Should Self-Employed Singaporeans Make Contributions to their CPF Account?

cpf contribution

As an employee, seeing 20% of your salary disappear into the bowels of the CPF can make your take-home pay look pretty pathetic. Now that I’m self-employed, even though I technically earn less and have a less stable income than I did as an employee, I get to feel a bit less broke by not having to make those CPF contributions.

But wait a minute… do you really want to pretend CPF no longer exists? Here are some reasons self-employed persons might still want to continue making CPF contributions.


Yes: Retirement savings

Singaporeans aren’t exactly known for their frugality, as soaring credit card debt and an acquisitive mentality indicate. At the same time, this is not a country where you can go all hakuna matata and forget about saving for retirement, or that might be you selling tissue on the streets when you’re 80.

If you are really having trouble saving for retirement and need to lock that money away somewhere, CPF is one way to do it. You’ll be getting an okay interest rate, and you definitely won’t be getting your hands on the money until you reach retirement age.


Yes: Interest accrual

The interest rate offered by CPF ordinary accounts is 2.5%. While that isn’t going to make you rich, it does come with zero risk, which in the grand scheme of diversifying your investments makes it a viable low-risk addition to your portfolio. That means you might want to think of your CPF monies as an investment rather than simply as forced savings.

In any event, if you have lots of cash languishing in a low interest bank account it’s probably better off in CPF. You can also parlay your CPF funds into other investments like a property purchase or stock investments, so if you do find higher yield investments you’d like to dive into you can still use your CPF funds for those.


Yes: Loans

Self-employed folks often get the short end of the stick when dealing with banks. It’s harder to apply for loans and credit cards because your income is more unstable and not as well-documented. While employed folks can just submit their CPF statements online, self-employed people need to jump through a lot of hoops to provide proof of their income.

If you forsee yourself urgently needing to buy a HDB flat or take a big loan somewhere down the road, making CPF contributions can make it easier to get your application approved.


Yes: Tax relief

The government wants to reward you—yes, you!–for making voluntary CPF contributions by giving you a bit of tax relief. Check out the IRAS website to find out just how much you’re entitled to.


No: Your money gets locked up if you need it urgently

One of the biggest problems with the CPF system is inflexibility. Once your money goes in, you’re probably not going to get your hands on it for a long time—even worse if you don’t meet the minimum sum. Although you can use it for an approved purpose like paying the downpayment on a property, there’s a slew of urgent needs for which you cannot use your CPF monies. Medisave has its limits, and you can only dip into that account to pay for approved expenses.

That means that if you have a fever and have to take a cab to see a doctor but are out of cash, you won’t be able to use your CPF. It also means that if you go through a bad patch, as self-employed people sometimes do, you could find yourself starving on the streets. No amount of CPF monies will get you out of that jam.


No: You have your own savings and investment plans

To be honest, if you have no need for or no trouble taking loans, so long as you have your own savings and investment plans, you might be better off holding on to your own cash as opposed to locking it up in CPF, because you’ll be free from all the Board’s many restrictions.

There are many ways to get more than a 2.5% yield on your investment. And anyone with a modicum of discipline should not have to rely on the CPF Board to stop them from spending all their retirement savings.

As a self-employed person, do you make CPF contributions? Tell us why or why not in the comments!