What Do You Know About the Central Provident Fund (CPF)?

Running through life in a frenzy often makes usthink more about the near future than think of life when you won’t be able towork with the capacity that you have now. And getting old worries us all.Nobody wants the contours of age on their face and still, no-one can doanything to stop it. The habit of saving can be instilled from a young age butthe savings that you do daily while going around your work and life, aren’tenough to help you be on your feet with arthritis! The incapacity to work inyour later days can be painful when all your savings run out and even puttingfood on the table gets difficult. Since the government doesn’t want you to diehungry and old, the ministry of manpower keeps tracks of your earnings and eventhough you have a habit of spending lavishly, you won’t be able to exhaust allof the earnings that your firm provides. This is the Central Provident Fundthat makes sure that you save some amount of money from your work to assist youin the end times and let you be self-dependent even in old age.

What is Central provident Fund?

The need for money doesn’t see age or the capacity to work. You need it now and you will need it more in 40 years down the line when medical bills begin to pile one upon the other. Not everyone has the perception of aging and the future so people don’t care about saving and keep living the fast life in full throttle. So the government of Singapore had to come up with the idea of making people give up a part of their salaries to a fund that saves the money for you all your years with your career until you retire. The Central Provident Fund or CPF is something like a savings account that the government creates for you. The CPF was created to provide financial security to the citizens when they are no more in their working capacity. The CPF gives the elders the freedom to choose a better life once their careers come to an end. It allows you to pay all your medical bills, choose to have a pension plan, invest some amount or just buy a house. So if you see that you’re not taking home the whole amount that you were promised by your company, then don’t worry about your money being misused. It just went into your CPF account and you will be thankful for it one day. Because even if you’re great at savings, the government wants others, who don’t take their savings seriously, to be financially free too.

What arethe CPF Contribution Rates for Employees in Singapore?

Employees on salaries generally don’t have to worry about their CPF contributions as their Provident Funds are paid automatically from their salary accounts. At the beginning of every month when you get your salaries, your employer is supposed to reserve a fraction of your salary that is supposed to be deposited into your CPF accounts. When the fraction from your salary is deducted, by law, your employer also has to contribute to your CPF from his pocket, every month. The contribution rates keep going down as you age. Which means that the government urges you to save more when you’re in the prime of your life and career. The total contribution rate, including the employer’s contribution, is 37% until you reach 55 years of age. The rates keep falling after 55 years of age and you pay a 12.5% to your CPF contributions once your age is above 65 years. In case you are a self-employed citizen, CPF rules don’t apply to you, though you can be claiming a Medisave, for your medical bills in the future, when you go to file your taxes.

For a better understanding of the employer’scontribution and the employee’s contribution, suppose you have a salary of 5000SGD, you’re supposed to let go of 20% of your salary, which is 1000 SGD. Nowyour take-home salary is 4000 SGD. On top of that, your employer has tocontribute an amount constituting 17% of your salary which comes down to 850SGD and this amount your employer has to pay over your salary. So the total CPFsavings you get every month is 1850 SGD.

What is theCPF Contribution Cap?

A government-aided saving program doesn’t meanthat you can accumulate a huge amount to live a lavish life even after the endof your career. Which is why there is a limit to how much you can contribute toyour CPF account. This limit set up by the government is called the CPF Wage Ceiling. The CPF wage ceiling is oftwo kinds. The Ordinary Wage ceiling and the Additional wage ceiling. TheOrdinary Wage ceiling is a cap on the CPF contribution from the main salarythat you get paid at the beginning of each month. The current Ordinary Wage Ceilingis capped at 6000 SGD. Which means that only the first 6000 SGD can becontributed. If the amount increases than the cap, it won’t be taken intoconsideration. Also, your employer won’t need to contribute to your CPF if theamount crosses the cap amount.

The Additional Wage Ceiling takes intoconsideration the additional money that you get from your employer in the formof bonuses and other grace earnings. To calculate your Additional Wage Ceiling,subtract the amount of CPF on your ordinary wages from 102,000 SGD. So ifyou’re earning 7500 SGD on ordinary wages, taking the first 6000 SGD off yourincome, SGD102,000 – 6000×12= SGD 30,000. So, your bonus is subject to CPFcontributions as well as it is under the SGD102,000 Additional Wage CeilingCap.

The Central Provident Fund instills a sense of security in the citizens and also helps them lead better lives after they have given their contribution in building the society. So ask your employer today if you’re saving for your old age.


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