CPF Board shared that voluntary top-ups to CPF accounts hit more than $3 billion in the first eight months of 2024.
If you have never topped up your CPF before and could be feeling slightly FOMO (Fear Of Missing Out) about this, here are five key things you need to know about the Retirement Sum Topping Up (RSTU) scheme, and what you should consider before jumping onto the bandwagon.
1. RSTU enables you to save more in your Special Account
Every month about 6 – 11.5% of our income is credited into our Special Account (for those of us below 55 years old) to help us set aside savings for our golden years. Depending on how much you earn, you could be saving up to $782 per month for your retirement. If you want to level up on your retirement preparedness, then RSTU is one way to boost the amount of money you’re setting aside for your future.
2. Special Account earns risk-free interest of up to 5% p.a.
While there are many places that you can put your money in, the main reason your Special Account is so special is the good interest that it pays, which can be as high as 5% p.a., with absolutely no need to take any market risk. Put into context, $10,000 in your Special Account can give you up to $500 in interest in a year. If you top up your Special Account with $10,000 in your early 20s to 30s, this can exponentially more than double your balances to $26,500 over 20 years without lifting a single finger.
The CPF Special Account for those aged 55 and above will close from the second half of January 2025 onwards. Thereafter – if you have not hit the Full Retirement Sum in your CPF Retirement Account, the balances from your CPF Special Account will be transferred to your Retirement Account, which also earns between 4% and 6% p.a.
So if you are looking to build up your CPF retirement balances, topping up your Special Account is a move worth taking.
3. Top-ups also entitle you to tax relief
To sweeten the deal, when you make a top up into your Special Account with cash, you also get dollar for dollar tax relief of up to $8,000 per year. What this means is that if you’re currently in the 7% income tax bracket – e.g. your assessable income is $80,000 – being able to reduce your taxable income by $8,000 will help you to save $560 in tax payable next year. If you also top up $8,000 to your loved ones’1 CPF accounts, you can reduce your tax liability further by another $560, saving you $1,120. To benefit from the tax relief in 2025, you will need to complete your top up before 31 December 2024.
4. There is a limit to how much you can top up
Given that this sounds almost too good to be true, you may be thinking about the terms and conditions. Well, there are mainly two. The first is that unfortunately, you cannot use that $1 million sitting idle in your bank account to top up into your Special Account. The maximum amount that you can top up your Special Account to is the current Full Retirement Sum, which is $205,800 in 2024 (this will be $213,000 in 2025).
Thus, if you already have this amount in your Special Account, you will not be able to benefit from RSTU. If you have yet to reach this cap, you may want to use the opportunity to do so, because with your ongoing work contributions and interest earned annually, you may eventually hit this cap, rendering you unable to benefit from this scheme.
5. Top-up money cannot be withdrawn in a lump sum
The second caveat for RSTU is that any monies that you top up into your Special Account cannot be withdrawn in a lump sum as this money is meant to be used to join CPF LIFE when you turn 65 years old. Under CPF LIFE, you will receive a stream of monthly income for life, forming a good foundation for your retirement income. That said, before you top up through RSTU, make sure it’s an informed decision that this sum is set aside for retirement.
So, is RSTU suitable for everyone?
If you are still in your 20s or 30s and are willing to take some risk to grow your savings, investing in a globally diversified portfolio can reap you higher returns while allowing you to retain the flexibility in the use of your monies. It can be hard to predict what the future holds in the decades ahead so you may want to retain control over your monies instead of keeping it in your CPF.
Alternatively, you can consider doing a top up to your MediSave with the changes in the rules in 2022. A top-up to your MediSave gives you the same benefits of higher interest and tax relief, while allowing you to use your MediSave more flexibly for you and your loved ones’ medical needs. What’s more, once your MediSave hits the Basic Healthcare Sum cap, any future contributions to your MediSave will overflow to your Special Account to help you build up savings faster for your retirement.
On the other hand, if you are risk averse towards investing, approaching retirement, or you don’t mind giving up the liquidity, then there is no better place to build your retirement savings than through the CPF system, as the risk-free interest compounds over time to provide you with a lifetime stream of stable retirement payouts.
Footnote (1) Your loved ones refer to your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings.
