The CPF (Central Provident Fund) is a social security system unique to Singapore. We’re basically forced to put aside savings for retirement, which you know, is necessarily a bad thing.
But you don’t have to wait until you’re old and grey to tap into this pool of funds. The CPF can be withdrawn for several purposes throughout your lifetime.
What is CPF?
If you have to ask this, you’re probably not Singaporean, but here goes anyway.
CPF (Central Provident Fund) is a national social security system that is funded by contributions from employees and employers.
You contribute 20% of your monthly pay to CPF, and your employer puts in another 16%. The percentages change when you hit 55 years old.
These savings are divided into three accounts:
- Ordinary Account: Used for housing, insurance, investment, and education.
- Special Account: Used for retirement and retirement-related investments
- Medisave: Used for hospitalisation and medical insurance
The Ordinary account appreciates at 2.5% per annum, and the Special and Medisave accounts at 4% per annum.
When you reach your draw down age (65 years from 2018) you can start raiding the coffers for retirement. But that aside, here are some other uses of CPF:
1. CPF can be used to purchase both HDBs and private property.
It’s common knowledge that CPF can be used to pay for public housing. You can use it to pay for the downpayment as well as for any mortgage loans, either from the bank or so. This includes legal fees and stamp duty.
For completed properties, you can pay in cash first and get reimbursed from your CPF account later.
While some Singaporeans think CPF can only be used for HDB flats, or only for HDB loans, that’s not true.
CPF can be used to purchase private property, so long as: (1) the property is freehold, or (2) the remaining lease can cover the youngest buyer to at least 95 years old, as of 10 May 2019.
How much you can use depends on the valuation limit, which refers to the purchase price of the private property or market value of property (whichever is lower) at the time of purchase. The withdrawal limit is 120% of the valuation limit, which is the amount of CPF you can use for the private property.
If the remaining lease cannot cover the youngest buyer to at least 95 years old, CPF usage will be pro-rated based on how near to buyer’s age of 95 the lease is.
Buyers of private properties using CPF must pay 5% of the valuation limit in cash; the rest can come from CPF. You can also cover legal costs and valuation fees via CPF. That’s a big deal given the home loan restrictions in the recent years.
There is a drawback to all this. When you sell the property later, you’ll have to repay the amount taken from your CPF, with the accrued interest. So make sure you get a good loan package, and avoid high interest eating into your capital gains. Use sites like MoneySmart to find the cheapest packages available.
2. You can invest your CPF money.
If you’re not satisfied with CPF growth rate of 2.5%, you’re allowed to invest some of it yourself.
To do this, you need more than $20,000 in your OA (Ordinary Account), and more than $40,000 in your SA (Special Account). You also need to open a CPF Investment Account, which most banks can do for you. From there, you can invest a portion of your CPF money in Exchange Traded Funds, Unit Trusts, Investment-Linked Insurance, etc.
Note that a portion of your SA can go into REITs, shares, and gold. The amount that can be invested varies (e.g. up to 10% for gold, 35% for REITs).
When you sell the investments, the money goes back into your CPF investment account, not your bank account. But look on the upside: You’re making retirement investments without impacting your cash flow.
3. You can get educated with it.
You can use your CPF to enrol in education courses, or pay for your children’s education from approved institutions via the CPF Education Scheme. The available withdrawal limit is either 40% of your accumulated OA savings or your remaining OA balance after other schemes (e.g. housing), whichever is lower.
If you’re 55 years or older, you need to ensure that you meet a few other conditions.
- Nanyang Technological University (NTU)
- National University of Singapore (NUS)
- Singapore Management University (SMU)
- Singapore Institute of Technology (SIT)
- Singapore University of Technology and Design (SUTD)
- Singapore University of Social Sciences (SUSS)
- Nanyang Academy of Fine Arts (NAFA)
- LASALLE College of the Arts (LAS)
- Nanyang Academy of Fine Arts (NAFA)
- Nanyang Polytechnic (NYP)
- Ngee Ann Polytechnic (NP)
- Republic Polytechnic (RP)
- Singapore Polytechnic (SP)
- Temasek Polytechnic (TP)
- Institute of Technical Education (for students pursuing a Technical Engineer Diploma (TED) or a Technical Diploma in Culinary Arts)
At the conclusion of the course, you’ll have to replace the money taken from your CPF. This includes the accrued interest, but don’t freak out. You can replace it over 6 years. And the best part is, it’s not lost money. It’s going back into what’s effectively your pension plan.
4. You can pay medical bills with your CPF MediSave.
With your CPF MediSave account, you can pay for expensive treatments such as wisdom tooth extraction or medication for chronic ailments and even hospitalisation. Furthermore, you can use it to pay for your immediate family members’ medical treatments as well.
The caveat is that you can only use it at medical institutions that are participating in MediSave Scheme.
Check out the caps to how much you can use.
5. You can pay insurance premiums with it.
You can pay medical insurance premiums with your CPF.
You can also use your MediSave savings to buy Integrated Shield Plans for yourself or your dependants.
So if you haven’t tried using your CPF money, go and poke around. Your access to it might be a lot less limited than you think.
How do you use your CPF money? Comment and let us know!
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