If you are employed in Singapore as a permanent resident (PR) or are a Singapore citizen, you will begin accumulating various CPF balances.
CPF stands for central provident fund and is a key pillar of Singapore’s social security system, which helps both Singapore citizens and permanent residents set aside funds to build a strong foundation for retirement.
Special Account, Ordinary Account and Medisave Account
For those under the age of 55, these are split between a Special Account, Ordinary Account and Medisave Account.
For those unfamiliar with what a medisave account is, quite simply it is a national medical savings scheme that helps individuals set aside part of their income to pay for their personal or approved dependents’ hospitalisation, day surgery and certain outpatient expenses, as well as their healthcare needs in old age.
Though contribution rates change with age, you can expect to pay 20% of your income into CPF whilst your employer will pay in 17%. Given those high rates, it is clear that you could build up a significant sum in CPF fairly quickly.
Given the guaranteed interest rates available shown here , and given that they typically offer higher rates of return that other risk-free options, our general advice for expats is to simply take the interest rates (as opposed to investing via CPF) and to view it as part of the low-risk portion of you overall portfolio. This can be supplemented with higher risk investing elsewhere, with the route to those higher risk investments being selected based on what suits your current situation and likely future tax residence.
If you leave and give up your PR status you will be able to take out the cash that you have accumulated without penalty. More information is available here
In contrast to how UK pensions are treated in the UK, CPF payouts are not typically taxable in Singapore. Note crucially however that there is nothing to prevent CPF proceeds from being taxed as income by HRMC, if you receive them as a UK tax resident. In fact, the DTA between the UK and Singapore gives exclusive taxing rights to the country in which you are resident if that country does tax the income
Consequently, it would be most tax efficient to ensure that the CPF withdrawal is made before the date on which you become tax resident under UK split year treatment in the relevant year.
Due to the tax treatment of CPF income in Singapore, people incorrectly assume that they can take the cash tax free wherever they are – do not make that mistake.
Note that, though not covered in detail here, this concern could be a relevant one in many other countries.
Speak to Chartwell Associates to receive detailed advice in your specific circumstances, and for guidance on how to avoid paying UK tax on your CPF payout.