Reasons I am Not Topping Up My CPF

Central Provident Fund (CPF) is a compulsory savings plan for working Singaporeans to save for their retirement, healthcare, and housing needs. It is a crucial component of the country’s retirement system, providing a guaranteed source of income for citizens in their golden years.

There are even a whole bunch of perks and incentives to encourage CPF members to top up. We get tax relief of up to S$8,000 a year for topping up to our own Special (SA) or Medisave Account (MA), and another S$8,000 is possible by topping up for our family’s accounts. CPF money can earn 4% p.a. interest, with some amounts within the account even earning as much as 5% p.a.

However, is topping up CPF a good idea? Personally, I’m not currently doing so, and here are 3 reasons why not… and wow the YouTube comments are polarised on this:

Loss of liquidity for a very long time period

CPF is for the long term. Really long term. As someone who is at a ripe old age of 35, I’m entering my middle age and the time for the first few CPF withdrawals is still a solid 20 to 30 years away. While I am okay with setting aside money for the longer term – as I have with my compulsory contributions from my day job – I am not about to top up more towards the very late parts of my life.

Having money on hand allows me to do many things like upgrade my home, invest in a compelling opportunity like a new business, or even take advantage of the high interest rates that banks are currently offering. Liquidity also lets you deal with adverse events like retrenchment or illness, or fund an early retirement which may not always be voluntary.

Aggressively topping up your CPF is fine if you already have sufficient liquidity for your short to mid term goals, but probably not the best of financial planning moves if you overcommit to your super long term goals. Personally, I foresee a lot of use for my funds over the next 5 years at least, and topping up in excess of my current level of contributions is not on my list of to-dos.

Alternatives to CPF exist

Another reason why I don’t top up my CPF is because many of the nice benefits can be derived from other sources. Tax relief, for instance, can be obtained from contributing to one’s Supplementary Retirement Scheme (SRS) account up to S$15,300 per year for citizens, and that also gets dollar-for-dollar tax relief. While SRS is usually meant for withdrawal at retirement age, it is far more flexible in its withdrawal rules, and can even be withdrawn anytime before retirement age with a penalty. You can read more about it here.

CPF does offer attractive interest rates, but returns can also be derived from investing. While investments are very risky if your timeline is short, the volatility is mitigated in the long term and stock markets tend upwards over the decades. If you have more than 20-30 years to set aside your money, which is basically the time horizon you are looking at if you top up your CPF, you can reasonably expect returns higher than or 4 or 5% p.a. This is assuming you invest in the right things, of course, but it is not that difficult to find investments that are well diversified, low cost, and takes advantage of the growth of the market.

Those who are still uncomfortable with the idea of investing should consider how CPF returns are derived. The funds are used to buy government bonds, and the proceeds are used by GIC to invest for long-term returns. With investing as accessible and cheap as they’ve ever been, we are free to do so ourselves and keep a larger part of the returns ourselves. Stay subscribed to the Telegram for an upcoming piece on how to do so.

Policy risk

One of the largest discomforts I have that is shared with many people is the risk of policy change when it comes to CPF. It has been tweaked multiple times since its inception, and I don’t mean it as a criticism – things have to be tweaked when the need arises. It does, however, make planning a lot more unpredictable. Am I going to get my funds at 65 as the policy stands now, or would things be radically different some thirty years from now? Who would be the government of the day? Will rates stay 4% p.a?

This risk is more pertinent now than ever before and I believe that the future of work and retirement is in flux. There are possibilities where we are made redundant by automation before our retirement age. Or we could perhaps retire later, with the brunt of the heavy lifting done by artificial intelligence and robots. Chances are that different people in different industries may end up with wildly different fates, and we have to question which way CPF rules would change.

CPF is still pretty good

This is not to say that CPF is bad, and it depends a lot on your personal financial situation. Our circumstances aren’t static either, and topping up my CPF would become a more viable choice when I’m older and nearer my retirement age. The tax relief CPF top ups can provide on top of what I enjoy from my SRS would also be very useful should I have a surge in income in a particular year.

Depending on your financial goals and situation, topping up one’s CPF isn’t always automatically the prudent thing to do even as we extol the merits of saving for the long term. Moreover, I’m already setting aside money in my CPF as part of my job’s compulsory contributions, so topping it up further is not a compelling option for me now.

Of course, after learning my reasons and you still want to top up, you should definitely do so, especially if you are more risk conservative. People who prioritise a more fuss-free approach to retirement would also appreciate the relatively straightforward nature of just having to put funds into a retirement account for the future.

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