Central Provident Fund

The Central Provident Fund (CPF) is a key component of Singapore’s social security structure. It is a compulsory save-as-you-earn scheme that enables working Singapore citizens and Permanent Residents to set aside a percentage of their monthly gross salary for retirement.1 Introduced on 1 July 1955, CPF is administered by the CPF Board which is a statutory board under the Ministry of Manpower.2 Over the years, the usage of CPF has been liberalised to help individuals meet other social needs such as housing, insurance, investment and education.3

Background
The CPF was introduced at the time when most employees in Singapore, except those working in the civil service or in some of the larger companies, were not provided with any form of retirement benefits from their employers. As a result, these workers had to depend on their personal savings or on their children after retirement.4 To address this problem, it was felt that a save-as-you-earn provident fund had to be implemented to ensure that workers could support themselves during retirement.5 The idea of setting up such a mechanism was raised at the Legislative Council on 22 May 1951, when the Central Provident Fund Bill was tabled before being sent to a Select Committee.

However, the proposed legislation faced prolonged delay at the Council.7 This was attributed to the proposal of another retirement scheme by the Retirement Benefit Commission.8 The alternative model was a pension system that required the employer and the employee to make a weekly contribution of 60 cents till retirement. After the employee retired, he or she would then receive a monthly pension of $30.9 But, in the end, the save-as-you-earn CPF scheme was accepted, leading to the passing of the Central Provident Fund Ordinance on 11 December 1953.10

To prepare for the CPF scheme, which was slated to come into effect on 1 May 1955, one of the first tasks was to register all employers both in the civil and private sectors, who would then provide the Fund with details of their employees.11 This registration exercise began on 4 January 1955 and by 30 March 1955 the CPF Board reported that about 17,000 employers had joined the Fund. This prompted the Board to advise the government that it was ready to roll out the CPF scheme on its scheduled date of 1 May 1955.12 However, the launch date was postponed after the newly elected Labour Front coalition felt that the mandatory monthly contribution rate of five percent was not practical for low-wage workers, as it would further diminish their already meagre income.13 An amendment to the 1953 Ordinance was then rushed through the Legislative Assembly to exempt workers earning less than $200 from contributing to CPF. Their employers, however, were still required to pay their share.14 The amendment was passed by the Legislative Assembly on 29 June 1955, allowing the Fund to come into effect on 1 July 1955.15

CPF changes and liberalisation of usage
Since then, the CPF has undergone many changes. Among them was liberalising the usage of CPF funds to meet other social needs instead of solely being for retirement savings.16 In September 1968, the government launched the Public Housing Scheme to allow CPF members to use their savings to buy public housing. This scheme was later extended in 1981 to private residential property under the Residential Properties Scheme.17 In 1982, to protect members and their families against losing their Housing Development Board (HDB) flat in the event of death, terminal illness or total permanent disability, the Housing Protection Scheme was introduced.18

Besides housing, the government extended the usage of CPF funds for healthcare needs by setting up the Medisave Account for CPF members in April 1984.19 The funds in the Medisave Account can be used by the member to cover medical expenses incurred from hospital or outpatient treatments.20 In 1990, MediShield was introduced as a medical insurance scheme to help members pay for expenses incurred by long-term and serious illnesses.21

To make sure that members would have enough savings to meet their healthcare needs during old age, the Medisave Minimum Sum was introduced in January 2004.22 This sum was set at S$2,500 but was increased to S$43,500 by 2015.23 Members would have to set aside this minimum sum before they could make any withdrawal from their CPF savings when they reached 55 years old.24 However, in January 2016, the Medisave Minimum Sum was replaced by the Basic Healthcare Sum. Unlike the Medisave Minimum Sum, members do not have to set aside the Basic Healthcare Sum which was set at S$49,500 when they withdraw from CPF.25

On 1 November 2015, MediShield Life was introduced to replace MediShield. The new scheme increases the coverage benefits under MediShield Life, providing members with higher claim limits and lower co-insurance rates.26 For additional benefits on top of those provided by MediShield Life, CPF members are allowed to use their Medisave savings to buy Integrated Shield Plans (IPs) under the Private Medical Insurance Scheme (PMIS).27

Further, there is the ElderShield, which is a severe disability insurance scheme, as well as the Dependants’ Protection Scheme, which is a term insurance that provides payment to insured members and their families, should the insured members pass away, suffer from terminal illness or total permanent disability.28 In addition, there are other schemes such as the CPF Investment Schemes and the Education Scheme where members could use their savings to invest in shares, gold, and investment products, or pay education fees respectively.29

To prevent members from using all their savings before retirement, the Special Account was introduced in 1977.30 This account enables members to set aside part of their CPF funds strictly for retirement purpose.31 They would not be able to withdraw funds from the account until they reached the retirement age of 55 or due to special reasons such as death, medical grounds, or leaving Singapore and West Malaysia permanently.32 CPF members could use Special Account funds for investment after setting aside a minimum amount. As of October 2016, this amount is set at S$40,000.33

CPF accounts and interest rates
Today, monthly contributions of CPF members are credited into three accounts: Ordinary, Special and Medisave.34 Savings in the Ordinary Account earn an interest rate based on either the legislated minimum interest of 2.5 percent per annum, or the three-month average of major local banks’ interest rates, whichever is higher. It is reviewed every quarterly. Funds in the Special and Medisave accounts, on the other hand, earn either the current floor interest rate of 4 percent per annum, or the 12-month average yield of 10-year Singapore Government Securities plus 1 percent, whichever is higher. Members could also earn an extra one percent interest paid on the first S$60,000 of a member’s combined balances (with up to $20,000 from the Ordinary Account).35

There have been periodical adjustments to the monthly CPF contribution rates since 1955.36 In most cases, the adjustments were made in response to the prevailing economic climate as well as the age of employees.37 Over the years, the contribution rate has been as high as 50 percent (25 percent from employer and 25 percent from employee) in 1984, and as low as 30 percent (10 percent from employer and 20 percent from employee) in 1999.38 As of September 2016, the CPF contribution rate for employees below age 55 stood at 17 percent from the employee and 20 percent from the employer.39 Besides adjustments to the contribution rates, the minimum sum component of CPF members saw similar changes.40 For instance, from the time it was introduced in 1987 to September 2016, the amount had increased from S$30,000 to S$161,000.41

Upon reaching the retirement age of 55, the CPF holder may withdraw the savings to meet his or her daily needs after setting aside the minimum sum which would then be transferred to their retirement account.42 From this minimum sum, CPF members could then opt to receive a fixed monthly income until the amount is depleted when they reached the draw down age, which is currently set at 65 years for members who were born in 1954 or later.43 Alternatively, they could use the sum to buy a life annuity with an insurance firm to obtain a monthly income for life.44

In February 2008, an annuity scheme, which automatically enrolled CPF members who turns 55 from 2013, was announced.45 Known as CPF LIFE (Lifelong Income For the Elderly), this scheme provides CPF members with a monthly payout from their retirement account for life starting from the draw down age.46 Members are given two CPF LIFE Plans to choose from – the CPF LIFE Standard Plan and the CPF LIFE Basic Plan. The plans differ in terms of the monthly payout with the former providing higher payout but lower bequest, and vice versa for the latter.47

CPF Advisory Panel
In September 2014, the Ministry of Manpower appointed the CPF Advisory Panel to recommend ways to make CPF more flexible and dynamic to meet the retirement needs of its members. The first set of recommendations, which was unveiled in February 2015, called for more choices for CPF LIFE payouts and the Retirement Sums to be set aside. For instance, members could now choose their desired monthly payouts when they reached the draw down age. The payouts are based on three levels of retirement sums - Basic Retirement Sum, Full Retirement Sum and Enhanced Retirement Sum.48 These sums are set at S$80,500, S$161,000 and S$241,500 respectively as of September 2016.49 In their recommendations, the Panel noted the Basic Retirement Sum should be increased by 3 percent for each successive cohort of members turning 55 from 2017 to 2020.50

Further, CPF members could withdraw their savings above the Basic Retirement Sum if they pledged on the value of their property to their CPF account.51 They could also transfer their CPF savings to their spouse’s CPF after setting aside the Basic Retirement Sum so that the spouse can also receive monthly payouts for life. In addition, the Advisory Panel recommended that CPF members be given the option to withdraw up to 20 percent of their Retirement Account Savings when they reached the draw down age.52


In the second set of recommendations, which was released in August 2016, the Advisory Panel recommended introducing an optional CPF LIFE plan with payouts that increase over time.53 Members who opted for this plan would receive a smaller payout initially. But, this would grow at a set rate of 2 percent per year. Besides, the Panel also recommended introducing an optional investment scheme called the Lifetime Retirement Investment Scheme to cater to members who wish to earn higher expected returns by taking on some investment risk.54

The two sets of recommendations by the CPF Advisory Panel have been accepted and implemented by the government.55

Timeline
1 Jul 1955: Implementation of CPF.56
1 Jun 1957: Members are required to nominate beneficiaries for their CPF savings.57
1 Sep 1968: Public Housing Scheme introduced.58
1 Mar 1972: Pensionable government officers join the CPF scheme.59
1977: Special Account created.60
1 Jun 1981: Residential Properties Scheme, which allows members to use their CPF savings to buy private homes, was introduced.61
1 Jan 1982: Home Protection Insurance Scheme (HPIS) introduced.62
1 Apr 1984: Medisave Scheme/Account introduced.63
1 Jul 1984: CPF contribution rate reached its peak at 50 percent (25 percent from employer and 25 percent from employee).64
1 Mar 1986: CPF began paying market-based interest rates.65
1 May 1986: Approved Investment Scheme (AIS) introduced. Members are allowed to use their CPF savings to buy gold, shares, unit trusts and stocks.66
1 Jan 1987: Minimum Sum scheme introduced at S$30,000.67
14 May 1989: Dependants’ Protection Insurance Scheme (DIPS), which is a term-life insurance covering members in the event of death or permanent disability, was introduced.68
1 Jun 1989: CPF Education Scheme introduced. Members are allowed to draw on their CPF savings to finance tertiary education in Singapore for themselves or their children.69
1 Jul 1990: MediShield Scheme introduced.70
1 Jul 1992: Medisave Scheme extended to the self-employed.71
1 Mar 1993: The Share Ownership Top-Up Scheme (SOTUS) was set up to help CPF members buy shares in government-owned companies.72
1 Oct 1993: The Basic Investment Scheme (BIS) and the Enhanced Investment Scheme (EIS) were introduced to replace the Approved Investment Scheme. Members are allowed to set aside a higher portion of their CPF savings (80 percent) for approved investments.73
1 Jan 1997: The Basic Investment Scheme (BIS) and the Enhanced Investment Scheme (EIS) were merged to form the CPF Investment Scheme (CPFIS).74
1 Jan 1999: Members are allowed to use Special Account savings to help meet their housing instalment shortfalls.75
Sept 2002: ElderShield, a severe disability insurance scheme, was launched.76
1 Jan 2004: CPF members who turn 55 and are able to meet the CPF Minimum Sum, are required to set aside a Required Amount in their Medisave Account when they make a CPF withdrawal.77
1 Jul 2006: Contributions to the Medisave Account which are in excess of the Medisave Contribution Ceiling are automatically transferred to members’ Ordinary Accounts.78 
1 Jan 2007: The cap on the CPF withdrawal limit for the purchase of private residential properties and HDB flats financed with bank loans was reduced.79
Jan 2008: The CPF Board began paying an extra interest rate of 1 percent per annum on the first S$60,000 in the combined accounts of each CPF member.80
Feb 2008: CPF Life was announced as an annuity scheme, which automatically enrolled CPF members who turns 55 from 2013.81
Sept 2014: CPF Advisory Panel appointed.82
Jul 2015: CPF minimum sum reaches S$161,000.83
Feb 2015: First set of recommendations released by CPF Advisory Panel.84
1 Jan 2016: Basic Retirement Sum introduced to replace the Medisave Minimum Sum.85
Aug 2016: Second set of recommendations released by CPF Advisory Panel.86

1 Jan 2017: CPF minimum sum reaches S$166,000.87



Author
Lim Tin Seng



References
1. “CPF Overview,” Central Provident Fund, accessed 16 September 2016.
2. Central Provident Board, “CPF Overview”; “MOM Statutory Boards,” Ministry of Manpower, 16 September 2016.  
3. Central Provident Board, “CPF Overview”; Lulin Reutens and Mary Lee, A People's Wealth, a Nation's Health: The CPF Story (Singapore: Central Provident Fund Board, 2000), 8. (Call no. RSING 354.5957 CEN)
4. Colin Cheong, Saving For Our Retirement: 50 Years of CPF (Singapore: SNP Editions, 2005), 18. (Call no.: RSING 368.40095957 CHE)
5. “Provident Fund For All Employees,” Singapore Free Press, 16 January 1951, 5 (From NewspaperSG); Reutens and Lee, People's Wealth, a Nation's Health, 7.
6. “Benefit Bill for Committee,” Straits Times, 23 May 1951, 5. (From NewspaperSG)
7. Reutens and Lee, People's Wealth, a Nation's Health, 7; Cheong, Saving For Our Retirement, 18.
8. Reutens and Lee, People's Wealth, a Nation's Health, 7; Cheong, Saving For Our Retirement, 18.
9. Cheong, Saving For Our Retirement, 18.
10. Reutens and Lee, People's Wealth, a Nation's Health, 7; Cheong, Saving For Our Retirement, 20.
11. S’pore Starts Public Old-Age Benefits Scheme,” Singapore Free Press, 5 January 1955, 5. (From NewspaperSG)
12. “Hurry along Those Forms, Firms Urged,” Straits Times, 30 March 1955, 5. (From NewspaperSG)
13. Cheong, Saving For Our Retirement, 22–23.
14. Cheong, Saving For Our Retirement, 23.
15. Cheong, Saving For Our Retirement, 23; Reutens and Lee, People's Wealth, a Nation's Health, 7.
16. Reutens and Lee, People's Wealth, a Nation's Health, 8.
17. Reutens and Lee, People's Wealth, a Nation's Health, 21.
18. Reutens and Lee, People's Wealth, a Nation's Health, 36–37.
19. Reutens and Lee, People's Wealth, a Nation's Health, 29.
20. Reutens and Lee, People's Wealth, a Nation's Health, 29–30.
21. Reutens and Lee, People's Wealth, a Nation's Health, 33.
22. Ministry of Health, “Setting Aside the Medisave Minimum Sum,” press release, 22 December 2003.
23. Ministry of Health, “Setting Aside the Medisave Minimum Sum”; Salma Khalik, “Singapore Budget 2015: Medisave Minimum Sum Requirement to Be Scrapped Next Year,” Straits Times, 12 March 2015. (From Factiva via NLB’s eResources website)
24. Ministry of Health, “Setting Aside the Medisave Minimum Sum.”
25. “Changes to the Medisave Scheme,” Central Provident Fund, accessed 19 September 2016.
26. “Medishield Life,” Central Provident Fund, accessed 19 September 2016.
27. “Private Medical Insurance Scheme,” Central Provident Fund, accessed 19 September 2016.
28. “Eldershield,” Central Provident Fund, accessed 19 September 2016.
29. “CPF Investment Schemes,” Central Provident Fund, accessed 19 September 2016; “CPF Education Loan Scheme,” Central Provident Fund, 19 September 2016.
30. Cheong,
Saving For Our Retirement, 37.
31. Cheong, Saving For Our Retirement, 37, 46–47.
32. “CPF Withdrawals on Other Grounds,” Central Provident Fund, accessed 19 September 2016. 
33. Central Provident Fund, “CPF Investment Schemes.”
34. Central Provident Fund, “CPF Overview.”
35. “Interest Rates,” Central Provident Fund, accessed 19 September 2016.  
36. Gavin Peebles and Peter Wilson, Economic Growth and Development in Singapore: Past and Present (Northampton, Mass.: Edward Elgar Pub, 2002), 90. (Call no. RSING 338.95957 PEE)
37. Reutens and Lee, People's Wealth, a Nation's Health, 13; “CPF Contribution and Allocation Rates,” Central Provident Fund, accessed 1 September 2016. 
38. Peebles and Wilson, Economic Growth and Development in Singapore, 91.
39. Central Provident Fund, “CPF Contribution and Allocation Rates.”
40. Reutens and Lee, People's Wealth, a Nation's Health, 51.
41. Cheong, Saving For Our Retirement, 37, 46–47; Reutens and Lee, People's Wealth, a Nation's Health, 51; “Retirement Sum Scheme,” Central Provident Fund, accessed 19 September 2016.
42. Cheong, Saving For Our Retirement, 37, 46–47.
43. Reutens and Lee, People's Wealth, a Nation's Health, 51; Central Provident Fund, “Retirement Sum Scheme.”
44. Reutens and Lee, People's Wealth, a Nation's Health, 51.
45. Central Provident Fund, Annual Report 2013 (Singapore: Central Provident Fund, 2013), 4, 8; Li Xueying, “CPF Annuities Scheme Will Offer Members 12 Options,” Straits Times, 13 February 2008, 26. (From NewspaperSG)
46. Central Provident Fund, Annual Report 2013, 4, 8; “CPF Life,” Central Provident Fund, accessed 19 September 2016.  
47. Central Provident Fund, “CPF Life.”
48. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations – to Provide Greater Assurance and More Flexibility,” press release, 4 February 2015.
49. Reutens and Lee, People's Wealth, a Nation's Health, 51; Central Provident Fund, “Retirement Sum Scheme.”
50. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations.”
51. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations.”
52. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations.”
53. Ministry of Manpower, “Government Accepts CPF Advisory Panel’s Recommendations: An Additional CPF Life Payout Option & a New Simple, Low-Fee Investment Scheme,” press release, 3 August 2016.
54. Ministry of Manpower, “Government Accepts CPF Advisory Panel’s Recommendations.”
55. Ministry of Manpower, “Government Accepts CPF Advisory Panel’s Recommendations.”
56. Cheong, Saving For Our Retirement, 149.
57. Cheong, Saving For Our Retirement, 149.
58. Cheong, Saving For Our Retirement, 149.
59. Cheong, Saving For Our Retirement, 149.
60. Cheong, Saving For Our Retirement, 150.
61. Cheong, Saving For Our Retirement, 150.
62. Cheong, Saving For Our Retirement, 150.
63. Cheong, Saving For Our Retirement, 151.
64. Cheong, Saving For Our Retirement, 151.
65. Cheong, Saving For Our Retirement, 151.
66. Cheong, Saving For Our Retirement, 152.
67. Cheong, Saving For Our Retirement, 152; Reutens and Lee, People's Wealth, a Nation's Health, 51.
68. Cheong, Saving For Our Retirement, 153.
69. Cheong, Saving For Our Retirement, 153.
70. Cheong, Saving For Our Retirement, 153.
71. Cheong, Saving For Our Retirement, 154.
72. Cheong, Saving For Our Retirement, 154.
73. Cheong, Saving For Our Retirement, 154.
74. Cheong, Saving For Our Retirement, 155.
75. Cheong, Saving For Our Retirement, 156.
76. Central Provident Fund, “Eldershield.”  
77. Ministry of Health, “Setting Aside the Medisave Minimum Sum.”
78. Arthur Sim, “CPF Changes: Property Market Sees No Significant Effect,” Business Times, 14 June 2006, 4. (From NewspaperSG)
79. “Medisave, Other Changes in CPF,” Today, 20 December 1006, 10. (From NewspaperSG)
80. Aaron Low, “How Higher Interest Rates Will Benefit Members,” Straits Times, 18 September 2007, 32. (From NewspaperSG)
81. Central Provident Fund, Annual Report 2013, 4, 8; Li, “CPF Annuities Scheme.”
82. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations.”
83. Aw Cheng Wei, “What Is CPF Minimum Sum? 7 Things to Know,” Straits Times, 21 January 2015. (From Factiva via NLB’s eResources website)
84. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations.”
85. Central Provident Fund, “Changes to the Medisave Scheme.”  
86. Ministry of Manpower, “CPF Advisory Panel Releases Part One of Recommendations.”
87. Central Provident Fund, “Retirement Sum Scheme.”



Further resources
Below $200 Month Men Needn’t Pay,” Straits Times, 30 June 1955, 5. (From NewspaperSG)

Benefit Bill For Committee,” Straits Times, 23 May 1951, 5. (From NewspaperSG)

Colin Cheong, Saving For Our Retirement: 50 Years of CPF (Singapore: SNP Editions, 2005). (Call no.: RSING 368.40095957 CHE)

CPF Funds for Old Age: Plan Begins Tomorrow,” Straits Times, 31 December 1986, 8. (From NewspaperSG)


CPF Home Loan Forms Issued to 1,500,” Straits Times, 2 June 1981, 1. (From NewspaperSG)

G. T. Boon, “Provident Fund Gets a Big Welcome,” Singapore Free Press, 1 December 1953, 2. (From NewspaperSG)

Hurry along Those Forms, Firms Urged,” Straits Times, 30 March 1955, 5. (From NewspaperSG)

Law to Encourage Citizens to Be House-Owners,” Straits Times, 2 August 1968, 10. (From NewspaperSG)

Lulin Reutens and Mary Lee, A People's Wealth, a Nation's Health: The CPF Story (Singapore: Central Provident Fund Board, 2000). (Call no. RSING 354.5957 CEN)

Medisave Made Easy,” Straits Times, 31 March 1984, 8. (From NewspaperSG)

New Target Date Set for Fund,” Straits Times, 12 May 1955, 7. (From NewspaperSG)

Now the Workers Need Not Fear the Day They Have to Retire,” Singapore Free Press, 25 November 1953, 2. (From NewspaperSG)

Paul Jacob, “2 Special Counters at CPF to Help These Home Owners,” Straits Times, 2 June 1981, 8. (From NewspaperSG)

Provident Fund for All Employees,” Singapore Free Press, 16 January 1951, 5. (From NewspaperSG)

Provident Fund for All Workers Proposed,” Straits Times, 17 January 1951, 4. (From NewspaperSG)

"S’pore Starts Public Old-Age Benefits Scheme,” Singapore Free Press, 5 January 1955, 5. (From NewspaperSG)

They Will Run the Big Fund,” Straits Times, 29 January 1954, 4. (From NewspaperSG)



The information in this article is valid as of 19 September 2016 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.







Subject
Central Provident Fund Board
Social security--Singapore
Savings and loan associations--Singapore
Politics and Government