A Special Account is one of three components of the Singapore CPF(Central Provident Fund) public retirement system. The other two are the ordinary account and the Medisave account.
An ordinary account: It is a savings account you save for housing, insurance policies, investments, and education purposes.
A Medisave Account: The account keeps a basic medical sum saved to pay for hospitalization, approved medical insurance policies.
A Special Account: It is a savings account for your future retirement or used to purchase investments related to retirement.
In 2021, the Singapore parliament passed an amendment bill that changed the current retirement system. The changes may affect your incoming retirement because it focuses on the Special Account. Let’s see the new features.
Know Your CPF Special Account
- Besides earning 4% per year, you can earn an additional 1% of the first S$60,000 of your Ordinary, Special Account, Medisave account combined if you are 55 or below. That is a 5% interest rate per annum.
- And if you are 55 or above, you earn an extra 2% of the first S$30,000 of the balances from the accounts combined and an additional 1% for the next S$30,000. The interest rate for parts of your savings can be 6% per annum.
- You will see the extra interests credited to the Special Account or Retirement Account. One requirement is to maintain a minimum of S$20,000 in your Ordinary Account for additional interest benefits.
- CPD board reviews interest rate policy quarterly and calculates the interest rates based on the 12-month average yield of the Singapore Government’s 10-year government securities(YSGS) plus 1% but not less than 4% interest rate floor.
- The new amendment bill 2021 increases the legal retirement age from the current age of 62 to 65. And the re-employment age rises from the current age of 67 to 70.
- The bill also increases the contribution rates for different age groups: For persons aged 55 to 60: the contribution percentage rises from 26% to 37%; for people aged 60 to 65: the rate rises from 16.5% to 26%; for persons aged 65 to 70: the rate increases from 12.5% to 16.5%, other age groups remain the same. The withdrawal age remains at 55.
Pros Of Putting More Money Into Your CPF SA
- Reasonable rates of return: CPF SA provides higher and stable rates of return than most banks offer. Banks in Singapore offer 0.5% to 1.4% fixed deposit rates, not to mention the much lower savings rates. The 5% to 6% range is attractive for CPF members. The return from the CPF SA is also an inflation beater.
- Guaranteed rates: The Central Provident Fund Board reviews interest rates quarterly. It determines the rates based on the Government’s 10-year securities plus a premium. Therefore, your CPF’s savings enjoys a guaranteed backup from the Government.
- Flexible investment options: If you want higher returns, you can turn to CPF’s broad approved list of offers like investment-linked insurance products, annuities, and other options. They embrace risk from high to low. You may increase your retirement sum if you can tolerate higher risks.
- Free from creditors: What’s more, your hard-earned savings in CPF is free from your creditors. If unfortunately, you go bankrupt during this period, your CPF accounts are protected by law from creditors, which distinguishes your CPF from banks and other financial institutions.
What Is The CPF Retirement Sum, And How To Make The Most Out Of It
The Central Provident Board says a retirement sum is an amount you’ll need to live a basic standard of living when you retire at age 55. The scheme will set up a Retirement Account for you to move savings from your Ordinary and Special Accounts to the Retirement Account. The CPF Board establishes 3 kinds of retirement sums for members. Let’s look at the table:
|Aged 55 at the year||Basic retirement sum(BRS)||Full retirement sum(FRS=BRSx2)||Enhanced retirement sum(ERS=BRSX3)|
The above table lists 3 kinds of retirement sums; the CPF Board says if you need a better living standard, you should save more to reach the goals like Full Retirement Sum or Enhanced Retirement Sum. The CPF Board has a CPF Life scheme and uses the information to calculate the monthly payouts to members.
The Board adjusts the amounts regularly to keep in pace with the cost of living and usually adds annual 3% increments into the basic retirement sum and other toys of retirement income. You may not be worried about lagging behind the living costs after you become a member of the payout scheme.
Prevailing Retirement Scheme
The prevailing retirement scheme is popular among members choosing lifetime payouts. They are the accumulated savings designated by the CPF board and converted into CPF Life payouts adjusted for inflation. But an alternative is available.
You may choose the Retirement Sum Scheme to receive monthly payouts if you have less than S$60,000 in your Ordinary and Special Accounts combined, and you have already had other private annuity services. You may choose your tailored-made payouts until the funds are depleted.
What Happens When You Achieve the Retirement Sum?
Congratulations! You are halfway to a good retirement life. Before proceeding, you may be interested in looking at some detail of the CPF Life scheme:
|Monthly payout age at 65||Savings you need at 65||Savings you need at 60||Savings you need at 55|
|S$350 – 370||S$60,000||S$45,800||S$35,500|
|S$540 – $570||S$97,300||S$76,000||S$60,000|
|S$770 – $830||S$145,200||S$115,400||S$93,000|
|S$960 – $1,030||S$184,400||S$147,600||S$120,000|
|S$1,430 – $1,530||S$280,200||S$226,300||S$186,000|
|S$1,520 – $1,640||S$300,600||S$243,000||S$200,000|
|S$2,080 – $2,230||S$415,300||S$337,300||S$279,000|
From the table, you need to have a median sum of S$120,000 at age 55 if you want to have a paycheck of about S$1,000 every month on average.
The minimum requirements for a retirement life vary. However, you should consider several factors before choosing an appropriate one. They are the time for retirement, payout amounts, cost of living.
Time for retirement: The longer you defer your retirement, you may accumulate more savings for a comfortable retirement.
Payout amounts: The more you defer your retirement, the more your payout amounts are.
Cost of living: If you think the cost of living increases every year, you should save more to reach a standard living level.
How to Achieve Your Retirement Sum Faster
Besides the factors, you may consider a proactive approach to increasing your savings for early retirement. The following are some steps you may take to improve your retirement sum:
- Transfer your funds in the Ordinary Account to the Special Account: You can earn an extra 1.5% interest on the funds in the Ordinary Account if you do this. For example, you have S$40,000 in your Ordinary Account. If you transfer S$20,000 to the Special Account, you may earn an extra S$300 each year.
And remember, the transfer is not reversible; you may lose other benefits like housing or education.
- Top up your retirement sum: You can increase your contributions to reach the Full retirement scheme in your Special Account before 55 and the Enhanced Retirement Scheme in your Retirement Account after 55.
- Tax Relief: The amendment bill allows tax relief up to S16,000 contributions each year($$8,000 for a member, the other S$8,000 for his siblings). You may make full use of the relief to save more.
- Invest in increasing return: The scheme allows members to use the funds(except the first S$20,000 in the Ordinary Account and S$40,000 in the Special Account) to purchase investment products on the approval list.
They include unit trusts, insurance policies, bond funds, exchange-traded funds, fund management accounts, annuities. Members can also buy shares, corporate funds, and property funds, but the investments are subject to 35% of the investible savings in the account. Members should restrict their gold investments to 10% of the investible savings.
Members should consult their financial advisors before investing as the products involve higher risks than interest-bearing products.
- Holders of the Special Account can invest in moderate-risk insurance policies, annuities, and endowment policies besides treasury bills and Government bonds.
We’re Answering Some of Your Most Asked Questions
1. What are the differences between private annuities and CPF Life?
The Singapore Government guarantees up to 6% for the first S$60,000 of your funds in the CPF accounts. The high rate is appealing to bank depositors alike. Moreover, the private annuities payouts vary depending on rates of return and individual mortality rates. Therefore, you should examine before choosing a personal pension.
2. How to take part in a CPF Investment Scheme if I want to increase fund’s return?
You should meet the following before investing in other products:
- You are 18 of age;
- You are not uncharged bankrupt;
- You have more than S$20,000 in the Ordinary Account and S$40,000 in the Special Account for investment purposes.
- You take a Self-Awareness Questionnaire to understand 1. your risk tolerance and levels; 2. your understanding of financial products relating to costs and risks in the market.
3. Can I Withdraw my Savings Earlier if I Have a Serious Health Condition?
Yes, you can withdraw the funds in your CPF savings accounts if a medical practitioner, approved by the Board, verifies your medical condition deeming you having a short life expectancy.
4. Which Account: the Ordinary Account or The Special Account, should I take the Funds out to make the First Withdrawal?
Members should withdraw funds from the Special Account first because the CPF Board states the account is for long-term funds.
5. Are There CPF Special Account Ceiling for CPF Members?
Yes, if you are under 55, you cannot save more than the Full Retirement Fund(S$186,000) designated by the CPF Board. If you are 55 or over, the Special Account should not be over the Enhanced Retirement Fund(S$279,000).
6. What is a Basic Healthcare Sum(BHS)?
It is an estimate of your future medical expenses. Using the statistics from MediSave, the CPF Board forecasts the sum, which is the reserve for future medical expenses, premium for medical insurance policies, and long-term care expenses.
7. Are CPF Life Payouts Guaranteed?
No, the payouts are not guaranteed. But the payouts are backed up by the Singapore Government, and adjustments made only due to the cost of living are small and gradual.
8. Can the self-employed member make voluntary top-ups to CPF accounts? Is there any limit to the top-up limits?
A self-employed member can contribute voluntary top-ups to 3 CPF accounts: Ordinary, Special, and MediSave. However, there is a limit to what he can contribute; he cannot put more than the differences between the CPF annual limit of S$37,740 and the mandatory contributions for a calendar year. Any excess contributions will be refunded with any interest.
9. Do I need an Investment Account for the CPF Investment Scheme – Special Account (CPFIS-SA)?
If you use the Special Account scheme for investment activities, you do not require another account for doing this. Investing service providers like insurance companies, banks, or brokerages can directly link up with your Special Account.
Our Final Thoughts
You may increase your wealth through a CPF Special Account by taking advantage of its high-interest offers and investing in ETFs or investment-linked insurance products for more growth. Read more on how to use CPF to invest.
Here are our key takeaways:
- Tax relief for cash top-ups
- Grow the funds in the Special Account for a fast buildup of wealth
- Make use of up to 6% interest rates offered by the Special Account
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