Have You Topped Up Your CPF Yet?

CPF top-ups have grown in Singapore helping in their financial planning. We break down the benefits of how you can take advantage of the CPF to plan for your retirement.
13 December 2021
family saving money holding piggy bank topping up cpf

CPF Board recently shared that it has achieved a record $4 billion worth of top ups in 2021, beating its record in 2020 of $3 billion. The top ups were contributed by a total of 220,000 CPF members, with more than half topping up for the first time in 2021.

If you have never topped up your CPF before and could be feeling slightly FOMO (Fear Of Missing Out) about this, here are five key things you need to know about the Retirement Sum Topping Up (RSTU) scheme, and what you should consider before jumping onto the bandwagon.

1. RSTU enables you to save more in your Special Account

Every month about 6 – 11.5% of our income is credited into our Special Account (for those below 55 years old) to help us set aside savings for our golden years. Depending on your income, you could be saving between $45 and $690 per month for your retirement. If you feel that this amount is too little to help you achieve your goals, then RSTU is one way to boost the amount of money you’re setting aside for your future.

2. Special Account earns risk-free interest of up to 5% p.a.

While there are many places that you can put your money in, the main reason your Special Account is so special is the relatively good interest that it pays, which can be as high as 5% p.a., with absolutely no need to take any market risk. Put into context, $10,000 in your Special Account can give you up to $500 in interest in a year. Over 20 years, this can exponentially more than double your balances to $26,500 without lifting a single finger.

 3. Top-ups also entitle you to tax relief

To sweeten the deal, when you make a top up into your Special Account with cash, you also get dollar for dollar tax relief of up to $7,000 per year. What this means is that if you’re currently in the 7% income tax bracket, being able to reduce your taxable income by $7,000 will help you to save $490 in tax payable next year. If you also top up $7,000 to your loved ones’ CPF accounts, you can reduce your tax liability further by another $490, saving you close to $1,000 today. To benefit from the tax relief in 2022, you will need to complete your top up before 31 December 2021.

4. There is a limit to how much you can top up

Given that this sounds almost too good to be true, you may be thinking about the terms and conditions. Well, there are mainly two. The first is that unfortunately, you cannot use that $1 million sitting idle in your bank account to top up into your Special Account. The maximum amount that you can top up your Special Account to is the current Full Retirement Sum, which is $186,000 in 2021 (this will be $192,000 in 2022).

Thus, if you already have this amount in your Special Account, you will not be able to benefit from RSTU. If you have yet to reach this cap, you may want to use the opportunity to do so, because with your ongoing work contributions and interest earned annually, you may eventually hit this cap, rendering you unable to benefit from this scheme.

5. Top-up money cannot be withdrawn in a lump sum

The second caveat for RSTU is that any monies that you top up into your Special Account cannot be withdrawn in a lump sum as this money is meant to be used to join CPF LIFE when you turn 65 years old. Under CPF LIFE, you will receive a stream of monthly income for life, forming a good foundation for your retirement income. That said, before you top up through RSTU, make sure it’s an informed decision and that you’re willing to lose the liquidity on these monies.

So, is RSTU suitable for everyone?

If you are still relatively young in your 20s or 30s and are willing to invest to grow your savings, investing in a globally diversified portfolio can reap you higher returns while allowing you to retain the flexibility in the use of your monies. It could be hard to predict what the future holds in the decades ahead so you may want to still maintain control over your monies.

Alternatively, you can consider doing a top up to your MediSave with the changes in the rules in 2022. A top-up to your MediSave gives you the same benefits of higher interest and tax relief, while allowing you to use your MediSave more flexibly for you and your loved ones’ medical needs. What’s more once your MediSave hits the Basic Healthcare Sum cap, any future contributions to your MediSave, naturally overflows to your Special Account to help you save faster for your retirement.

On the other hand, if you are risk averse thus unlikely to ever invest to grow your savings, approaching retirement or you don’t mind giving up on the liquidity, then there is no better place to build your retirement savings than through the CPF system. If you have already hit the Full Retirement Sum but would still like to maximise the benefits of the CPF system, there are other ways you can build your CPF accounts. If you are keen to find out more, speak to our client advisers and they would be more than happy to advise you on this.

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