Important Facts About CPF’s Enhanced Retirement Sum that you should know

enhanced retirement sum

In this article, we’ll explore the essentials about the enhanced retirement sum that you should know. Essentially, Retirement is something we all eventually reach. To make sure we have enough money to live comfortably during retirement, we save a part of our salary every month in our Central Provident Fund (CPF) while we’re working.

When we turn 55, a Retirement Account (RA) is made for us. Money from two accounts, called the Special Account (SA) and Ordinary Account (OA), is put into a special Retirement Account (RA). This happens until a certain limit, which is known as the Full Retirement Sum (FRS), is reached. This money stays in the Retirement Account for 10 years and earns interest at a rate of 4.08% per year (from January 1, 2024, to March 31, 2024). It’s saved up for a program called CPF Lifelong Income For the Elderly (CPF LIFE). This program gives us monthly payments for the rest of our lives after we retire.

Even though there’s a maximum amount set for the retirement sum, we have the option to add more money, up to the Enhanced Retirement Sum (ERS). Doing this means we get higher monthly payments from CPF LIFE. In simple terms, topping up to the ERS gives us more money to enjoy during our retirement.

In 2016 The Enhanced Retirement Sum (ERS) Was Introduced

The CPF Advisory Panel introduced the Enhanced Retirement Sum (ERS) in 2016, aiming to make CPF more flexible and useful. This new level of retirement sum, along with the Basic Retirement Sum (BRS) and Full Retirement Sum (FRS), helps individuals determine their CPF LIFE payouts for monthly retirement income.

In short, in 1987 on January 1st, they introduced the Minimum Sum Scheme (MSS), which eventually changed into the Retirement Sum Scheme (RSS). Individuals were expected to save $30,000 by the age of 55 to receive monthly payouts for a specific duration. The aim was to assist lower-middle-income households with their essential expenses. The amount was reviewed and updated regularly.

ERS: The Most You Can Add to Your Retirement Account After Age 55

Once we hit 55 or older, the Enhanced Retirement Sum (ERS) allows us to top up our Retirement Account (RA) with the maximum amount of money. This amount is calculated by multiplying a specific number with the Basic Retirement Sum (BRS). By adding more to the ERS, we can get bigger monthly payments from CPF LIFE when we retire.

Now, the Basic Retirement Sum (BRS) shows how much we might need for basic living costs, without including rental expenses. But here’s the thing: before we can add money to the ERS, we have to make sure we’ve met the Full Retirement Sum (FRS), which is the recommended amount to cover our living expenses.Currently, the FRS is twice the BRS.

Every Year, the ERS Goes Up

Once we hit 55, the Basic Retirement Sum (BRS) and Full Retirement Sum (FRS) remain unchanged, while the Enhanced Retirement Sum (ERS) increases annually. The ERS is connected to the BRS and rises by a comparable increment each year.

The BRS is based on how much a retiree from a lower-middle-income household spends, according to a survey. It assumes the person owns a home until they’re 95 and doesn’t have to pay rent in retirement. The BRS goes up by around 3.5% every year for each group of people turning 55 from 2023 to 2027. This accounts for people living longer, higher prices, and improving living standards.

This means we can add more money to our Retirement Account (RA) each year, up to the ERS. Doing this helps us get more money from CPF LIFE for our retirement needs. The current ERS for 2024 is $308,700.

Starting in 2025, the ERS will be raised to four times the BRS

In Budget 2024, they said the ERS will go up from being three times the BRS now to four times in 2025.

Year
BRS
Before Changes
(ERS at 3 times the BRS)
Revised ERS from 1 January 2025
(ERS at 4 times the BRS)
2025
$106,500
$319,500
$426,000
2026
$110,200
$330,600
$440,800
2027
$114,100
$342,300
$456,400

To put it simply, before the change, the Enhanced Retirement Sum (ERS) for 2025 would have been $319,500. However, thanks to the latest ERS update, the amount has now increased to $426,000, resulting in a significant difference of $106,500. This enhanced sum provides us with the opportunity to save more annually, ultimately leading to larger payouts from our CPF LIFE in the future.

enhanced retirement sum

ERS Helps Us Get More Money from CPF LIFE

The ERS is the highest level among the retirement sums we can choose. It means we’ll get the most money every month from CPF during retirement. But the exact amount we get each month depends on a few things, like when we start saving up to the ERS and when we start getting the payments, whether it’s at age 65 or 70.

With the new ERS limit starting in 2025, we could get higher monthly payments of about $3,300 instead of $2,530 with the current ERS based on 3 times the BRS. That’s a difference of $770. This could be helpful if we want more money to cover our expenses during retirement.

Year
BRS
Before Changes (ERS at three times the BRS)
Revised ERS from 1 January 2025 (ERS at four times the BRS)
ERS
Estimated Monthly Payments
ERS
Estimated Monthly Payments
2025
$106,500
$319,500
$2,530
$426,000
$3,330
2026
$110,200
$330,600
$2,610
$440,800
$3,440
2027
$114,100
$342,300
$2,690
$456,400
$3,550

 

Two Ways to Add Money to the ERS

We have two ways to add money to the ERS. First, when we turn 55 and our Retirement Account (RA) is created, we can top it up to the ERS. Then, each year in January, as the ERS increases, we can keep adding more money.

To increase our RA savings to the ERS, we can choose between making a cash top-up or a CPF transfer.

If we go for the cash top-up, we could get tax relief of up to $16,000 a year by topping up both our RA and our loved ones’ accounts (up to the current FRS). Alternatively, we could transfer money from our Ordinary Account (OA) to the RA, up to the ERS. Starting in 2025, individuals aged 55 and above won’t be able to transfer funds from the Special Account (SA) as it will be closed

Adding money to RA to reach Enhanced Retirement Sum is a permanent decision

Once we add money to our RA to reach the ERS, we can’t take it back. We save this money to boost our monthly payouts upon retirement. So, we can’t use it for things like housing or other urgent needs after we turn 55.

That’s why it’s important to be sure about our retirement needs before we decide to top-up our RA to the ERS.

How We’re Saving (RSS or CPF LIFE) Affects What Happens to Our Money When We Die

Typically, when we pass away, the funds in our CPF accounts are distributed to the individuals we have chosen as beneficiaries, according to the proportions we have specified in our CPF nomination. However, if we have not made any nominations, the money will be transferred to the Public Trustee’s Office. From there, they will distribute it to our family members by specific legal regulations.

When we’re on the Retirement Sum Scheme (RSS), our loved ones will receive the remaining balance in our CPF accounts, along with any interest accrued, upon our passing.

But if we’re on CPF LIFE, our beneficiaries get the money left in our CPF LIFE account, minus what’s already been paid out to us. They also get the rest of our CPF savings. Unlike the RSS, all CPF LIFE members share the interest earned to ensure everyone continues receiving their monthly payouts for their entire life.

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