CPF in Singapore: A Comprehensive Guide

2023-06-01

What is Singapore's CPF?

CPF, also known as the Central Provident Fund, is a social security savings plan for Singaporean citizens and permanent residents. It requires participants to contribute a certain percentage of their income on a monthly basis to meet retirement and healthcare needs.

Every participant has a CPF account, which serves as an online account where employers contribute CPF for their local employees (citizens and permanent residents). Regardless of whether the employee is full-time or part-time, as long as their monthly income exceeds SGD 50, the employer is obligated to contribute CPF based on the prescribed rates. The specific contribution rates vary based on age and the duration of permanent residency (applicable to permanent residents).

In general, CPF contributions are applicable to various types of income earned by employees, including salaries, monthly bonuses, year-end bonuses, and other cash benefits received from employment.

What is the purpose of CPF?

CPF consists of three main accounts: the Ordinary Account (OA), the Special Account (SA), and the Medisave Account (MA).

Ordinary Account (OA): The funds in the OA can be used for various purposes, such as the down payment and repayment of housing loans, investments in CPF-approved investment products, or payment of full-time education fees for oneself, spouse, or children. However, it's important to note that any investment returns earned from OA investments are credited back into the CPF account, and funds used for education fees must be repaid with interest.

Special Account (SA): The SA is specifically designated for retirement savings and cannot be used for other purposes like the OA. Additionally, funds in the SA can be invested in retirement-related financial products.

Medisave Account (MA): The MA serves as a healthcare savings account used to pay for various medical expenses and to purchase the mandatory government-provided Medishield Life medical insurance. In addition, most Singaporeans and permanent residents also purchase additional personal medical insurance using their Medisave funds to enhance their healthcare coverage.

When individuals reach the age of 55, a new account called the Retirement Account (RA) is automatically created. The savings from the OA and SA are transferred to the RA, which becomes the retirement savings. Upon reaching the prescribed retirement age, individuals can receive monthly retirement income through the CPF LIFE (CPF Lifelong Income) or Retirement Sum Scheme.

How does CPF affect foreign employees?

While CPF is primarily targeted towards Singaporean citizens and permanent residents, it's essential for individuals beyond this scope to pay attention to CPF, especially foreign entrepreneurs or employees working in Singapore. Here are a few key points to note:

1.CPF can play a decisive role for companies in hiring foreign employees.
2.Higher CPF contributions by companies can improve the approval rate for work pass applications. For instance, when applying for an Employment Pass (EP), higher CPF contributions can contribute to higher scores under the COMPASS framework.
3.The number of employees covered by CPF contributions is an important factor when renewing work passes or updating self-employment passes (EP or EntrePass).
4.If foreign business owners plan to apply for permanent residency, the number and amount of CPF contributions made by the company's employees can be influential factors.

Understanding CPF and its implications for work pass holders is essential for both employees and employers in Singapore. Complying with CPF regulations and maintaining a good CPF contribution record not only ensures compliance but also demonstrates commitment to employee welfare and financial stability.

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