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Amounts above Basic Healthcare Sum transferred to boost retirement payout

  • The Straits Times (11 November 2019): "Why make self-employed top up shortfall CPF Board is creating?"

Amounts above Basic Healthcare Sum transferred to boost retirement payout
- The Straits Times, 18 November 2019

  1. We thank Mr Chan Swee Wing for his letter (“Why make self-employed top up shortfall CPF Board is creating?”, Nov 11). 
  2. The Basic Healthcare Sum (BHS) is an estimate of the savings that Singaporeans will need for their basic subsidised healthcare expenses in old age, including large inpatient bills, selected outpatient treatments, long-term care and MediShield Life premiums. The BHS is a cap on the MediSave Account, and not a minimum amount members need to have.
  3. To ensure that it is relevant for every cohort that turns 65, the BHS is adjusted annually to keep pace with growth in MediSave use by the elderly, rising healthcare costs and expansions in MediSave uses. These adjustments only affect CPF members below the age of 65. Once members reach 65, their BHS will be fixed for the rest of their lives.
  4. The same CPF rules apply to both salaried employees and self-employed persons (SEPs). One, CPF members do not have to top up their MediSave Account to the BHS. Two, CPF members continue to make CPF contributions even if they have met their applicable BHS.
  5. Amounts above the BHS are transferred to the member’s CPF Special Account (SA) or Retirement Account (RA), which have interest rates equal to or higher than that of the MediSave account. The BHS cap and transfer arrangement are designed to avoid over savings in MediSave and to supplement the member’s retirement savings, which can be withdrawn per the usual CPF withdrawal rules. This helps SEPs who do not receive regular CPF contributions from employers, to save for their retirement needs. For members who have met the Full Retirement Sum in their SA or RA, the savings in excess of the BHS will be transferred to the Ordinary Account (OA). Savings in the OA can be used for other purposes such as housing repayment. 

Sim Feng Ji (Mr)
Divisional Director, Income Security Policy
Ministry of Manpower

Cham Dao Song (Mr)
Director, Finance Policy
Ministry of Health

Why make self-employed top up shortfall CPF Board is creating?
- The Straits Times, 11 November 2019

  1. The Contribute As You Earn (CAYE) scheme will start early next year and apply to freelancers working directly for the Government and public sector agencies (Help for freelancers on Medisave contributions, Nov 5).
  2. However, this is only half the problem solved, in particular for those who have sufficient Medisave funds and have reached their Basic Healthcare Sum (BHS) limits.
  3. While I agree with the idea of Medisave contributions to address healthcare needs, I question the practice by the Central Provident Fund (CPF) Board of automatic transfers of amounts above the BHS at the beginning of each calendar year out of the Medisave account to other accounts.
  4. The BHS has been increasing yearly and the rationale is increasing healthcare costs.
  5. This may be so, but transferring money out of Medisave and simultaneously increasing the BHS creates a problem of a shortfall immediately, and this affects the self-employed significantly, who must carve out a portion of their earnings to contribute to Medisave.
  6. If there is an excess over the BHS and the automatic transfer does not take place, the Medisave contribution need not be that much, or maybe there would be no need for a contribution.
  7. Removing the automatic transfer makes it less onerous for the self-employed, who would not need to put in money only to have it transferred out at the beginning of each year.
  8. I cannot find any valid reason for the automatic transfer out of the Medisave account if the BHS is to be increased the following year.
  9. The self-employed must keep on topping up the shortfall that the CPF Board created in the first place.
  10. In view of rising healthcare costs, BHS is likely to increase, so I propose that any excess amount above BHS be retained within Medisave for those below the age of 65, to accommodate any future increase in BHS limits. The CPF Board can consider transferring money in excess of the BHS out of Medisave accounts for members aged 65 and above.