Pension and Retirement Benefits in Singapore Internal
What are the statutory pension benefits? What do they cover?
The pension scheme in Singapore is robust. Under the Central Provident Fund (CPF):
- All employees who are Singaporean citizens or permanent residents must participate in the government-run scheme (contribution rates for permanent residents of under 3 years differ when compared to rates for permanent residents of over 3 years and Singapore citizens);
- The employee’s contribution is deducted from monthly wages; and
- The employer must also contribute a certain percentage of the employee’s salary to the employee each month.
- Expatriate employees do not contribute and do not receive pension benefits under the CPF scheme.
The rate of contribution varies by age, is calculated based on the employee’s salary, and is subject to monthly and annual maximums (this includes all remuneration including overtime, commissions, allowances, and bonuses).
Permanent Residents and CPF Contributions
Individuals who obtain permanent resident status are entitled to a lower CPF contribution rate for the first 2 years of them becoming a permanent resident. From the third year onwards, standard rates apply. During those first 2 years, if the employee wants to contribute more than the graduated contribution rates that are available to them, they can do so in agreement with the employer.
The different graduated contribution rates for employers and employees can be found below:
Ordinary Wage (OW) = contractual monthly salary, capped at SG$6000 per month.
Additional Wage (AW) = any additional bonuses, commissions. There is an AW ceiling that is calculated on a per employer, per calendar year basis. The AW ceiling is computed as follows: SG$102,000* - Total Ordinary Wage subject to CPF for the year.
Standard practice for graduated employer and employee rates:
- First year of permanent residency (55 years and below)
- Employer's contribution: 4% of OW + 4% of AW, cap at SG$240 for OW contribution
- Employee's contribution: 5% of OW + 5% of AW, cap at SG$300 for OW contribution
- Second year of permanent residency (55 years and below)
- Employer's contribution: 9% of OW + 9% of AW, cap at SG$540 for OW contribution
- Employee's contribution: 15% of OW + 15% of AW, cap at SG$900 for OW contribution
- Third year onwards, this is full CPF contributions (55 years and below)
- Employer's contribution: 17% of OW + 17% of AW, cap at SG$1020 for OW contribution
- Employee's contribution: 20% of OW + 20% of AW, cap at SG$1200 for OW contribution
Standard practice for full employer, graduated employee rates:
- First year of permanent residency (55 years and below)
- Employer's contribution: 17% of OW + 17% of AW, cap at SG$1020 for OW contribution
- Employee's contribution: 5% of OW + 5% of AW, cap at SG$300 for OW contribution
- Second year of permanent residency (55 years and below)
- Employer's contribution: 17% of OW + 17% of AW, cap at SG$1020 for OW contribution
- Employee's contribution: 15% of OW + 15% of AW, cap at SG$900 for OW contribution
- Third year onwards, this is full CPF contributions (55 years and below)
- Employer's contribution: 17% of OW + 17% of AW, cap at SG$1020 for OW contribution
- Employee's contribution: 20% of OW + 20% of AW, cap at SG$1200 for OW contribution
Standard practice for full employer, full employee rates (similar to Singapore citizens):
- From the first year of permanent residency (55 years and below)
- Employer's contribution: 17% of OW + 17% of AW, cap at SG$1020 for OW contribution
- Employee's contribution: 20% of OW + 20% of AW, cap at SG$1200 for OW contribution
Retirement benefits are accumulated in the following accounts through the CPF:
- Ordinary Account (OA): Money can go toward housing, certified types of investment, insurance, and education.
- Special Account (SA): Money can go toward investments in retirement financial products.
- Medisave Account: Money can be used for medical expenses
- Retirement Account (RA): This account is established from funds transferred from the OA and SA accounts when the employee turns 55.
The benefits provided by the scheme are based on the total value of an individual’s fund and are typically paid out through CPF LIFE (Lifelong Income for the Elderly), although the Retirement Sum Scheme is also an option. Early withdrawals are permitted in certain situations, such as for medical reasons, or if an employee is permanently leaving Singapore.
Please note that employees who are not permanent residents or Singapore citizens cannot participate in the CPF. Although not necessarily common, foreign nationals can choose to contribute to the Supplementary Retirement Scheme (SRS), which is available to all foreigners who are working in Singapore. The amount an employee can contribute annually to the SRS is subject to caps. The employee should set this up on their own and make the contributions themselves if they choose to go forward with this scheme. Please see here for more information on the SRS.
What pension benefits do most employers offer?
Due to the significant amount of required contributions of the Central Provident Fund (CPF) plan, it is generally deemed to provide sufficient coverage, and therefore it is not common for employers to provide supplemental pension benefits although employers are able to do this through the CPF if they choose to.
Some employers also provide a pension allowance for expatriate employees who do not get CPF contributions. This is usually a percentage that can range from 5 to 10% of the expatriate employee’s monthly salary.
Can an employer make direct contributions to an employee’s private pension?
There are two private pension schemes (SRS and Section 5) that can be used to provide supplementary pension benefits, however, Velocity Global is not able to facilitate any contributions to these schemes. Supported employees may set one of these accounts on their own and contribute independently. Please see here for more information on SRS and Section 5 schemes.