You will be able to explain how cash top-ups under the Retirement Sum Topping-Up Scheme work and what they give up.
Every November, Kelvin's office chat fills with the same message: "Remember to top up CPF before 31 December for the tax relief." Last year he nearly did it, then stopped, because he couldn't answer a simple question. If he put S$5,000 in, when could he use it again?
The answer for a retirement top-up is: not until retirement, and only in the form of monthly payouts for most of it. That isn't a reason to avoid top-ups. It is the first thing to be sure of before you make one.
The Retirement Sum Topping-Up Scheme lets you put cash into CPF retirement savings, your own or a family member's. Before 55, a top-up to yourself goes into your Special Account. From 55, it goes into your Retirement Account. The money earns the interest rate of the account it lands in, and from your payout age it helps fund CPF LIFE.
You can also top up family members. That includes your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings, with the top-up going into their SA or RA depending on their age. If a parent is already receiving CPF LIFE payouts, a top-up raises their future payouts. For a parent who hasn't started yet, it adds to their retirement savings in the same way it would for you.
There are limits on how much can go in. Each account can only be topped up to a ceiling linked to the retirement sums, and the CPF Board publishes the current limits. You can see how much room you, or the person you're topping up, have left when you start a top-up online.
Instead of cash, it is also possible to transfer from your own CPF savings to a family member's. That moves money from your retirement to theirs, and it doesn't earn tax relief.
Cash top-ups may earn income tax relief, up to yearly limits. There is one limit for topping up yourself and a separate one for topping up family members, and family top-ups only qualify when the family member meets conditions set by IRAS. It is given against the income of the year you made the top-up, which you claim in the following year's tax assessment, so the top-up must be made by 31 December.
The relief is worth your marginal tax rate times the amount. With made-up figures, if Kelvin's top tax rate were 7% and he topped up S$5,000, the relief would save him about S$350 in tax. The actual rates and limits are on the IRAS website, and the total of all your personal reliefs is capped too. Tax & Reliefs: how your income tax works and the reliefs you can claim, module 3, Use CPF top-ups and stay under the relief cap, covers the tax side in detail.
Keep the order right. The relief is a bonus to a decision that should make sense without it. A S$5,000 top-up that saves S$350 in tax still locks away S$5,000 for decades.
Topped-up money is retirement money. It can't come back out for a home, a business, a wedding or an emergency. For a top-up to yourself, that means the money should be cash you are confident you won't need before retirement. For a top-up to a parent, it means the money is now theirs: it funds their payouts, and if they die, what is left goes to their nominees. It doesn't come back to you.
So a top-up comes late in the order. If your emergency fund is thin or your home downpayment isn't ready, the cash belongs there. The Singapore personal finance system, end to end, lesson 5.3, How CPF turns into retirement income, makes the same point about order.
For some older members with lower retirement savings, the government matches cash top-ups to their Retirement Account, up to a yearly cap, under the Matched Retirement Savings Scheme. A top-up to an eligible parent can then be worth more than the cash you put in. Eligibility is set by age, savings and other criteria, and it has changed recently, so check the current rules for your family member on the CPF Board website before you assume a match.
Kelvin wrote down everyone he could top up. Himself: his emergency fund was in place, but the flat's renovation and the wedding would need cash over the next eighteen months, so a top-up to himself could wait. His mother, 62: her savings were modest, and a top-up would raise her monthly payouts for life. He checked whether she qualified for matching and put it on the list to look up. His father, who had passed away: not applicable. Mei's parents: a conversation to have with Mei before anything else.
He ended with one candidate for this year, his mother, and a smaller amount than the office chat suggested, because the renovation came first.
List the people you could top up, including yourself. For each one, write whether the money you would use might be needed before retirement, and by whom.
List the people you could top up, including yourself, and write whether the money would otherwise be needed before retirement.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).