With inflation still on the rise at 3.6% this year, it’s good to err on the safe side and save for rainy days., Financial security continues to be one thing on all our minds, especially when living in Singapore. Hence, it’s also why the government would set up decades in advance the Central Provident Fund (CPF) to assure we have enough to get by during retirement. 

By early 2025, new CPF policy updates will be implemented to safeguard our future finances. This includes increases in monthly retirement payouts and new bonus packages to support lower-income seniors. We will be covering the changes and updates in detail, and what they entail for your retirement payouts and financial planning in the coming years.

Everything You Need To Know About CPF Basic, Full & Enhanced Retirement Sum

Contents

1. But First, What Is the CPF Retirement Account?

The CPF Retirement Account is a rite of passage for Singaporeans moving into their golden years. Once you turn 55, your Ordinary Account (OA) and Special Account (SA) funds will be deposited into the newly created Retirement Account (RA). Per its namesake, the RA is meant to provide financial support during your golden years. 

The minimum retirement age in Singapore is 63 years old and is set to increase to 64 years old by 2026. As these payouts would support our daily expenses post-retirement, it’s always good to plan to ensure you enjoy the desired quality of life later on.

2. OK, So What Are the CPF Retirement Sums (RS)?

The Retirement Sum Scheme (RSS) acts as your personal savings target, indicating how much money you should contribute to get the desired monthly payouts later on. There are 3 targets set out for you: 

1. Basic Retirement Sum (BRS)

2. Full Retirement Sum (FRS)

3. Enhanced Retirement Sum (ERS)

Each sum unlocks different guaranteed payouts later and is likely to increase year-on-year. However, the increase will depend on when you turn 55, in which the sums will stay unchanged for the rest of your life. Here are what the retirement sums look like for those turning 55 from 2024 to 2027:

2024-2027 BRS & FRS Changes. Source: CPF

2024-2027 ERS Changes. Source: CPF

If you turn 55 in 2025 and are saving up to reach the FRS amount, you will need at least $213,000. Meanwhile, your friend who turned 55 this year will only require $205,800 for his FRS. 

Basic Retirement Sum (BRS)

As the name implies, the BRS will provide monthly payments to cover basic living expenses, excluding rental payments. Capped at $102,900, this is the lowest tier within the RS, with average monthly payouts from $840 to $900.

Source: CPF

Going forward, here’s how much the BRS will increase progressively till 2027: 

Full Retirement Sum (FRS) 

Most Singaporeans will work towards this ideal amount as the FRS looks to safeguard your future daily expenses and accounts for future accommodation costs. 

Currently capped at $205,800, FRS guarantees a monthly payout of $1,560 to $1,670 when you turn 65. A single senior will need about $1,421 per month to get by. These payouts will be beneficial without incurring extra costs out of your pocket. As with all retirement schemes, the FRS will be upped each year to ensure a practical and comfortable retirement.

Source: CPF

Here’s what the rate of FRS will look like: 

Enhanced Retirement Sum (ERS)

If you’re looking to enjoy a higher SES kind of retirement, you can plan towards the Enhanced Retirement Sum of $308,700. You can expect to receive the maximum payout of $2,280 to $2,450 per month from your 55th birthday onwards. 

Remember that the ERS will also be pegged again to 4 times the base of BRS in January 2025, with a new monthly payout standing at $3,330. You can check out the enhanced ERS from 2025 onwards in comparison to your BRS in the table below:

3. What if I Can’t Even Hit the Current Basic Retirement Sum?

Thankfully, there is no penalty for not meeting the BRS. However, you will be limited to making up to $5,000 maximum withdrawals, and your lifetime payouts will be prorated based on the exact amount of retirement savings accumulated.

Read more: Is Singapore Too Expensive to Live In?—Singapore’s Cost of Living 2024

4. CPF LIFE vs. CPF Retirement Sum—What’s the Difference?

As part of our citizenship perks, Singaporeans are automatically eligible for the CPF LIFE alongside the CPF Retirement Sum. 

Although both are enhanced retirement schemes, the CPF Retirement Sum only covers you until 90 years old while CPF LIFE will provide lifelong incentives even when you live for a century and more (assuming you live that long). Here are some key features to take note for both schemes:

*Those on RSS can opt to join CPF Life before turning age 80

For such benefits, the minimum requirement is naturally higher. The RSS is available even if your RA has a minimal $40,000 to $60,000. However, CPF LIFE requires at least $60,000  in your account and regular CPF contributions to be eligible. 

In general, most working Singaporeans will be automatically included in CPF LIFE unless they belong to the category of those who don’t contribute regularly to the CPFs: stay-at-home moms, self-employed individuals, and small business owners. 

If you cannot meet CPF LIFE’s requirements by the time you’re 55, don’t fret! You can still be eligible for the scheme. Simply log into My CPF Online Services and complete an online application to rejoin, anytime between 65 and a month before your 80th birthday. Those in the Pioneer and Merdeka Generation (born before 1958) would automatically join the RSS. However, they may switch to CPF LIFE anytime before turning 80.

5. Special Account Closing By 2025—What Does It Mean For You & Your RA?

The SA has always been to accumulate your retirement funds, with a high, risk-free interest rate of 4.08% per annum. Moreover, you can withdraw your funds at any time, provided you meet the FRS. However, given the recent announcement of its closure, there will be 3 key changes from now till early 2025: 

1. CPF Special Account to close for those 55 years and above.

2. Your savings in SA will be used to top up the RA directly up to the FRS limit – You will still enjoy the long-term yield of up to 4.08% in your RA. You can only withdraw these funds at 55, provided you have satisfied the minimum FRS sum. 

3. Any remainder of your SA savings will then be transferred to the OA – These funds will now earn the designated interest rate of 2.5%. 

This change is intended to clamp down on the loophole “CPF SA shielding”. As you know, when turning 55, your savings in SA and OA will be deposited into the RA. The amount transferred is up to the FRS, which currently stands at $205,800. 

However, most people will only leave the minimum of $40,000 in the SA, while redirecting the rest for investing in short-term and safe instruments under the CPF Investment Scheme. Typically, these people liquidate their investments shortly after turning 55, to keep their funds in the SA to continue enjoying the flexibility and higher interest rates.

Here’s an illustration of the difference in interests earned with CPF Shielding versus the redirected funds with the closure of the SA:

In essence, you are converting your SA into a short-term, withdrawal-on-demand savings account rather than the long-term deposit account they were designed to be. Furthermore, this contradicts the government’s intention for only purported long-term accounts to be entitled to higher-yielding interest rates. 

With the closure of SA, CPF members who have already saved the FRS of $205,800 will be most affected, as their SA funds or any new contributions will be automatically channelled to the OA with lower interest rates. While the pinch is real, it’s not really the end of the world. There are other options to keep on growing your neat nest of retirement funds.

6. What Are The Alternative Options to Grow Your RA?

You can still use your RA to invest in approved low-risk instruments such as the Singapore Savings Bonds (SSBs) or Treasury Bills (T-Bills). For starters, SSBs are currently set at a 3.06% interest rate p.a, whereas T-Bills have seen a 6-month yield of 3.8% p.a. These are definitely better options to grow your RA, instead of solely relying on the OA’s 2.5% rate. 

If you are more conservative in your investment approach, simply top up your RA to the updated ERS, to maximise the benefits of the 4+% interest rate. Note: once you transfer your savings to the RA, you cannot reverse this decision and cannot withdraw for investment or emergency purposes.

7. Other CPF Policy Changes You Should Take Notice Of

Yearly Increase in the CPF monthly salary ceiling till 2026 

To keep up with the rising cost of living, the CPF monthly salary ceiling will be gradually raised from $6,000 to $8,000 by 2026.

Here are the 3 stages of ceiling increments from 2024 to 2026:

Source: DBS

Currently, the rates of what you need to contribute are under the “By Employee” section of the table below, and do not apply to those who are self-employed. Furthermore, any CPF contributions are voluntary except for Medisave contributions, which you’ll be prompted to pay upon filing your yearly taxes.

Source: CPF Board 

Curious how much will go into your or your employee’s CPF? Check out our comprehensive CPF Contribution Rate table, or compute your rates via the CPF contribution calculator. 

8. What Happens if You’re Unable To Meet the CPF Contribution Ceiling?

If you are a senior earning around $2,336 per month, we got you covered.  The Majulah Savings Bonus package, set to be rolled out in 2024 and early 2025, will provide a one-time allowance to disadvantaged ‘young’ seniors (50 to 60 years old), as well as the Pioneer and Merdeka generations.

Earn & Save Bonus (ESB) 

If you belong to a lower-to-middle-income household, you will be eligible for an ESB of up to $1,000, with the first annual bonus going through your CPF (RA) or (SA) in March 2025.

Retirement Saving Bonus (RSB) 

Should your retirement savings fall below the usual BRS threshold of $99,400, you enjoy a top-up bonus of S$1,000 to S$1,500. This allowance will also be credited to your RA by December.

MediSave Bonus (MSB) 

Finally, if you were born in 1973 or earlier with less financial means (usually evaluated through the annual value of your home), you are also entitled to the higher tier bonus of S$1,500.

In Conclusion

It is never too early to begin planning for retirement, even if it is tempting to put it off in favour of more short-term expenses. The longer you wait, the more difficult it will be to create a sustainable retirement fund. Good financial planning will undoubtedly help you secure the funds to live comfortably for your golden years. 

Calculate how much you’ll need to sustain your ideal lifestyle and work towards your Retirement Sum. It never hurts to make a voluntary top-up while you’re financially capable. It’s good to be financially literate and stay up-to-date on the latest changes and investment tools to optimise your savings. These first steps go a long way to a worry-free life post-retirement.

Read more: CPF LIFE: The Complete Guide to Payouts, Plans & Minimum Sums

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Original article: CPF Basic, Full & Enhanced Retirement Sum: Updates & Policy Changes That You Should Know About in 2024.