I still remember vividly when I first came over to Singapore and asked about converting to an Singapore Permanent Resident (PR).
“Siao eh! After 2 years as Singapore PR, 20% of my take-home pay will be gone sia!”
Fast forward to today, here I am, a Singapore PR in my 3rd year, seeing 20% of my pay going into my CPF. ????
So apparently I was aware of the dent in disposable income, but I still went ahead with it.
I believe many of the Malaysian Singapore-PRs are aware of it but still decided to become SG PR, and some even converted to SG citizens.
This is my love-hate relationship with the CPF, and I think most if not all Malaysian in Singapore struggling with the decision to become a PR would face.
????Decreased disposable income
Compared to Singaporeans, who all started off with the full 20% contribution of their monthly income to CPF, PRs have a “gradual easing” period.
In your first year of PR, your CPF contribution would be 5% of just your monthly pay. In your second year, it bumps up to 15%.
Once you complete your second year, you will be experiencing the full 20%.
You could be earning a median salary of SGD5,070 as of the data of 2022. But taking out the employer CPF portion and the 20% personal contribution, you might be only taking home SGD 3,466.64!
That is a difference of almost 32% between what you earn and what you take home!
And if roughly SGD1K is used for rent, you would be just left with SGD 2,500 for other expenses.
Back then, it was easy to pre-plan ahead. Negotiate for a higher pay rise when you hit your 3rd-year as a PR, or get a higher-paying job to offset the higher contribution amount.
While I do admit these plans might work well on paper, in the actual world, things do not always go as planned. Higher monthly pay also translates to potentially paying a higher income tax bracket.
You could end up with lesser disposable pay if things don’t go as per your plan.
????Money that you can’t really use. Just visual pleasure
Checking my CPF balance monthly is one of my monthly moral therapies. And I guess it is for plenty of us.
We remember our gross monthly pay more than our take-home pay. And even though we might be looking at the same disposable income credited to our account, there is still the urge to check our CPF account as well.
“So this is where that amount has gone to” becomes the repeating consolation.
CPF monies are mainly for retirement purposes, thus most of us let it sit there passively until retirement.
It will be for visual pleasure and consolation every month, and every 1st day of the New Year when everyone logs in to check their interests credited.
It stays as it is until you eventually hit retirement, should you choose to do nothing of it.
????Solid retirement cornerstone
When you do have time, do take a deeper look at how the CPF mechanism works.
Personally, I find the system close to being faultless. The 3 accounts – OA, SA, and MA are designed in such a way that all help to alleviate all the roadblocks and obstacles for a Singaporean retirement life.
- OA – to be withdrawn for housing or utilized for applicable investments
- SA – for retirement age payouts
- MA – for medical-related expenses.
A solid CPF takes care of every Singaporean’s housing, retirement income, and medical-related expenses. But, while you are still in your prime, you need to take care of your CPF.
The design and the system of CPF is one aspect, the governance and political stability of the Singaporean government is another crucial factor.
It was the COVID-19 measures, containing the spread of the virus, and the gradual systematic opening of the economy, that convinced my father that I had made the right choice to come to Singapore.
That is a 180 degrees change in perception from when I first told him that I wanted to come over.
????Investments that are globalized and long-term
To provide interest returns to CPF account holders, the monies under CPF will need to be invested to generate returns.
CPF monies are invested in Special Singapore Government Securities (SSGS). It will be then invested by the Government’s fund manager – GIC for long-term returns.
Compared to Malaysia’s Employees Provident Fund (EPF) which focuses mainly on local Malaysian stocks, GIC’s approach is global.
????Utilization of OA for house buying and qualified investments, but never withdrawable to be spent
In light of the Malaysian EPF potentially creating a subaccount that allows withdrawals for daily expenses and debt obligations, I am glad that cash within the CPF is strictly not for expenses.
There flexibility that OA provides, in terms of mortgage, education, and approved investments are valid options for CPF account holders to utilize a portion of their OA for responsible reasons.
The beauty of it is also the accrued interest that one has to fork back out should their house or investments utilizing OA not turn out well.
It is designed to not jeopardize or shift the retirement goalposts.
Where else for EPF, there is lesser mandate and rules on the withdrawal purposes that has been made a public favourite during the COVID era.
Do I love or hate CPF? ????
To be frank, it’s a bit of both.
I really, really dislike the dent in my disposable income, especially with the current inflation. Salary hikes have definitely not covered the 20% that needs to be contributed to CPF and the price increase in food, groceries, and rent as well.
Compared to Singaporeans who are still living with their parents or are living in BTO and or HDB, Malaysians PR are often the immediate casualties of the crazy rising rents. After paying rent, we certainly are left with less, even if you convert back your net savings into Malaysian Ringgit.
Conversely, I know that my CPF will form a strong and solid cornerstone of my retirement on top of other investments.
Maybe it isn’t really CPF that I hate, but knowing that there’s still a long (possibly tough) journey before I reach retirement?
I came to Singapore in 1981 and I was on Employment Pass. I had to contribute to CPF with full rate. It was great. More money into my retirement fund.
I also share a love-hate relationship with CPF but the importance of financial planning for old age is really critical / urgent today even for middle income family.
BTW, I am not sure why the author wrote “you could end up with lesser disposable pay if things don’t go as per your plan.”… If 50k taxable income has 10K (20%) tax deduction, how does paying CPF or earning more result in lesser disposable income? It never happen to me..
If you need not contribute to CPF, you could have additional 10K to spend (neglecting the potential higher income tax for simplicity sake).
Do not always think in terms of always having your cake and eating it.
Can only eat when retire. That also unable to eat the whole cake
I’m still not understand in between Singaporean n spr benefits,,gov paying lumsome every year,for SpR not.
SPR is basically half a leg into becoming a citizen. Thus, it is important to provide some headstart for SG PR who plans to be a citizen down the road.