My post on What are Retirement Funds is the second most read after the post on Monthly passive income hits S$1,000. It does seem like personal finance topics like passive income and retirement continue to be among the most popular.

I thought it would be interesting to have a post about my experience with Superannuation in Australia as a retirement fund scheme compared to Central Provident Fund (CPF) in Singapore.

Upfront disclaimer – I can only compare my experience with Superannuation during my 4 years working in Australia vs CPF during my 3 years working in Singapore. I’m aware this is an insufficient time frame for the benefits of each retirement fund scheme to realise but this is just my opinion based on how each system has worked out for me so far. The facts may also not be fully accurate as I am writing some of them from memory.

Overview of my Superannuation in Australia

When I started working in Melbourne after graduation, my employer contributed 9% of my salary every month to a Superannuation fund of my choice. The employer usually has a preferred Superannuation fund and I chose that because I had no knowledge of any Superannuation fund. I tried reading up but was overwhelmed by the number and range of Superannuation funds available. To be fair, it was my first full-time job in Australia and I was coming from Singapore where everyone only had one retirement fund that contributions go into i.e. CPF.

I decided not to make any voluntary contributions because I was unsure of how long I will be living in Australia. The Superannuation fund had 4 main investment options – cash, conservative, balanced and aggressive. I selected the aggressive investment option since it had the highest return over the long term due to the biggest exposure to equities.

This meant that the monthly contributions by my employer went towards purchasing units in the aggressive investment option of my Superannuation fund. It’s essentially a dollar-cost averaging approach and the valuation of the units change depending on the value of the underlying assets of the fund. Hence, the value of my retirement funds in Australia could vary significantly with each year since it depends to a large extent on the performance of domestic and international stock markets.

Life, disability and income protection insurance premiums were also deducted from my superannuation fund monthly. The coverage amounts were good relative to the amount of premiums paid. This is a benefit from selecting the preferred Superannuation fund of the employer.

However, there is a monthly account maintenance fee deduction and the amount can vary depending on whether the investment option is cash, conservative, balanced or aggressive. Superannuation fund fees can really eat into its returns if you are not careful.

After I moved to Sydney and started working for a different employer, I decided to roll the holdings in my previous Superannuation fund in Melbourne to the new preferred Superannuation fund in Sydney. This can be a hassle when you think about the number of times a person can change jobs over the span of a career. It’s probably the reason why Lost Superannuation is such a big issue in Australia since it can be difficult to keep track of all of your Superannuation fund holdings.

Overview of my CPF in Singapore

When I moved back to Singapore, I had to leave my Superannuation funds in Australia since I can’t withdraw it due to my status as a Australian permanent resident. Before leaving, I changed the investment option of my Superannuation fund to cash to reduce volatility in the value. It will grow much more slowly over time but made the most sense for me since there are no longer any monthly contributions to my Superannuation fund.

I had previously written about how I manage my CPF in Singapore. Basically, a Singapore citizen or permanent resident employee has only one retirement fund in Singapore i.e. CPF. There are no other choices available, which is a lot less confusing compared to Superannuation. In my case, the employer contributes a higher percentage (17%) of my salary to CPF. However, I have to contribute an even higher percentage (20%) of my salary to CPF. This is mandatory and I don’t have any choice in the matter unlike with Superannuation where I can choose not to contribute and only have my employer contribute.

As you can see, these contributions are significant (37% of my salary) and they are split into 3 accounts. Ordinary Account (for housing, insurance, investment and education), Special Account (for old age and investment in retirement-related financial products) and Medisave Account (for hospitalisation expenses and approved medical insurance) in the percentages of 23%, 6% and 8% respectively.

The interest rates earned on the OA, SA and MA are 2.5%, 4% and 4% respectively. However, there is an extra 1% interest paid on the first S$60,000 of my combined balances (with up to S$20,000 from my OA). This means I can earn up to 3.5%, 5% and 5% on my OA, SA and MA. The interest earned is credited at the end of each calendar year.

You should be able to observe the big difference in how my Superannuation fund and CPF balances grow. My Superannuation fund return in the aggressive investment option depends on the performance of stock markets while my CPF return depends on the setting of the interest rates. The former mainly relies on the effectiveness of the dollar-cost averaging approach to equities while the latter mainly relies on the interest rate environment.

These overviews are necessary as an introduction to my next post on whether I prefer Superannuation or CPF as a retirement fund scheme. It should be an interesting comparison based on my experience and even I would like to know which one I prefer at the end of the post.

As an accountant, I find the P&L approach towards my Income & Expenses and the BS approach towards my Assets & Liabilities to be an effective way to approach my personal finances. After all, the numbers don’t lie and are less open to interpretation. Every month, some of our income goes towards managing our expenses and reducing our liabilities, while the remainder of our income goes towards increasing our assets. However, there is a portion of our monthly income that we never receive as cash and this refers to the Central Provident Fund (CPF) contributions from our employers and us. These contributions get allocated directly to the Ordinary Account (OA), Special Account (SA) and Medisave Account (MA).

CPF is one of those topics that is almost always going to be mentioned in a personal finance blog. There is plenty of online content discussing CPF’s merits and demerits. I reckon it is more useful for me to write about how CPF fits into our asset portfolio. This is important for us to understand considering how a significant portion of our monthly income is allocated as CPF contributions.

How do we view our CPF and Investment Portfolio?

We view the OA and SA as retirement funds (focus of this post) and the MA as medical funds. The purpose of our investment portfolio consisting of the ETF, Share and Other portfolios has always been to be a tool for us to achieve financial independence. This should allow us to focus on work activities that are rewarding & fulfilling and leisure activities that are fun & enjoyable without having to worry about money. This means that the investment portfolio should really be considered as financial independence funds. We tend to view this separately from the retirement funds.

What are Retirement Funds (OA and SA)?

If you think about it on a timeline basis, the financial independence funds are likely to be used more heavily until we are age 65 – 70, since we can still be active in our work and travel. After that, the level of work and leisure activities are likely to start dropping off. Although we expect the remaining financial independence funds to still have a key role to play in our retirement after age 65 – 70, this is where the retirement funds (OA and SA) really step up. In our view, retirement funds (OA and SA) offer a basic standard of living i.e. they should cover our monthly fixed and variable (discretionary) expenses. The rest of our monthly variable (non-discretionary) expenses should be covered by our remaining financial independence funds.

How we allocate funds to the OA and SA?

I have added an additional page (Asset Allocation) to the blog that should provide a good overview of our current asset allocations. The target percentage for the retirement funds (OA and SA) is 20% and the current percentage is about 17%. Since there are monthly contributions to the OA and SA as long as we work, these balances should increase gradually over time in tandem with the rest of our assets. The main considerations are for us to manage the draw down of the OA for our housing, the cash top-ups to the SA for tax relief and the transfers between the OA and SA. I will discuss these issues in the next post.