Scheme: What’s the Difference?

Planning yourself for retirement is one of the best ways to cushion yourself financially when you reach a ripe age when you can no longer work. You have seen the CPF LIFE (Central Provident Fund Lifelong Income for The Elderly) and the Retirement Sum Scheme (RSS). But what is the difference between the two?

Before you decide on any retirement scheme, it is essential to learn about their difference and choose one that suits you best. This article will help you understand the CPF LIFE and the RSS better and know which one is for you.

What is CPF LIFE?

CPF Lifelong Income for the Elderly (LIFE) was introduced in 2009 due to the rising expectancy rate in Singapore. Since its inception, Singapore’s average life expectancy rate has risen from 81.4 years to 83.6 years.

CPF LIFE is a national annuity scheme that offers monthly payouts to the elderly no matter how long they live. The scheme allows you not to ever run out of retirement savings when you are old.

If you are a citizen or a permanent resident (PR) in Singapore born in 1958 and after, you are eligible for the scheme if you have S$ 60,000 in your CPF RA 6 months before your retirement age.

The CPF LIFE offers three plans that you can choose from, and these plans will provide you with your monthly payout when you are alive. Your Retirement Account Savings will be used as a premium, and your premiums will earn a risk-free interest of up to 6% p.a. In addition, your premium balance will be disbursed to your beneficiaries once you pass away.

Here is a summary of the CPF LIFE plans:

  Basic Plan Standard Plan Escalating Plan

Monthly payout

Lower payouts Higher Payouts

Lower initial payouts

Features

Around 10-20% of your RA savings will be deducted from your CPF LIFE premium. The first payout will be from your RA, estimated to last for 90days. The subsequent payouts will be paid from your CPF LIFE premium
  • Regular payout but eventually reduces than that of the escalating plan.
  • 100% of the RA savings will be used to pay a lump sum of the premium once you join.
  • The first payout is lower than the standard payout by 20% but increases by 2% yearly, keeps up with inflation and will be larger than the standard plan.
  • 100% of the RA savings goes to the lump sum premium.

In the event of death

Any remaining annuity premium and RA savings will be disbursed to your beneficiaries. The plan type and age determine the amount at the time of your death.

 

Once you decide on the CPF LIFE plan, you will need to work out the amount of payout you will need in your CPF savings to achieve it. You can use the CPF LIFE Estimator to find out of CPF LIFE premium you will need to reach your desired payout under the selected CPF LIFE Plan.

Here is a look at the expected relationships between your premiums and expected monthly payouts:

Desired Monthly Pay-out from 65 CPF LIFE Premium at 65 [Savings You Need at 65] Savings You Need at 60 Savings You Need at 55
$350 – $370 $60,000 $45,800 $35,500
$540 – $570 $97,300 $76,000 $60,000
$770 – $830 $145,200 $115,400 $93,000
$960 – $1,030 $184,400 $147,600 $120,000
$1,430 – $1,530 $280,200 $226,300 $186,000
$1,520 – $1,640 $300,600 $243,000 $200,000
$2,080 – $2,230 $415,300 $337,300 $279,000

 

It is important to note that the monthly payout estimates are based on the CPF LIFE Standard Plan for members who turn 65 in 2031as computed in 2021. The monthly payouts may also be adjusted to account for the long-term changes in life expectancy or interest rates. However, such adjustments are expected to be very gradual and small.

 

What is the CPF Retirement Sum Scheme?

The CPF RSS account is for anyone who turns 55, and money on your Ordinary or Special Account is automatically transferred to your retirement account.

The Retirement Sum Scheme offers members monthly payouts to support their basic living standards after retirement, and it also provides the payout until you die or till you turn 90. Unlike the CPF LIFE, your monthly payout is determined by the amount in your retirement accounts. You can also use your retirement amount that is in excess to buy property.

It is important to note that the RSS scheme does not offer lifelong payouts. The payouts last up to 90 years at most.

man with hat standing next to sea bridge

CPF LIFE vs. Retirement Sum Scheme

The CPF LIFE was created to replace the Retirement Sum Scheme because of the current economic change and rise in life expectancy. This makes CPF LIFE the improved version of the Retirement Sum Scheme. The RSS is still relevant since most Singapore citizens are still part of the scheme.

Similarities

  • Monthly payouts start at 65
  • The excess funds can be used to buy property

Differences

  Retirement Sum Scheme CPF LIFE

How You Receive Payouts

Monthly payouts are drawn from Retirement Account until $ depletes.
  • Lifetime Monthly payouts from CPF LIFE.
  • You can join CPF LIFE Basic Plan, and you will receive monthly payouts from your RA savings from your payout start to age until one month before you reach 90. From 90 years old, you will continue to receive monthly payouts from the Lifelong Income Fund for as long as you live.

Amount of Monthly Payouts

The number of monthly payouts depends on how much you have in the Retirement Account

The number of monthly payouts depends on how much you have in your Retirement Account.

Interest Rate Returns

Interest paid into accounts

Interest paid into Lifelong Income Fund

Can I Buy A Property Using My Retirement Account?

Yes. You can use your Retirement Account (RA), which is more than your Basic Retirement Sum, to buy a property.
  • Like RSS, you can use the RA over the BRS to buy a property.
  • RA Funds are not deducted automatically at age 65. It is done only when members wish to start their CPF monthly payouts.

Lifelong Payouts?

  • No.
  • Retirement Sum Scheme (RSS) payouts will last up to age 90 instead of age 95. Hence older members who are already receiving payouts with a duration exceeding age 90 will have their payout amount adjusted upwards.
  • RSS members who turn 65 from 1 July 2020 onwards will be on the new payout rules.
  • For older members, who have started receiving their payouts, the new payout rules will only apply to them if their payout amount is higher under the new regulations.
  • Hence, this group of members will receive either the same or higher payout. 

Yes.

 

Which Is the Scheme for Me?

The CPF LIFE scheme is for you if you are:

  • A Singapore citizen or a Permanent Resident born after 1958.
  • Have S$60,000 or more on your RA (Retirement account) 6 months before you reach the payout eligibility and before you reach your pay put eligibility age (PEA).

The CPF LIFE scheme does not include housewives, business owners, or self-employed individuals who do not contribute to their CPF. Please note that you still have the option to join the CPF LIFE scheme even if you do not meet the above criteria.

The Retirement Sum Scheme is for your among:

  • The people withdrew from the RSS in 2009 before CPF LIFE was introduced. The members can, however, choose the CPF LIFE if they choose to.
  • People born before 1958, but have not already started receiving their monthly payouts. With this option, you can remain in the RSS scheme or switch to CPF LIFE.

Related Questions (FAQs)

1. What Is the Different the RSS vs. CPF LIFE Monthly Payouts?

The difference between the CPF LIFE and Retirement Sum Scheme is that you will receive monthly payouts until you are 90 years old but will receive lifelong payouts on CPF LIFE.

The monthly payout remains almost the same, but they are determined whether you hit the Basic, Full, or Enhanced Retirement Sum. Here is an overview of what to expect:

Schemes Amount RSS Monthly Payouts CPF LIFE Monthly Payouts

Basic Retirement Sum

$88,000 $730 to $790

$730 to $790

Full Retirement Sum

$176,000 $1,350 to $1,450

$1,350 to $1,450

Enhanced Retirement Sum

$264,000 $1,960 to $2,110

$1,960 to $2,110

 

2. Will My Retirement Payments Stop If My CPF Retirement Account Runs Out of Money?

No. This will not happen as long as you are no CPF LIFE. If you were born in 1958 and after, you must have at least S$60,000 in your Retirement Account at least six months before you turn 65. This way, you will be automatically enrolled in the CPF LIFE scheme.

Even if you are not automatically enrolled in the scheme, you can apply to join the scheme before you turn 80.

CPF LIFE guarantees monthly payouts for life regardless of the account in your CPF accounts. You will receive the payouts for as long as you live.

3. Is the CPF LIFE Similar to the Retirement Sum Scheme?

The CPF LIFE scheme is the primary retirement income scheme for all CPF members, and it was designed to replace the Retirement sum scheme, which is currently being phased out.

Both plans will provide you with monthly payouts during your retirement. However, the old RSS gives its monthly payouts to people up to 90, while the CPF LIFE pays out for life.

1 in 3 Singaporeans lives past the age of 90. It only makes sense to have a retirement plan that pays out past the age of 90. However, you have to pay a significant lump sum premium from your retirement account when you join the scheme between the age of 65 to 70. Joining the scheme at this age will restrict you from using your money for other purposes.

man selecting retirement plan from paper

4. What Happens If I Cannot Meet the Basic Retirement Sum?

If you are not in a position to meet the Basic Retirement Sum, your terms will change a little when you turn 55.

If you have S$5,000 or less in your Retirement account, you can withdraw the entire amount when you turn 55. You will not receive your retirement payouts when you do, and you must have done your retirement planning.

If you have more than S$5000 but are less than the basic retirement sum, you are allowed to withdraw $5,000 when you turn 55. After that, you will have to wait till you are 65 to receive the CPF LIFE payouts, which will then be prorated based on the amount you have in your account.

If you have more than the Basic Retirement Sum but less than the full retirement sum, you can withdraw the savings above the basic retirement sum only if you have property pledged to the account. However, if you do not have any property, you will only be allowed to with S$5,000.

It is important to note that you do not need to top up your account to meet the Retirement Sum, but if you receive any new CPF contributions or top-ups at the age of 55, the said money will be kept in your CPF until your balance meets the Retirement Sum.

If all the above solutions fail, there is only one final solution. You will need to continue working past the age of 65 and delay the initial retirement payout. This will give you more time to accumulate your preferred retirement sum.

5. How Do I Start Saving for My Future CPF?

If you are approaching 55, I am sure you have already projected the CPF Retirement Sum, which can be intimidating. While it’s never too early to start planning for your retirement, you should not worry much if you don’t. You still have time to take advantage of the compound interest your money can earn.

If you are just starting, you can do a few things to ensure that you hit your desired Retirement sum faster. They include:

  • Transfer funds from your Ordinary Account to your Special Account: When you transfer funds from your OA to your SA, you will boost your interest from 2.5% to 4.0%. Please note that the transfer is one way, so make sure you do this if you are sure you do not need the money for other things such as housing.
  • Funding your Retirement Sum Topping-Up Scheme: When you top up your Special Account in cash, you can get a tax relief of up to S$7,000 a year until you hit the Full Retirement Sum. With this option, you also need to ensure that you do not need the cash in the short or medium term since your money will be locked.
  • Invest your cash outside CPF- You can also invest your cash elsewhere apart from the CPF. This way, you have wiggle room in cases of future contingencies.

Conclusion

Retirement schemes are a great way to ensure that you maintain the same quality of life you are living when you can no longer work. The CPF LIFE and the RSS provide monthly payouts for Singaporeans and PRs. Most Singapore citizens do not need to worry about which retirement scheme they are on. You will automatically be enrolled on the CPF LIFE.

Key Takeaways

  • The CPF LIFE is a replacement for the RSS, which is being gradually phased out.
  • The initial payout on CPF LIFE and RSS is the age of 65
  • The RSS and CPF Schemes are funded from your RA account

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