All you need to know about the new CPF changes: How does it affect me?

In case you missed it, there was a debate on the changes to the Central Provident Fund (CPF) Act in Parliament on Nov 1 and the Amendment Bill has just been passed today (Nov 2). 

There will be various upcoming changes to CPF rules, which aim to simplify the CPF system for members.

We all know how important it is to understand our CPF better to maximise it to our benefit.

Wondering how these changes will affect you? Here's all you need to know!

TL;DR: Changes to CPF rules: Here's what you need to know 

Easier to receive retirement payouts

• Automatic transfers from RA under CPF LIFE
• Automatic transfers from OA and SA under Retirement Sum Scheme

Helping members build up their retirement savings

• Changes in tax relief for voluntary contributions
• Changes in top-up limit rules for MediSave accounts

Increased efficiency for the administration of CPF schemes

• Quicker disbursement of CPF monies after a member's death
• Recovering grants from individuals who do not continue to meet eligibility conditions

Automatic transfers from retirement account under CPF LIFE 

Under CPF LIFE, members get to receive lifetime monthly payouts, with the amount of payout depending on how much we have in our Retirement Account (RA).

With the new changes, for CPF LIFE members who have started receiving payouts, any subsequent inflows into their RA will be automatically converted to higher CPF LIFE payouts.

Currently, members have to apply to add these inflows to their LIFE payouts.

Automatic transfers from ordinary & special account under Retirement Sum Scheme 

Prior to CPF LIFE, there was Retirement Sum Scheme (RSS).

For members who are under the current Retirement Sum Scheme, monthly payouts are drawn from the RA until the money has depleted.

To continue receiving payouts, members have to apply to transfer their money from their Ordinary (OA) and Special Account (SA) to their RA.

With the new changes, members with OA and SA savings will have them automatically transferred to their RA to continue receiving payouts. There's no need to apply for the transfer of monies.

This will greatly benefit those who are still receiving OA and SA contributions from areas like employment.

Example

Simon is under the RSS and has been receiving monthly payouts of $600.

He has depleted his Retirement Account, but still has $2,600 in his OA and SA.

With the new changes, he will automatically be able to continue receiving $600 in three tranches, and $800 for his final payout.

Flexibility to decide when to transfer savings to retirement account 

For those turning 65 years old from 2023, it was previously announced that the OA and SA savings will be transferred to RA (up to full retirement sum) when they are eligible to start receiving payouts.

From Jan 2023, this transfer will be done according to when the member chooses to start receiving payouts, which is anytime between 65 to 70 years old.

Members can still voluntary transfer OA and SA savings to their RA up to the current Enhanced Retirement Sum at any time.

There will not be any changes to the rules for lump-sum withdrawals of CPF savings.

Changes in tax relief 

Tax relief for voluntary contributions 

From Jan 1, 2022, givers will have an increased annual tax relief cap of $8,000 for cash top-ups to their own CPF accounts, and another $8,000 for cash top-ups to their loved ones' accounts.

This cap is shared between the Retirement Sum Topping-up (RSTU) scheme and voluntary contributions to MediSave Account (MA) for employees.

The current annual tax relief cap is $7,000 for self cash top-ups, and another $7,000 for cash top-ups to loved ones' accounts.

In addition, with the new changes, tax relief for voluntary contributions to the MA will be provided to the giver instead of the recipient.

Changes in top-up limit rules for MediSave Account

The top-up limit currently depends on two figures - the Basic Healthcare Sum and CPF Annual Limit.

Moving forward, to simplify matters, the top-up limit for employees will only depend on the Basic Healthcare Sum (BHS).

Example

Sarah currently has $50,000 in her MediSave account. The BHS in 2021 is $63,000.

With this new rule, she will instantly know that she can contribute up to $13,000 ($63,000 - $50,000), which is the difference between her current MediSave balance and the current BHS.

Under current rules, she has to take into account the Annual Limit and also her contributions (both mandatory and voluntary).

Assuming that her total mandatory contributions for 2021 amount to $35,000 and that she doesn't make any voluntary contributions, she can contribute up to $2,740 ($37,740 - $35,000), which is the difference between the Annual Limit and her contributions for the year.

Quicker disbursement of CPF monies after death 

The period that CPF money is retained after a person dies will be shortened to six months.

Should a nominee choose not to make claims within six months, the monies will be transferred out of the deceased member's CPF accounts, and no interest will be payable from then.

Nominees will still have the right to claim the nominated monies at any time.

Similarly, discounted Singtel shares (purchased under the Special Discounted Shares scheme) will be liquidated and automatically disbursed six weeks after the member's death.

These changes will begin in April 2022.

Simplified process for claims of un-nominated CPF monies

Moving forward, making claims for a dead family member's un-nominated CPF monies will be a shorter and easier process.

Currently, all eligible beneficiaries must submit their information and supporting documents to the Public Trustee's Office (PTO).

Un-nominated CPF savings are typically forwarded to the Public Trustee for distribution, where distribution will be according to the intestacy laws of Singapore.

Under the new Bill, a beneficiary representative may be appointed to represent all eligible beneficiaries and make one consolidated claim for the dead CPF member's un-nominated monies.

This representative must be an eligible beneficiary according to the rules of distribution under the Intestate Succession Act or the Administration of Muslim Law Act.

This will allow the process to be simpler, and beneficiaries will be able to receive their monies sooner. Do note that this would only be applicable for situations where the un-nominated monies are less than $10,000.

A quick summary of the new changes is as follows:

To avoid all these, the best way is to make a CPF nomination when one is still alive.

Besides, CPF nomination is free and can be done easily online!

Recovering grants from those that do not meet eligibility criteria 

There is also a technical update to the rules that allow the Government to recover grants that have been issued automatically to eligible members, but who subsequently choose not to meet continuing eligibility conditions.

For instance, under the Matched Retirement Savings Scheme (MRSS), the Government will match every dollar of cash top-ups made to eligible members under the CPF Retirement Sum Topping-Up scheme up to an annual cap of $600.

The continuing condition is that members do not reverse these top-ups that have qualified them for this matching grant.

So for those who choose to appeal to reverse such top-ups, this amendment would allow CPF Board to recover the accompanying grant.

Do note that this change is not the same as allowing the Government to recover grants that have been issued erroneously to ineligible individuals, as this currently already can be done.

It pays to know how to maximise your CPF accounts 

Given that CPF forms a significant portion of our retirement nest egg, we all know how important it is to understand our CPF well in order to maximise its benefits.

If you wish to further your knowledge on all things CPF, we have the resources for you right here!

Or if you're looking to get your CPF finances sorted before the year ends, here are some ways you can do so too!

ALSO READ: CPF moves to make before 2021 ends: Enjoy tax relief and grow your retirement savings

This article was first published in seedly.