| Central Provident Fund Board | |
|---|---|
| Logo of the CPF Board | |
| Agency overview | |
| Jurisdiction | Government of Singapore |
| Headquarters | 79 Robinson Road, #02-00, Singapore 068897 |
| Website | |
| www.cpf.gov.sg | |
In Singapore, the Central Provident Fund (Abbreviation: CPF; Chinese: 公积金, Pinyin: Gōngjījīn) is a compulsory comprehensive savings plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare and housing needs. It is administered by the Central Provident Fund Board, a statutory board under the Ministry of Manpower. The CPF was started on 1 July 1955.
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The British colonial authority in Singapore introduced the CPF in 1955 as a compulsory savings scheme so as to allow workers to save for their retirement, 10 years after the end of the Japanese Occupation when people were struggling to make ends meet.
With Singapore's entrance into developed status, life expectancy rose with the rising living standards. Singaporeans were required from 1987 to set aside a portion of their income to their CPF until the age of 55 to provide them with a basic monthly income when they retire.
The circle emphasises the completeness of the CPF system as a national social security savings scheme.
The shield represents security and protection for the members in their retirement.
The three keys represent the unity of the tripartite relationship among Employees, Employers and the Government.
Lastly, the use of the colour green in the logo highlights the need for CPF’s constant growth and dynamism.
Working Singaporeans and their employers make monthly contributions to the CPF and these contributions go into three accounts:
Schooling children will have their outstanding funds in their Edusave account deposited into their CPF account when they enter the workforce.
In September 2010, the employer's contribution to the CPF, a national pension fund, went up by 0.5% and added into the Medisave Account. In March 2011, the employer's contribution went up another 0.5% and this would be added into the Special Account, bringing the total employer CPF contribution to 15.5%. This will set the overall contribution employer and employee CPF contribution rate to 35.5%.
In September 2011, the employer's contribution has gone up by 0.5% again, taking the total contribution (employer+employee) to 36%.
The overall scope and benefits of the CPF encompass the following:
At age 55, the CPF savings may be withdrawn after setting aside the CPF minimum sum. However, the CPF savings may also be withdrawn if one should leave Singapore and West Malaysia permanently or become permanently incapacitated. The CPF minimum sum may be used to purchase life annuity from a participating insurance company, placed with a participating bank or left in the retirement account with the CPF Board. From 62 (current draw-down age), monthly payments shall be given from the CPF Minimum Sum to help meet basic needs in retirement. If life annuity had been purchased, a monthly income for life shall be given. If the CPF minimum sum is left with a participating bank or with CPF Board, monthly income shall be given till the CPF minimum sum is exhausted. Monthly payouts may be started later; it is beneficial in that way since payouts will last longer. For example, if the payouts were started at age 63 instead of 62, they can last till age 84 instead of 82.
From 1 July 2009, the CPF minimum sum was increased from $106,000 to $117,000. The Minimum Sum will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013, and will be adjusted yearly for inflation. However the interest earned in CPF accounts are never adjusted for inflation.
From 1 July 2011, the prevailing MS will be revised to $131,000, up from $123,000. Members who can set aside the MS fully in cash can apply to commence their monthly payouts of $1,170 when they reach their draw down age. The new MS will apply to CPF members who turn 55 from 1 July 2011 to 30 June 2012
Should the CPF minimum sum be met, a Medisave required amount is needed to be set aside when withdrawing CPF savings. However, should the Medisave required amount not be met, the special and/or ordinary accounts may be used in excess of the CPF minimum sum to set aside the Medisave required amount. This includes the first withdrawal upon reaching 55 and all subsequent withdrawals.
Monthly contributions to the Medisave account help build up savings for healthcare needs. Medisave may be used to cover for self or dependents hospitalisation expenses. It may also be used for certain outpatient treatments like chemotherapy and radiotherapy treatments.
Medisave savings may be used to cover the premiums for MediShield. These are catastrophic medical insurance schemes for one and one's dependents. They help to meet the high medical costs of prolonged or serious illnesses. For older CPF members, there is ElderShield, an affordable severe disability insurance scheme that provides insurance coverage to those who require long-term care.
To ensure that all Singaporeans have access to medical care, Medifund helps the poor and needy to cover their medical bills.
The Medisave Required Amount is set at $18,000 from 1 January 2009 and will rise by approximately $2,500 (to be adjusted for inflation) each year until it reaches $25,000 (in 2003 dollars) on 1 January 2013.
From 1 July 2011, a. The Medisave Minimum Sum (MMS) will be raised to $36,000 from $34,500. Members will be able to withdraw their Medisave savings in excess of the MMS at or after age 55. b. The maximum balance a member may have in his Medisave Account, known as the Medisave Contribution Ceiling (MCC), is fixed at $5,000 above MMS and this would be increased correspondingly to $41,000, from $39,500. As announced previously, any Medisave contribution in excess of the prevailing MCC will be transferred to the member’s Special Account if he is below age 55 or to his Retirement Account if he is above age 55 and has a MS shortfall. The revisions to MMS and MCC are to ensure that Singaporeans have sufficient savings to meet their healthcare expenses, and have been adjusted for inflation.
The Ordinary Account savings can be used to purchase a home under the CPF housing schemes. A HDB flat may be purchased under the Public Housing Scheme, or a private property under the Residential Properties Scheme. CPF savings may be used for full or partial payment of the property, and to service the monthly housing payments. Home buyers who are taking a bank loan to finance their property purchase have to pay the first 5% of the downpayment in cash. If a flat is purchased under the Public Housing Scheme, insurance under the Home Protection Scheme will be needed.
How much CPF can be used?
a) A new HDB flat bought directly from HDB (financed by HDB concessionary loan)
One can use the full CPF Ordinary Account savings and future CPF contributions in the Ordinary Account for the downpayment as well as the balance of the purchase price and/or pay off the HDB loan.
b) A resale HDB flat bought in the open market (financed by concessionary loan)
One can use the full CPF Ordinary Account savings and future CPF contributions in the Ordinary Account for the downpayment as well as the balance of the purchase price and/or pay off the HDB loan.
When the total amount of CPF used for the particular property has reached 100% of the Valuation Limit (VL), one has to have Ordinary and Special Account savings of at least 50% of the prevailing CPF Minimum Sum when using further Ordinary Account savings for the property. The VL is the lower of the purchase price or the value of the property at the time of purchase.
c) HDB flat or private property financed by bank loan
The same as (b) above except that when the total amount of CPF used has reached the CPF Withdrawal Limit, further use of CPF is not allowed for the property.
Click here for more information on Public Housing Scheme and click here for more information on residential properties.
The Dependents' Protection Scheme helps families to tide over the first few years in the event of an insured member's permanent incapacity or death.
The Home Protection Scheme prevents homes from being lost. This scheme is applicable to all CPF members who use their CPF savings to buy an HDB flat. Should the insured member become permanently incapacitated or die, the CPF Board will pay the outstanding housing loan based on the amount insured.
MediShield is a catastrophic medical insurance scheme to help one and their dependents to meet the high medical costs of prolonged or serious illnesses. For older CPF members, there is ElderShield, an affordable severe disability insurance scheme that provides insurance coverage to those who require long-term care.
CPF members may invest their Ordinary Account balance under the CPF Investment Scheme – Ordinary Account (CPFIS-OA) and their Special Account balance under the CPF Investment Scheme – Special Account (CPFIS-SA), subject to caps. Assets that may be invested includes Insurance, Unit Trusts, Exchange Traded Funds (ETFs), Fixed Deposits, Bonds and Treasury Bills, Shares, Property Fund and Gold. From 1 July 2010, only monies in excess of $20,000 in the Ordinary Account and $40,000 in the Special Account can be invested.
CPF is not compulsory for low wage and self employed Singapore citizens. The CPF Board does not provide figures of working Singaporeans who do not actively contribute to their CPF savings or medisave accounts. This implies a significant number of low income Singaporeans do not enjoy the benefits of medishield coverage and retirement savings.
While the CPF does indeed contribute to Singapore having one of the highest savings rates in the world, even in Asia (where savings rates tend to be higher than that of the Western world), the rigid investment nature of CPF, the inadequacies of various short term schemes Minimum Sum, Annuities, puny provident fund interest and soaring medical costs will produce significant problems for a rapidly aging Singaporean society. In addition, citizens are not entirely happy with the low returns of their CPF savings.[1]
High-income and affluent middle class usually depend less on savings component of the provident savings account. They tend to have access to possibly higher yielding and diversified portfolio. An opportunity cost is realised if their provident fund savings are not invested in higher yielding professionally managed instruments or business opportunities. Currently there are many restrictions on type of investment products using CPF funds e.g. local stock or debt market. High retail fees often reduce returns from CPF approved investments. In addition, with CPF savings forming the largest segment of Singapore government's debt, they are recycled as low yield Hold-To-Maturity financial assets. This implies a large segment of citizens' wealth will be subjected to low returns and are not efficiently invested for optimal returns.[2]
Morever for lower and mid-income Singaporeans, CPF accounts contributions significantly reduce their disposable incomes after adjustments for inflation. This restrict their personal consumption choices throughout their employment period. [3]This could lead to an inability to afford more comprehensive health or accident insurance, for which the Medisave component of CPF may be inadequate in coverage.
Dr Ng Eng Hen, then Minister overseeing the CPF, revealed the monthly median housing loan repayment is around $600. For a median wage earner, repaying huge housing loans over a prolonged period will lower the monthly CPF contributions portions. The depleted retirement provident savings will not be able to need eldery citizens' retirement consumption or earn compound interest income. [4]
In addition, with lower disposable income and higher costs of living, the average Singapore family size has been trending downwards since Independence. Smaller family size resulted in all time low birthrate at 1.2 levels. This will inevitable strain the provident system in the future as the population aged and less contributions are made to the provident fund pool.
The greatest threats presently facing the CPF schemes are the dwindling birth rate and persistent low yield returns from Hold-To-Maturity financial instruments. The dwindling CPF contributions due to aging population will test the future government's ability to meet CPF savings redemptions if population continues to age without raising existing taxes. The various schemes e.g. CPF Life annuities schemes and Minimum Scheme Sum provided the means to stagger CPF withdrawls or pool longevity risks. However they will not fundamentally solve the problem of re-investing the massive CPF savings to ensure that the low yields are able to provide substantial retirement savings for citizens.
The other risk associated with any forced provident savings is citizens have no way to prevent the government from stealth confiscation of wealth. The key pillar that substain any pension or provident fund system is faith on the future government's promise or ability to pay workers their pensions/provident savings upon retirement. Historical and recent examples e.g. Argentina [5]showed that governments when faced with financial insolvency tend to tap pension funds to starve off financial crisis. In addition, the low interest rate paid to pensioners upon their retirement may be disguised as a 'saving tax'.
If a person buys S$100 worth of gold in 1970, that amount of gold would be worth around S$1900 in 2011. In comparison, the same amount of money would be S$740 today if it is assumed that CPF pays 5% interest every year.
The CPF Life schemes are a series of mandatory nationalised annuities for Singapore citizens. For nationalised annuities to be viable in the long term, the CPF Board incorporated several clauses to substain the novel annuity scheme. One clause is to peg monthly payout based on pool's mortality experience or annuity fiscal health. Firstly, this implies the CPF Life payouts are discretionary. Secondly the payouts not guranteed. Lastly, citizens have no legal case if the annuity scheme defaults. In general, nationalised annuity scheme pools longevity risk. The short life expectancy annuities holders will ended up paying for their older counterparts. An aging population will strain the annuity scheme. The compulsory annuity scheme is an indirect tax on citizens who have shorter lifespan. The common break-even age for most Life schemes is 20 years (exclude the no bequest annuity).
It is no coincidence that majority of Singaporeans, especially the elderly, are unable to rely on their provident fund retirement account savings even if saving close to a third of their income throughout their working lives.[6]