What Happens to Your CPF RA and Its Interest Under the CPF LIFE Scheme?

 

I was having lunch with my colleagues last week when the topic of CPF LIFE came up. There seemed to be quite a bit of confusion about whether the interest earned in your CPF Retirement Account (RA) belongs to you and your legacy or if it gets pooled into CPF LIFE.

Let’s break it down and understand what happens to your CPF RA balance and its interest once CPF LIFE kicks in.

What is CPF LIFE?

CPF LIFE is a national annuity scheme that provides monthly payouts for life, ensuring you don’t run out of money in retirement. One important aspect to note is that the interest earned on your CPF LIFE premium does not belong to you. Instead, it is pooled with CPF LIFE funds to sustain lifelong payouts for all participants.

So, what actually happens to your CPF RA balance and its interest? Let’s explore.

What Happens to Your CPF RA and Its Interest?

Before You Turn 65 (or When You Defer Payouts until 70)

• Until you start CPF LIFE payouts, all interest earned on your CPF RA remains in your RA, helping your balance grow. This interest belongs to you.

After You Start CPF LIFE Payouts (From 65 to 70, Depending on Deferral)

• CPF LIFE Premium Deduction: A portion or all of your RA balance is deducted to pay for CPF LIFE premiums, depending on the plan you choose.
• What Happens to Interest? The interest earned on the CPF LIFE premium no longer stays in your RA. Instead, it is pooled into CPF LIFE to fund your payouts and those of other participants.

How Much Interest Do You Keep?

The amount of interest that stays with you depends on the CPF LIFE plan you choose:

Basic Plan

• Only 10% to 20% of your RA is deducted for CPF LIFE premium.
• The remaining 80% to 90% stays in your RA, and all the interest earned on it remains yours.
• This results in higher legacy potential but lower monthly payouts.

Standard & Escalating Plans

• 100% of your RA balance is deducted for CPF LIFE premium.
• No interest stays in your RA—all interest earned on the premium is pooled.
• This results in higher monthly payouts but a lower legacy.

Why Does This Matter?

It all depends on what you want from your retirement. Let’s compare:

Basic Plan (More Legacy, Lower Payouts)

• Monthly payouts come from your 80% to 90% RA savings until one month before you turn 90.
• After reaching 90, payouts continue from CPF LIFE premium
• Once your CPF LIFE premium is depleted, payouts continue from the pooled interest.
• Since a smaller portion of your RA goes into CPF LIFE, monthly payouts are lower, but your legacy is larger because 80% to 90% of your RA and its interest remains with you.

Standard & Escalating Plans (Higher Payouts, Lower Legacy)

• Monthly payouts start directly from CPF LIFE premiums.
• Once your CPF LIFE premium is depleted, payouts continue from the pooled interest.
• Since all your RA is used for CPF LIFE, monthly payouts are higher, but your legacy is lower.
• The Escalating Plan starts with lower payouts that gradually increases, while the Standard Plan provides a fixed payout.

The infographics below provides a quick summary of the points above.

In short, all the money (CPF RA, CPF LIFE Premium paid and CPF LIFE payout) except the CPF LIFE Interest Pool (Interest earned from CPF LIFE premium) are yours.

With the Basic Plan, 80% to 90% of RA along with its interest stays with you. This means that you will generally have more for legacy but lower payout. 

With the Standard and Escalating Plans, 100% of your RA balance is used for the CPF LIFE plan, and no interest stays in your RA. This means a lower legacy and higher payout.

Make sure you understand how your CPF LIFE plan affects your interest, monthly payouts and legacy and think about your other income streams to ensure a well-rounded retirement plan.

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