The Retirement Sum Scheme (RSS) is a key component of Singapore’s Central Provident Fund (CPF) system, which is designed to help Singaporeans save for their retirement. The CPF system was established in 1955, and it has undergone various modifications over the years to keep up with changing demographics and economic conditions. In this article, we will explore the RSS and its role in the CPF system.
What is the Retirement Sum Scheme?
The RSS is a program that requires CPF members to set aside a certain amount of money in their CPF accounts to provide for their retirement needs. The money is set aside in a separate Retirement Account (RA) and earns interest at a rate that is currently guaranteed at a minimum of 4% per annum.
Under the RSS, CPF members must set aside a Minimum Sum (MS) in their RA. The MS is a target amount that is adjusted annually to keep pace with inflation and rising standards of living. As of 2023, the MS is set at $194,000 for those who turn 55 in 2023.
CPF members who are unable to meet the MS in cash can pledge their property as collateral or choose to transfer some of their CPF savings from the Ordinary Account (OA) and Special Account (SA) to their RA. The transfer from the OA and SA to the RA is irreversible and is meant to ensure that members have enough savings for their retirement needs.
How does the Retirement Sum Scheme work?
CPF members who are about to turn 55 will receive a Retirement Account Statement that shows their CPF balances and the amount that they need to set aside in their RA to meet the MS. Members can choose to set aside the MS in cash, pledge their property as collateral, or transfer funds from their OA and SA to their RA.
After the MS is met, any additional funds in the OA and SA can be withdrawn or used for other purposes such as paying for housing, education, or healthcare expenses. Members who choose to pledge their property as collateral will have to pay interest on the pledged amount, and the property will be released when the MS is met.
Once the MS is set aside in the RA, CPF members can start receiving monthly payouts from their RA when they turn 65. The amount of the monthly payout depends on the balance in the RA and the prevailing interest rate at the time of retirement. CPF members can choose to receive their payouts in a lump sum or in monthly installments.
Why is the Retirement Sum Scheme important?
The RSS is important because it ensures that Singaporeans have enough savings to provide for their retirement needs. With an aging population and longer life expectancies, it is crucial for Singaporeans to save enough money to support themselves during their retirement years.
The CPF system, including the RSS, has been successful in helping Singaporeans save for their retirement. According to a report by the Ministry of Manpower, the average CPF member who turned 55 in 2020 had a retirement balance of $216,000, which is above the MS of $181,000 at that time.
Conclusion
The Retirement Sum Scheme is a key component of Singapore’s CPF system, which is designed to help Singaporeans save for their retirement needs. The RSS requires CPF members to set aside a certain amount of money in their RA, which earns interest at a minimum rate of 4% per annum. The MS is adjusted annually to keep pace with inflation and rising standards of living. By ensuring that Singaporeans have enough savings for their retirement, the RSS helps to promote financial security and well-being in the aging population.