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Pensions for Expats in Singapore

Submitted: April 2014

Singapore has the lowest fertility rate in the world (0.8 child per woman), according to the CIA. Ageing is therefore going to be a significant issue in the future. Singapore will possibly have to make up for its ageing by welcoming working age expats, but this would likely shift the problem to housing supply and infrastructure.

Singapore’s pension system is entirely based on individual responsibility. There is some Government intervention at various levels, but the elderly supposed to have set money aside throughout their working life. In general, the system is not designed to provide for much risk pooling or redistribution.

Central Provident Fund accounts

Technically speaking, working-age individuals are required to make pension contributions to an account with the Central Provident Fund (CPF) as they earn money. As the system is account-based rather than on a pay-as-you-go basis, Singapore does not have a pension debt problem. The CPF account for pensions is called Special Account (SA), but only in the case of individuals aged below 55. On turning 55 years old, the Special Account becomes a Retirement Account (RA).

The CPF is responsible for investing the savings in order to pay a 4% interest rate to CPF savers. For aggregate CPF account balances below SGD60,000 a 1% additional interest rate is applicable. However, savers may sign up for the CPF Investment Scheme (CPFIS) if they wish to manage their CPF investments for themselves – at least for retirement savings. CPFIS investments are generally restricted to Exchange Traded Funds (ETFs) only.

Mandatory CPF contributions qualify for tax relief, and they are designed to cover various elements, such as pensions, healthcare and housing. The aggregate CPF contribution rates depend on your age and your income. If you are an employee aged below 50, you should pay 20% whereas your employer pays 16%. These rates gradually decrease after your turn 50.

Withdrawals from CPF accounts are tax-exempt. As a result, there is a significant tax advantage.

Benefits and withdrawals

Broadly speaking, withdrawals are restricted in order to make sure all Singapore residents have money during retirement. Overall, the Government is expecting people to save more and more in real terms.

Your RA balance must be exceed the Minimum Sum (MS) (SGD148,000 as of 1 July 2013). The Minimum Sum scheme is designed to provide a basic annuity to pensioners for about 20 years. This annuity can be claimed upon 62, rising gradually to 65 for individuals born in 1954 or after. It is also possible to sign up for a CPF Life Plan if you are looking for a lifelong, enhanced annuity.

Lump-sum withdrawals may be made from age 55, provided the MS requirements are satisfied. Alternatively, you may leave your savings within the Retirement Account.

CPF funds may be withdrawn if you permanently leave Singapore and the West Malaysia area, providing you do not retain Singaporean citizenship or Singapore Permanent Resident (SPR) status. If you are a Malaysian citizen, CPF savings may be withdrawn if you are permanently leaving Singapore to reside in West Malaysia.

International superannuation planning

Many jurisdictions offer private tax-efficient pension plans. Therefore, they are heavily regulated in order to avoid any undue tax base erosion. However, tax neutrality should not be taken for granted in cross-border situations, and there are double taxation risks. Thus, you should check how your CPF benefits may possibly be taxed by your future country of residence.

Broadly, there are little double taxation risks with Singapore because Singapore has a territorial tax system. Nevertheless, cross-border superannuation planning is always on a case-by-case basis. It is strongly recommended to seek specialist advice regarding this matter.

 

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