You will be able to explain the ways a self-employed person can contribute voluntarily to CPF and the limits that apply.
After seeing the dates in her CPF account, Mei's first thought was to transfer a large sum straight in and be done with it. Her second thought, a minute later, was to wonder whether she would ever see that money again before she turned 65. Both thoughts are reasonable. Voluntary CPF is useful, and it is also one of the least flexible places you can put money. This lesson covers how it works so you can decide with your eyes open.
A self-employed person has more than one route into CPF. The CPF Board lists them on its website, and they fall into two broad groups.
The first group is voluntary contributions. As a self-employed person, you can make a voluntary contribution that is split across your Ordinary, Special and MediSave Accounts, in proportions the CPF Board sets by age, much like an employee's contribution. You can also make a voluntary contribution to your MediSave Account only. The split version builds housing, retirement and healthcare savings together. The MediSave-only version builds healthcare savings and, for some people, reduces the need to pay medical costs in cash later.
The second group is top-ups under separate schemes. The best known is the Retirement Sum Topping-Up Scheme, which lets you add cash to your retirement savings, up to a limit set by the CPF Board. These top-ups go to retirement savings only, so they do nothing for housing.
Each route has its own rules on who can use it, where the money goes and how much can go in. The names and details sit on the CPF Board website, and they do change, so read the current pages before you choose.
There is a ceiling on how much can go into CPF each year. The CPF Annual Limit caps the total of most contributions to your CPF in a calendar year. Compulsory contributions count, your MediSave contribution among them, and so do voluntary ones. Some top-up schemes have their own separate caps instead, and the CPF Board website sets out which payments count towards the Annual Limit and which do not.
Two practical points follow. First, your compulsory MediSave contribution uses up part of the limit, so the room left for voluntary contributions is smaller than the headline figure. Second, if you also have employment income, the CPF on your salary counts too. Check the current Annual Limit and add up what has already gone in this year before you plan a voluntary amount.
CPF money can be used only for set purposes, and much of it only after certain ages. Ordinary Account money can be used for housing and some other approved uses. Special Account money is for retirement. MediSave is for approved healthcare costs. You cannot withdraw it because a client paid late or your laptop died.
That is the whole point of CPF, and it is also the main risk for a freelancer. Your income is uneven, and your safety net is your own buffer. Money you move into CPF cannot come back out to cover a thin quarter. Lesson 5.2 of The Singapore personal finance system, What CPF can and cannot be used for, sets out the rules in more detail.
So contribute only money you are confident you will not need as cash. The order from module 1 still applies: your holding account buffer and your tax and MediSave pot come first, and CPF gets surplus beyond those. Lesson 3.4 turns this into a decision.
Some voluntary contributions can reduce your income tax, because IRAS gives tax relief on certain CPF contributions and top-ups, within caps. The rules differ by type of contribution, and IRAS also caps the total relief one person can claim in a year.
This course does not go into reliefs in depth. Tax & Reliefs covers them, and the current rules are on the IRAS website. The one point to keep here is that relief is a bonus to a decision you have already made for its own sake. Putting money you need into CPF only to save tax tends to cost more than it saves.
Here is how Mei compares them, in one line each. The split voluntary contribution would put money towards her housing, retirement and healthcare at once, which suits her plan to buy a flat in a few years. The MediSave-only contribution would build her healthcare savings, but her MediSave already gets her compulsory contribution each year. The Retirement Sum Topping-Up Scheme would help her retirement payouts, but none of it could go towards a home.
Writing it this way showed her that the split contribution fitted her goals best. The tax relief rules could wait until the choice was made.
Your answer depends on your goals, your age and what your accounts already hold. Open the CPF Board pages on voluntary contributions and top-ups, and write one plain sentence for each option about what it would do for you.
List the voluntary contribution options on the CPF Board website and write one sentence on what each would do for you.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).