Wednesday, February 5, 2014

Why Topping Up Your CPF Might Actually Make Sense

Topping up one's CPF might actually make sense. I am talking about the act of actually making voluntary contributions over and above what you are ordinarily required to contribute either as an employed person or self-employed person. Here are some reasons why it might just be worthwhile.

1. You get tax breaks

Okay, this might not be a big deal to most people. But one actually gets a certain amount of tax relief (capped at a certain limit each year). So if your income is just slightly over a certain tax bracket, it might actually be worthwhile to make a voluntary top-up to pay less in income taxes. Yeah, it is nothing exciting. But if you have spare cash lying around, it might be something worth considering.

2. Higher Returns

For those who are not too savvy with investments, the CPF accounts might actually provide a higher interest than your normal savings account. Yes, some banks are now offering promotional interest rates of slightly above 2% but that is still lower than the 2.5% and 4% interest rate for the Ordinary.Account and Special/Medisave Account respectively. In addition, the first $60,000 in your CPF earns an additional 1% interest. So do the math and it might actually be attractive compared to the paltry interest rates of a normal bank account. Of course, there is no guarantee that the rates will stay that way since these might be subject to changes in the future.

Considering that some people might not be confident of getting a 2.5% or 4% returns on their investment, it might be worth allocating some of that to top up one's account.

Of course, there are some drawbacks in making voluntary contributions. Firstly, the money is locked up until you are allowed to withdraw your money at a certain age. So you need to be very certain that you will not need this money till retirement. Secondly, if you are topping up under the minimum sum scheme, it means you cannot get apply for future exemptions. All these disclaimers can be found on the CPF website.

I know this post is likely to draw some controversy since most people will never think about making voluntary contributions to their CPF. For others though, it might just be one idea that might make their retirement planning a whole lot easier.

Disclaimer: This post is not an investment advice. The author neither encourages or discourages his readers to make top ups to their accounts.


  1. Topping up your CPF account is the most daft thing to do. Why put your hard earn money into an account that you don't even have control over it. What makes you think you can withdraw the money when you reach retirement age. So what if it pays you a little more interest now. Don't you know that rules can be changed anytime without your consent. It's penny wise, pound foolish!!!

  2. If can invest and get better than 2.5% or 4%, then may be better off to use the money to invest. Otherwise agree with above.


Popular Posts