Central Provident Fund (CPF) is an obligatory savings fund that the government has put in place for all Singaporeans and Permanent Residents. As much as we may not want to admit, not everyone will have the discipline and the habit of saving part of their income for retirement. Hence, CPF does have its own set of benefits.
Think of CPF as a fixed deposit that only matures during your retirement, would this make the monthly contributions seem a little bit more pleasant? The 4% interest rate given to our CPF Special Account (SA) with an additional 1% on the first combined $60,000 allows us to see our CPF as a ‘risk-free investment’. Providing a reliable absolute return, protection from creditors and an interest rate that beats inflation, Singaporeans can consider treating their CPF accounts like a savings plan.
CPF can be used for various things at different stages of your life. At the age of 30, for example, most people are either recently married or looking to get married soon and planning for their first big purchase – a house to live in. A savings plan for your children’s education won’t be too far away. With good financial planning, your CPF can help to manage these expenses.
The CPF Lifelong Income For the Elderly (CPF LIFE) is a life annuity scheme that provides Singapore citizens and permanent residents with a monthly payout as long as they live. There are three CPF Life plans to choose from – the LIFE Standard Plan, the LIFE Basic Plan and the Escalating Plan.
Every retiree has different needs and should opt for a payout option most suited for themselves. The standard plan enables you to reap higher monthly payouts during retirement while the basic plan allows you to draw a lower monthly payout leaving a larger amount for your beneficiaries. The last plan is an escalating plan where you can enjoy a monthly payout that increases by 2% annually.
One of the best ways to maximise and get the most out of CPF Life is to defer your payout age – the government has capped the age of deferment from 65 till 70. For every year you have deferred, your monthly payout increases and if you pick the basic CPF life, it’ll benefit your loved ones when you’re not around.
What happens to your CPF when you die?
The money from the CPF of a person who has passed on will be distributed in line with the nomination they made during their lifetime.
If there is no valid nomination, the CPF money will be sent to the Public Trustee Fund and if you would like the CPF money to be distributed to you, you’ll have to make an online application. Un-nominated CPF money will be distributed according to the Intestate Succession Act.
To know more about CPF nominations, you can read more here.