Investing with your CPF savings

By Navin Sregantan

If you’ve only got a minute:

• Given the long-term nature of saving for retirement, investing your CPF monies will likely result in strong returns over the long-term but its success hinges on informed decision-making.
• Before you can invest your CPF monies, you need to have at least S$20,000 in your OA and S$40,000 in your SA.
• You can invest your OA funds in shares, Reits, and ETFs, among others.

Singaporeans are increasingly recognising the importance of saving and leveraging national schemes like the Central Provident Fund (CPF) to help them achieve a comfortable and fulfilling retirement.

This growing awareness comes as Singapore boasts one of the world's highest life expectancies and faces rising healthcare costs, which underscores the need for robust retirement planning.

As Singapore Citizens and Permanent Residents can attest, CPF plays a significant role in our lives and is something we take account of when making important financial decisions.

Our CPF Ordinary Account (OA) monies can be used for a wide range of purposes on top of retirement savings like housing, investing and making certain healthcare insurance payments.

Meanwhile, CPF Special Account (SA) savings are exclusively for retirement savings and related financial products, and that of CPF MediSave Account (MA) are for covering medical expenses and approved insurance premiums.

For employed individuals aged 55 and below, CPF contributions total 37% of monthly gross pay, with 20% coming from the employee and 17% from the employer. This substantial contribution makes CPF savings a cornerstone of retirement planning.

Why consider investing your OA monies?

Broadly speaking, the interest rates on your CPF balances are stable, risk-free, and guaranteed. The OA earns a base interest rate of 2.5% per annum (p.a.), while SA and MA earn 4% p.a. currently.

For members below age 55, an additional 1% p.a. in extra interest is paid on the first S$60,000 of combined CPF balances (up to S$20,000 from your OA). Members over age 55 earn an extra 2% interest on the first S$30,000 of their combined CPF balances (capped at S$20,000 for the OA) and an additional 1% on the next S$30,000.

In other words, your CPF savings earn risk-free interest at a steady rate of up to 5% p.a. if you are below age 55, and interest of up to 6% p.a. if you are age 55 and older. 

So why then, should you consider investing your CPF balances?

It helps to understand that given that retirement-related CPF withdrawals typically begin at 55, most of us are in for the long haul. This extended timeframe allows us to adopt a long-term investment approach to reap the rewards of compounding over time and enhance our retirement nest egg.

Another point to consider is the need to maintain access to liquid assets, which is crucial for handling unforeseen expenses. Using your CPF savings for long-term investments, rather than tying up your cash, allows you to build your retirement nest egg while preserving financial flexibility since it is already earmarked for retirement.

With the OA interest rate at 2.5% p.a., you can invest your balance to potentially earn more than this base rate.

For example, by investing a one-time amount of S$50,000, the difference between getting a return of 6% p.a. compared to 2.5% p.a. would be some S$180,000 more for your retirement nest egg in 30 years.

If you transferred the S$50,000 to your SA, it would earn just over S$60,000 more than if left idle in your OA.

Should you invest your SA monies?

Earmarked specifically for your retirement, SA accumulates savings that can be used for retirement expenses and related financial products, helping to ensure a secure financial future.

Since the 4% p.a. interest rate for SA balances is guaranteed by the Singapore Government, the decision to invest requires careful consideration as it may be challenging to beat this rate with most investment products.

Several factors warrant careful consideration when deciding whether to invest your SA savings.

First, assess your risk tolerance. Are you comfortable with potential short-term losses in exchange for potentially higher long-term gains?

Next, consider the proportion of your overall wealth held within your SA. Is it a significant portion of your retirement funds, or do you have other substantial resources?

Finally, while past performance is not a guarantee of future returns, evaluate whether your chosen investments have the potential to outperform the SA's 4% interest.

By carefully weighing these factors, you can determine whether investing your CPF-SA funds aligns with your individual financial goals and risk profile.

Getting started on investing your CPF

The CPF Investment Scheme (CPFIS) allows you to invest your OA and SA balances.

If you meet the requirements, you will be able to open a CPF Investment Account (CPFIA) through the CPFIS. Do note that the Self-Awareness Questionnaire (SAQ) is mandatory, and it serves to assess if you have basic financial knowledge and whether the CPFIS is a suitable option for you.

The SAQ starts with learning modules on investment concepts, products and charges under CPFIS, and you can complete these modules at your own pace. Thereafter, you will need to log in with your Singpass to attempt a quiz.

To ensure a basic level of retirement savings, CPFIS requires minimum balances of S$20,000 in your OA and S$40,000 in your SA.  You can invest any amount exceeding these thresholds, allowing you to grow your retirement nest egg while maintaining a foundation of protected savings

With that, here’s an overview of the investment products that you can invest in.

You can invest your OA funds in various instruments, including shares, Real Estate Investment Trusts (Reits), and exchange-traded funds (ETFs).

However, investments in shares, Reits, and non-gold ETFs are all subject to a combined stock limit of 35% of your investable OA savings. Separately, investments in gold, including gold ETFs, are subject to a 10% limit.

Examples of these CPF investment options include a selection of government-approved ETFs, such as the SPDR Straits Times Index ETF and Nikko AM Singapore STI ETF (for investing in the Singapore market), the ABF Singapore Bond Index Fund (for Singapore bonds), and SPDR Gold Shares (for gold).

Read more: How to start investing in ETFs

The list for CPFIS-approved unit trusts is broader. For example, DBS offers a wide range of CPFIS-approved unit trusts that you can invest with ease. These funds from reputed global investment managers have undergone due diligence by the CPF Board’s appointed consultant, Morningstar.

The availability of a wide variety of asset classes, geographies, including narrowly focused region and sector funds gives you the flexibility to construct an investment portfolio according to your preferred asset allocation and make your CPF savings work harder for you.

Read more: Do more with your CPF

Under CPFIS, the funds and dividends in your CPFIA will return to your respective CPF accounts. Your SA will be closed at age 55 and the savings will flow to your Retirement Account (RA). The RA balance will be distributed to you as monthly cash payouts for as long as you live under the national annuity CPF LIFE scheme when you hit age 65. You may defer these payouts till age 70.

How about SRS?

Most people will consider the monies in their OA and Supplementary Retirement Scheme (SRS) separately. However, these 2 schemes should be viewed as complementary to each other as SRS is a voluntary scheme that can complement your CPF savings.

It is crucial to recognise that both schemes are meant to fund your retirement lifestyle and expenses. As such, do consider them together and invest your SRS monies as well, so your money can work as hard as you are.

In summary

Investing your CPF funds can be a powerful tool for building a more secure retirement, but it's essential to make informed decisions.

Consider investing only if you're confident your investment returns will exceed CPF interest rates after accounting for associated costs and fees.

Remember, while the OA's 2.5% interest has historically outpaced inflation, economic conditions and costs can change.

Given increasing healthcare and retirement expenses, and longer lifespans, a proactive, strategic approach to building a retirement nest egg is crucial, and leveraging your CPF savings wisely is a key component of that strategy.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

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