Helping your parents manage their CPF? Here are four things to know

Your parents have worked hard all their lives, and are now looking forward to the next chapter of their lives as they reach retirement age.

The distribution of CPF monies across different CPF accounts may be an important determinant of how their retirement lifestyle will be. As such, it is important that you are able to advise them on how to manage their CPF accounts.

Here are four things both you and your elderly parents should know:

1. Understand how CPF works

The CPF scheme can be confusing due to the sheer number of policies involved and extensive changes the scheme has undertaken over the years.

At its heart, the CPF scheme is meant to provide financial security for Singaporeans and Singapore Permanent Residents (PRs) when they retire. It also provides flexibility to use some of the funds for your housing, education, insurance and medical needs.

CPF uses and interests

Throughout your working life, you contribute a portion of your salary towards your Ordinary Account (OA) and Special Account (SA)*. 

You earn a risk-free return of between 2.5% (for your OA balances) and 4.08% (for your SA balances). You also get tax relief for these mandatory contributions, as well as any voluntary contributions. Do take note that from 1 April to 30 June 2024, the interest rates for SA, MA and RA will be 4.05% p.a..

You enjoy certain flexibility with your OA, as you can use your OA balances to purchase a home, education, insurance policies, and invest. You enjoy less flexibility with your SA, but you may still invest a portion of it.

* Note: CPF Special Account closure was announced in Budget 2024, and the official date is slated for the first quarter of 2025

Key milestones

Once you reach age 55, your SA will be closed, and SA savings, followed by OA savings will be transferred to a newly created Retirement Account (RA) until it reaches the Full Retirement Sum (FRS; more on this below). 

Below are the amounts you can withdraw depending on your RA balance:

At 65, CPF members who were born in 1958 or later and have at least $60,000 in their RA will be automatically enrolled in CPF LIFE, Singapore's life annuity scheme. It gives you the assurance of receiving a lifelong monthly payout, regardless of how long you live. If your parents are not automatically enrolled, you can enrol them any time from 65 to one month before they turn 80. 

2. Understand CPF LIFE for retirement

Delving deeper into the CPF LIFE annuity scheme, there are three main things that you need to know.

Your retirement sum

As mentioned above, when you turn 55, the bulk of your CPF savings will be transferred into your RA. At this point, you can choose to save either the Basic Retirement Sum (BRS), Full Retirement Sum (FRS) or the Enhanced Retirement Sum (ERS).

The actual amount for each retirement sum changes each year, to keep up with inflation and rising costs of living. The BRS and FRS are fixed according to your birth year – for example, if you turn 55 in 2024, you will reach BRS with $102,900 in your RA. Meanwhile, your friend who will turn 55 in 2025 will reach BRS with $110,200, and this value will not change for him. 

As for the ERS, which basically is the maximum amount that can be in your RA, it is not dependent on your birth year. Regardless of your age, the maximum allowed amount in RA is $308,700 in 2024, $426,000 in 2025 and so on. Find out the latest retirement sums on the CPF website.

Here's an example of retirement sums at 55 and estimated monthly payouts at 65 in 2024 

• BRS ($102,900): $840 - $900 monthly
• FRS ($205,800): $1,560 - $1,670 monthly‍
• ERS ($308,700): $2,280 - $2,450 monthly

The FRS is the ideal reference point of how much you may need in retirement. If you own a property and have at least the BRS in your RA, you can choose to pledge your property. This will then allow you to withdraw your OA and/or SA savings beyond the BRS. 

Your CPF LIFE plan

At 65, you will have to choose the CPF LIFE plan that you wish to be on. There are three plans to choose from: Basic Plan, Standard Plan and Escalating Plan.

• The Basic Plan provides lower monthly payouts that progressively decrease once your RA balance drops below $60,000. This is usually chosen by members who wish to leave more in a bequest to their loved ones. 
• The Standard Plan is the default option that pays out the same amount every month. 
• The Escalating Plan to start your payouts at a lower base and receive gradually increasing payouts (2% yearly) to factor in inflation and rising standards of living.

Deferring your payouts

As Singaporeans are living longer and working longer, there may be a significant group of people still gainfully employed at 65. If your parents are still employed, they can choose to defer their CPF LIFE payouts up till 70 years old.

Doing this will enable them to receive up to 7% increase in monthly payouts for every year they defer.

3. How to grow your parents’ CPF for retirement

Your parents' RA savings will eventually translate into the lifelong monthly payouts from the CPF LIFE annuity scheme. Hence, accumulating adequate CPF savings can provide greater comfort and security in retirement. 

Here are six ways you can help your parents grow theirs:

1. Retirement Sum Topping-Up Scheme (RSTU)
2. Matched Retirement Savings Scheme (MRSS)
3. Voluntary contribution to MediSave Account (VC-MA)
4. Transfer OA excesses to SA
5. Invest CPF savings via CPF Investment Scheme
6. Withdraw only what you need

Retirement Sum Topping-Up Scheme (RSTU)

If you're wondering how to top up your parents' CPF, the Retirement Sum Topping-Up Scheme (RSTU) allows you or your parents to contribute to their SA (if they are below age 55) or RA (if they are aged 55 and above). This can be done via a CPF transfer from your own savings or a cash top-up.

Before transferring your CPF savings to your parents, your CPF balance has to exceed the BRS. This is to ensure that you have sufficient CPF savings for yourself in the future. CPF top-ups are also irreversible.

If your parents are below 55, top-ups can be made up till the FRS, and up to the ERS when they are 55 or older. 

Matched Retirement Savings Scheme (MRSS)

The Matched Retirement Savings Scheme (MRSS) is designed to assist senior Singaporeans who have not yet met the BRS. 

Under the MRSS, for every dollar of cash top-up made to your parents’ RA through the RSTU, the government matches it with an additional dollar.

Starting from 1 January 2025, the annual matching grant cap will increase from $600 to $2,000, with a lifetime cap of $20,000 for each eligible member.

Eligibility criteria for MRSS:

• Singapore citizens aged 55 to 70 (current) or 55 and above (from 1 January 2025).
• RA savings below the BRS 
• Average monthly income not exceeding $4,000.
• Annual value of residence under $21,000.
• Ownership of not more than one property.

From 2025, cash top-ups that attract the MRSS matching grant will not enjoy tax relief. Let’s take this as an example: 

You make a $2,000 cash top-up to your mum’s RA – there will not be any tax relief for this top-up, but she will still get the maximum annual matching grant of $2,000. 

In the same year, you make another $1,000 cash top-up to your mum’s CPF account – this will then be eligible for tax relief, with no further matching grant. 

Do note that there is a maximum annual tax relief of $8,000 for cash top-ups to your loved ones’ CPF.

Voluntary contribution to MediSave Account (VC-MA)

Retirement security is not just about retirement income, but also ensuring you have sufficient to meet medical needs. 

Cash top-ups to your parents’ MA is also part of the tax relief granted to cash top-ups made to your loved ones’ CPF, which is capped at $8,000 annually. What this means is that up to $8,000 of all cash top-ups made to your loved ones’ MA, SA or RA will be eligible for tax relief.

If your parents wish to, they can also make a voluntary cash top-up to their own MA, which is also eligible for tax relief, up to $8,000 annually (separate from the $8,000 annual cap you make for them). 

The maximum amount you can have in your MA is called the Basic Healthcare Sum (BHS), which is adjusted annually but will be fixed for the rest of your life once you reach age 65. For instance, the BHS for CPF members who turned 65 in 2023 is $68,500, and will remain the same throughout their lives. Meanwhile, the BHS for those who turn 65 in 2024 is $71,500. 

Hence, you will need to check how much your parents’ BHS are via the CPF website in order to determine how much voluntary contributions to make to their MA.

Transfer OA excesses to SA

Another way your parents can increase their retirement security is by transferring unused OA balances to their SA or RA for higher interests. This is especially relevant if they have already paid off their home mortgage and don’t have further use of their OA (such as the termination of the Dependants’ Protection Scheme at age 65).

Compounded over a long time, the approximate 1.5% interest rate difference can add up significantly and bump up your parents' CPF LIFE monthly payouts.

Invest CPF savings via the CPF Investment Scheme

Inflation can erode purchasing power over time, meaning that the money saved today will be worth less in the future. Your parents may wish to explore CPF investment options for their excess savings. OA and SA savings in excess of $20,000 and $40,000 respectively can be invested, after your parents take the Self-Awareness Questionnaire (SAQ). 

However, before investing, your parents (or yourself) should weigh the risks, time horizon, and retirement needs – here are a few things to consider.

Withdraw only what you need

All CPF members can withdraw a lump sum of $5,000 from their CPF accounts at 55, and 20% of their RA balances (inclusive of the initial $5,000) once they are 65, regardless of how much CPF savings they have.

Your parents can build a larger retirement nest egg by passing over short-term lump sum withdrawals to let their savings continue to compound and contribute to their CPF LIFE monthly payouts, which will last a lifetime.

4. Legacy planning for CPF

CPF is not covered under your or your parents' will. This means that if your parents have not made a CPF nomination, their CPF savings will be transferred to the Public Trustee's Office for distribution to your family members under the Intestacy Law or Certificate of Inheritance (for Muslims). There will be fees charged for dealing with CPF monies.

If your parents want to distribute their CPF funds on their own terms, they should make the appropriate nominations.

Retirement planning doesn’t have to be complicated

Having discussed the key components of CPF, retirement planning may seem challenging – layer on talking to our parents about money, and the entire process appears even more daunting.

You may find it helpful to break down the process into simpler steps using this checklist, or seek professional help to guide you through the process.

Our team of MAS-licensed client advisors can provide personalised advice to help you and your parents with retirement planning. Schedule a call with us here, or to get started with Endowus, click here.