January is the month where many people are interested in the CPF. I believe this is because we usually set our life / financial / career goals for 2022 at the start of the year. For those of you who have financial goals, I welcome you to Wealthdojo and hope that this website will be a good resource for you.
This article will only highlight 3 2022 CPF Policies updates. If you wish to look at all the other changes that was announced in Nov 2021, you can take a look here.
#1: Basic Retirement Sum (BRS) / Full Retirement Sum (FRS) / Enhanced Retirement Sum (ERS) Updates
The CPF retirement sum is a moving target because of inflation. This is to ensure that CPF payouts will be sufficient during our retirement years. For 2022, the amount in BRS, FRS and ERS are $96,000, $192,000 and $288,000 respectively. If you are turning 55 this year, these numbers will be relevant to you.
#2: Basic Healthcare Sum (BHS) Updates
In 2022, the BHS will be $66,000. This is the estimated savings needed for basic healthcare for old age and is adjusted yearly until the age of 65. This will be fixed for the rest of your lives. If you are turning 65 this year, this number will be relevant to you.
#3: Increase in CPF Top Up Tax Reliefs Updates
You may enjoy tax relief of up to $8,000 if you may a top up for yourself and an additional $8,000 if you make a top up for your loved ones. However, the $8,000 tax relief cap is now shared between Special Account (SA), Retirement Account (RA) and the MediSave Account (MA).
This update has posted the most concerns and I believe this will affect a specific group of individuals which I will explain later.
To understand this, we have to take a step back and look at how top ups were done before 2022 especially MA Top-ups.
Before 2022, topping up MA is a popular tax relief option together with Retirement Sum Top-Up (RSTU). It depends on 2 factors.
- The difference between the CPF Annual Limit ($37,740) and the CPF contributions made for the calendar year
- The difference between the BHS and current MA balance
I will be illustrating using an example of Mr Goh (age 25) with a salary of $10,000 monthly with no bonus. As he is young, we can safely assume that his MA amount is way below the BHS. As the the Ordinary Wage ceiling is capped at $6,000 currently, his annual CPF contribution will be the following.
A: Annual CPF Limit: $37,740
B: Annual CPF Contribution: $6000*12*0.37= $26,640.
C: Eligible VC-MA Top-up amount: A – B = $11,100
D: Max RSTU Top-up limit before 2022 = $7,000
E: Total Eligible Tax Relief: C + D = $18,100
As you can see, it is slightly more complicated to calculate tax-reliefs previously.
After 2022, it is very simple. $8,000 tax relief cap is now shared between Special Account (SA), Retirement Account (RA) and the MediSave Account (MA). This means for Mr Goh, his eligible tax relief decreased by $10,100 ($18,100 – $8,000).
Now that we understand the theory behind it, let’s put things into context.
Personally, I think this will not affect most of us. This is because the median income for Singaporeans is $4,534 in 2020 including CPF contributions from employers. It is an income where tax is rather manageable (in my opinion) and you might not consider to contribute to CPF for tax purposes. I do understand that some of you might be attracted to the interest rates from CPF, feel free to contribute at your discretion.
The group that I believe will be affected are the high income young individuals. At that income level, you might be looking for ways to have tax-reliefs such as SRS Top-ups to reduce your taxes.
The journey of your financial freedom begins with the first step. Congratulations for reaching the end of the article. I hope to see and hear (write down your thoughts in the comments below) from some of you in 2022.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
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The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.