If you’ve worked part-time or are currently an employee working full-time, you would be familiar with the Central Provident Fund (CPF) and the 20% monthly contribution you must make to your CPF account.
For the uninitiated, CPF is Singapore’s mandatory savings and pension scheme for working Singaporeans and Permanent Residents, funded by contributions from employers and employees, primarily for retirement, healthcare, housing and education.
What about people who are self-employed and not working for anyone?
Whether you are an experienced self-employed professional or someone who has taken up a side hustle or freelance gigs, knowing the specifics of CPF contributions ensures you are well-informed about your financial responsibilities and opportunities, regardless of your employment status.
And, among other things, should you top-up your CPF account beyond the mandatory contributions? Let’s find out.
TL;DR: CPF Contributions For Self-Employed Persons And If You Should Top-up
Click here to jump:
- What is a Self-Employed Person (SEP)?
- What are the mandatory CPF contributions of a SEP?
- Should you top-up or not?
Disclaimer: This is not a sponsored article. The opinions expressed here are based on our understanding of existing CPF policies. Please do your diligence and check with CPF to clarify your questions before doing anything! Alternatively, you can check and ask the friendly community over at Seedly if you have any questions!
Self-Employed Persons in Singapore
If you are a person with your own business, work for yourself and are in a position to realise a business profit or loss, by CPF’s definition, you are considered a Self-Employed Person (SEP).
As a self-employed person, you have several obligations under the Self-Employed Scheme.
What Are The Compulsory CPF Contributions For Self-Employed Persons?
There are three things you must do as a SEP:
- Declare your Net Trade Income (NTI)
- Make MediSave contributions
- Meet your Basic Healthcare Sum (BHS) for those who are concurrently an employee.
What Is Net Trade Income?
Net Trade Income (NTI) is your gross trade income minus all allowable business expenses, capital allowances and trade losses as determined by the Inland Revenue Authority of Singapore (IRAS).
Every year, you get to declare your NTI via the Self-Employed Person Income Declaration Form, during the Income Tax season.
Compulsory MediSave Contributions as a SEP
You must make compulsory contributions to your MediSave Account (MA) after you receive a Notice of Computation (NOC) of CPF contributions from IRAS if:
- You are a self-employed person;
- You are a Singapore citizen or permanent resident; and
- Your Net Trade Income is more than $6,000.
This means that even if you’ve been making regular CPF contributions from your full-time job if you have a side hustle as a SEP, you must contribute to your MA if your side hustle’s NTI exceeds $6,000 annually.
The exact amount you have to contribute yearly depends on your age and NTI, and if you need to, simply use CPF’s Self-Employed MediSave Contribution Calculator.
And for those who are curious, this is a summary of 2022’s MediSave contribution rates:
| Annual Net Trade Income | < 35 (age as of 1 Jan 2022) | 35 - 45 (age as of 1 Jan 2022) | 45 - 50 (age as of 1 Jan 2022) | 50 (age as of 1 Jan 2022) |
|---|---|---|---|---|
| Above $6,000 to $12,000 | 4% | 4.5% | 5% - 10% | 5.25% |
| Above $12,000 to $18,000 | 4% - 8% | 4.5% - 9% | 5% | 5.25% - 10.5% |
| Above $18,000 | 8% | 9% | 10% | 10.5% |
| Maximum | $5,760 | $6,480 | $7,200 | $7,560 |
The contributions are needed to meet the Basic Healthcare Sum (BHS), which is at $68,500 in 2023 so that you won’t run the risk of having insufficient MediSave funds for your various healthcare needs.
This is also the cap to your MA, so any excess will be automatically transferred to your other CPF accounts. In other words, the BHS is a CPF MediSave cap of sorts. If you have less than the BHS, you don’t need to top up your MA.
And you can still withdraw from your MA to pay for approved medical expenses.
For more information regarding the BHS, you can read this guide.
What If You Didn’t Make Any MediSave Contributions?
The CPF Act mandates self-employed individuals to make MediSave contributions when their NTI exceeds S$6,000. Failing to do so may have you wind up facing a fine of up to $5,000, six-month imprisonment or both for first-time offenders.
And for every subsequent offence, you could be fined up to $10,000, a 12-month jail sentence or both.
Notably, if you neglect to make MediSave contributions, this may also hinder any business registration or renewal with ACRA, so complying with CPF regulations is crucial to avoid legal issues.
Do note that contributions must be made within 30 days after the date of issue of the NOC of CPF contributions from IRAS, and the NOC would state clearly how much you have to contribute.
You don’t have to wait for the NOC to make your CPF contributions, as contributions may be made throughout the year.
While legal action is a last resort, the CPF Board is willing to assist those facing genuine financial difficulties, offering reasonable instalment plans to settle outstanding amounts. If you’d prefer a month-on-month instalment to ensure you don’t forget to contribute every month, you can also apply for a GIRO instalment plan.
What Is Voluntary Contribution to CPF?
This refers to voluntary contributions to your CPF Ordinary Account (OA) and Special Account (SA).
But keep in mind a few things before you do so:
- You can’t make Voluntary Contributions to your OA only
- There’s a maximum amount of Voluntary Contributions you can make, which is the CPF Annual Limit of $37,740, subtracting your mandatory contributions to MA
- All voluntary contributions will be distributed among your MA, CPF OA, and CPF SA following the same allocation ratios used for regularly employed CPF members:
| Employee’s Age (Years) | Ordinary Account (Ratio of Contribution) | Special Account (Ratio of Contribution) | MediSave Account (Ratio of Contribution) |
|---|---|---|---|
| 35 & below | 0.6217 | 0.1621 | 0.2162 |
| Above 35 – 45 | 0.5677 | 0.1891 | 0.2432 |
| Above 45 – 50 | 0.5136 | 0.2162 | 0.2702 |
| Above 50 – 55 | 0.4055 | 0.3108 | 0.2837 |
| Above 55 – 60 | 0.3872 | 0.2741 | 0.3387 |
| Above 60 – 65 | 0.1592 | 0.3636 | 0.4772 |
| Above 65 – 70 | 0.0607 | 0.303 | 0.6363 |
| Above 70 | 0.08 | 0.08 | 0.84 |
Should You Top-up Your CPF Account?
Do you know that in 2022, more than 200,000 CPF members had voluntarily made top-ups of over $3.5 billion to their own or their loved ones’ CPF?
This is a huge sum!
Certainly, there are benefits in topping up the CPF, but there are also important considerations one should have before deciding if you would like to top up or not.
For the benefit of all, I’ve summarised them below:
| Pros | Cons |
|---|---|
| Higher interest rates of 2.5% to 6% interest per annum compared to banks | As the top-ups are irreversible especially if you need liquidity in cashflow for emergencies |
| Tax relief on your mandatory and voluntary contributions based on whichever is lower: a) 37% of assessable income; or b) CPF Annual Limit of $37,740; or c) Actual amount contributed by you | Less working capital for business to grow |
| CPF monies can be used for housing, retirement, medical or investment purposes | Less funds for investments when you might be able gain more from other types of investments |
| Transfer funds from CPF OA to CPF SA to earn higher interest | |
| CPF monies are safe from creditors |
Here’s an example. You’re 35 years and below, and you decided to make a lump sum top-up of $10,000 to all three accounts. The amount in each account would be as follows:
- MediSave Account (21.62%): $2,162
- Special Account (16.21%): $1,621
- Ordinary Account (62.17%): $6,217
Note: The CPF allocation is first computed for the MediSave Account, followed by the Special Account, and the remainder will be allocated to the Ordinary Account.
The yearly amount you can top-up is capped by the CPF Annual Limit, which is currently at $37,740.
We know the power of compounding; this is the current CPF interest rates from 1 July 2023 to 30 September 2023:
| Ordinary Account | Special & MediSave Account | Retirement Account | |
| Interest Rate | 2.5% | 4.01% | 4% |
For persons (including SEP) below 55 years old, there is also an additional 1% per annum on the first $60,000 (capped at $20,000 for OA) of your combined CPF balances. And if you’re 55 and above, you can get 2% per annum on the first $30,000 and 1% per annum on the next $30,000 (also capped at $20,000 for OA) of your CPF balances.
Alternatively, if you are aged below 55, and the funds in your SA have not reached the Full Retirement Sum, you can also make a voluntary cash top-up to your SA.
Say you top-up $8,000 because that’s the maximum tax relief you can get is up to $8,000 per calendar year. This is what your $8,000 top-up will look like by the time you hit 65 years old:
| Number of Years | Amount Over The Years |
|---|---|
| Year 0 | $8,000 |
| Year 1 | $8,328 |
| Year 2 | $8,669 |
| Year 3 | $9,025 |
| Year 4 | $9,395 |
| Year 5 | $9,780 |
| Year 6 | $10,181 |
| Year 7 | $10,599 |
| Year 8 | $11,033 |
| Year 9 | $11,485 |
| Year 10 | $11,956 |
| Year 11 | $12,447 |
| Year 12 | $12,957 |
| Year 13 | $13,488 |
| Year 14 | $14,041 |
| Year 15 | $14,617 |
| Year 16 | $15,216 |
| Year 17 | $15,840 |
| Year 18 | $16,489 |
| Year 19 | $17,165 |
| Year 20 | $17,869 |
| Year 21 | $18,602 |
| Year 22 | $19,364 |
| Year 23 | $20,158 |
| Year 24 | $20,985 |
| Year 25 | $21,845 |
| Year 26 | $22,741 |
| Year 27 | $23,673 |
| Year 28 | $24,644 |
| Year 29 | $25,654 |
| Year 30 | $26,706 |
| Year 31 | $27,801 |
| Year 32 | $28,941 |
| Year 33 | $30,128 |
| Year 34 | $31,363 |
| Year 35 | $32,649 |
$32,649, that’s quite a substantial amount!
Additional tip: Top-up at the beginning of the year as CPF interest is calculated monthly, if you make a top-up in January instead of December each year, you will earn 20% more in interest over 10 years.
Would You Top-up Your CPF Account?
If I were a SEP, I would. Simply because the interest rates are much better than a bank savings account.
But before doing so, I will make sure to set aside emergency funds so that my needs are taken care of.
What about you? Share your thoughts with us in the CPF Group at the Seedly Community!
Related Articles:
- CPF Investment Scheme (CPFIS): Should You Invest Your CPF Money?
- CPF SA Top Up Step-by-Step Guide: Grow Your Retirement Fund & Save on Income in Tax Singapore
- Automated Retirement Planning? This Tool Could Just Be It
- Supplementary Retirement Scheme (SRS): What Is SRS + What Can You Invest in & Everything You Need To Know
- CPF Matched Retirement Savings Scheme (MRSS): Get Dollar-To-Dollar Matching for Cash Top-Ups
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