CPF Board sent out a news release today on CPF changes announced by the government last year.
First, the Medisave Contribution Ceiling (MCC) will be raised from $32,500 to $33,000 with effect from 1 July 2006. This means that your Medisave account can hold a maximum of $33,000. Any excess will be channelled out (see next point).
Second, the excess Medisave contribution (as mentioned) will be channelled to your Special Account instead of the Ordinary Account previously.
Third, you can’t use CPF to pay for a second property unless you have set aside the Minimum Sum.
What all the above is trying to tell us is that you will have less money in your Ordinary Account, but it’s ok, since you can’t use it to fund your “investment property” unless you have set aside the Minimum Sum for your retirement.
Coming back to the Medisave Contribution Ceiling (MCC), do you know that a fair number of people hit this ceiling around their mid-30s? In fact, you can ask your colleagues, maybe casually over lunch, if they have hit the MCC and when. And you’ll roughly know where they stand in terms of income.
Here’s some calculations: to hit $33,000 at a contribution rate of 6% (medisave rate for those aged below 35), you’ll need to make a total of $550,000 in wages. Spread over 10 years, that’s only $55,000 per annum on average.
If you’re an above average wage earner, chances are you’ll hit MCC before hitting middle age, whatever you define it to be.