I can just imagine the conversations after last night’s CPF announcement, whether online or in the coffee shops.
“Wah piang eh! CPF change again. Already got new Basic Retirement Sum, now got another Basic dunnowhat Sum? Medisave just say Medisave lah, why now name change to ‘Healthcare’? Medisave already so complicated, why gahmen anyhowly whack!!??!!111!!11??11”
If any of this sounds like your reaction last night, stop. Take a deep breath, and let’s take a closer look at the announcement on the Medisave Minimum Sum.
What are the changes to the Medisave Account of your CPF?
Currently, when you turn 55, if you had less than the Medisave Minimum Sum ($43,500 this year) in your Medisave Account, you would need to top it up from your Ordinary and Special Accounts. That means you’ll end up withdrawing less from your CPF.
Also, there’s a Medisave Contribution Ceiling ($48,500 in 2015) – the maximum balance you can have in your Medisave Account. If you have more that this amount, excess contributions will be transferred to your Retirement Account. This means you’ll be able to receive larger monthly payouts from CPF LIFE.
In 2016, all this will change. The Medisave Minimum Sum will be removed. The Medisave Contribution Ceiling will be renamed the Basic Healthcare Sum. And it will increase to $49,800.
This amount of $49,800 is for everyone who turns 65 and above in 2016. For those below 65 in 2016, your Basic Healthcare Sum will be higher, based on rising healthcare costs and overall Medisave use by the elderly.
Wait, wait, wait… what does all this mean in simple English?
Okay, let’s try to say all that in TWO sentences: From 1 January 2016, there will only be one Medisave-related amount you need to be concerned about – the Basic Healthcare Sum. This amount is $49,800 in 2016, and will increase each year in response to Medisave use.
So basically, if you have less than the Basic Healthcare Sum, don’t worry. You will no longer be expected to top it up from your Ordinary and Special Accounts when you turn 55.
If you already have the maximum Basic Healthcare Sum in your Medisave Account, nothing has changed. As before, excess Medisave contributions will be transferred to your Special Account (if you’re below 55) or your Retirement Account (if you’re above 55).
Ooookay, I think I get it, but some examples would help!
Ask and you shall receive!
Case Study 1: Natasha has $30,000 in her Medisave Account, and turns 55 in 2016.
Before the changes, she needed to top up her Medisave Account with another $13,500 from her Ordinary or Special Accounts when she turned 55. That’s $13,500 she could either have withdrawn, or kept in her Retirement Account to get a higher monthly payout from CPF LIFE.
Now, from 2016, although $30,000 is less than the Basic Healthcare Sum, she now doesn’t need to top up her Medisave Account from her Ordinary or Special Accounts. If she has enough in her CPF Account for the Basic Retirement Sum, she can now withdraw an extra $13,500 than before.
So she doesn’t need to worry about any red marks in her ledger.
Case Study 2: Bruce has the current maximum of $48,500 in his Medisave Account, and turns 55 in 2016.
Before the changes, since he already has the maximum allowed in his Medisave Account, any new Medisave contributions would go into his Ordinary, Special or Retirement Accounts (depending on his age and how much he needs for the CPF Minimum Sum).
Now, from 2016, the Basic Healthcare Sum is now $49,800 and will keep increasing each year. That means that $1300 (the difference between what Bruce currently has in his Medisave Account and the Basic Healthcare Sum) of his Medisave contributions and any government top-ups will go into his Medisave Account. The excess will continue to go into topping up his Retirement Account.
This will repeat every year until Bruce turns 65. At 65, the Basic Healthcare Sum becomes fixed for him.
It’s really too early to say how these changes will affect Bruce. Let’s just hope these changes don’t make him angry. You wouldn’t like him when he’s angry.
Does this mean there’s more money in your Retirement Account at 55?
Yes! But only if you are turning 55 in 2016 and you have less than $49,800 in their Medisave Account. Depending on how much you have in your Ordinary and Special This means you should be able to withdraw more from CPF at 55.
If you have been getting regular CPF contributions and not utilising your Medisave Account, there’s a good chance nothing will change for you.
The point of this change is to make it easier for you to know how much CPF you can withdraw at 55. From 2016 onwards, you don’t need to worry about how much you have in your Medisave Account. Only what you have in your Ordinary Account and Special Account is all that matters. Here’s a reminder about the new CPF changes to the Retirement Sum in 2016.
Still confused about the changes in the Medisave Minimum Sum? Ask MoneySmart.
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