Central Provident Fund
From Wikipedia, the free encyclopedia
The Central Provident Fund (Abbreviation: CPF; Chinese: 公积金, Pinyin: Gōngjījīn) is a compulsory comprehensive social security savings plan which aims to provide working Singaporeans with a sense of security and confidence in their old age. 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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[edit] History of CPF
Singapore is a successful nation which revolves on a national philosophy of self-reliance. Therefore, throughout its rapid development, instead of becoming a welfare state, Singapore introduced CPF in 1955 as a compulsory savings scheme so as to allow workers to benefit in their retirement, 10 years after the end of the Japanese Occupation when people were struggling to make ends meet.
Under the scheme, a part of the workers' monthly income is set aside, accumulating till retirement when the savings can be withdrawn.
When Singapore left Malaysia in 1965, in order to strengthen the people's sense of belonging to the new nation, the government had to increase home ownership exponentially. This problem was solved in 1968 when workers were allowed to use their CPF savings for the purchase of flats built by the Housing and Development Board (HDB). To date, Singapore has one of the highest rate of home ownership among developed countries.
In the 70s, CPF contributions were increased to cushion rising inflation as Singapore grew to a developed nation.
To meet health care needs, Medisave was introduced, allowing CPF members to use their CPF savings for hospitalization expenses for themselves and their dependents. Such extension for members' dependents were also found in other CPF schemes like insurance.
With Singapore's entrance into developed status, life expectancy rose with the rising living standards. Members were required from 1987 to set aside a minimum sum in their CPF at age 55 to provide them with a basic monthly income when they retire.
[edit] Accounts
Working Singaporeans and their employers make monthly contributions to the CPF and these contributions go into three accounts:
- Ordinary Account - for housing, pay for insurance, investment and education.
- Special Account - for investment in retirement-related financial products.
- Medisave Account - for hospitalisation and approved medical insurance.
Schooling children will have their outstanding funds in their Edusave account deposited into their CPF account when they enter the workforce.
[edit] Scope and benefits
The overall scope and benefits of the CPF encompass the following:
[edit] Retirement
At the 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 will be 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.
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.
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.
[edit] Healthcare
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.
[edit] Home Ownership
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. 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 flat bought directly from HDB
If taking a HDB concessionary loan
One can use up to 100% of the CPF Ordinary Account savings to pay the initial 10% deposit as well as the balance of the purchase price.
If taking a bank loan
One can use the Ordinary Account savings, and the future monthly CPF contributions in the Ordinary Account to buy the flat and/or to pay the monthly instalments on the housing loan up to 100% of the Valuation Limit (VL). The VL is the lower of the purchase price or the value of the property at the time of purchase.
Do note that new home buyers who are taking a bank loan to finance their property purchase now has to pay 5% cash downpayment.
Click here for more information on Public Housing Scheme.
b) A resale flat bought in the open market
If taking a HDB concessionary loan
One can use up to 100% of the CPF Ordinary Account savings to pay the initial 10% deposit as well as the balance of the purchase price.
If you are taking a bank loan
One can use the Ordinary Account savings, and the future monthly CPF contributions in this account to buy a property and/or pay the monthly instalments of the housing loan up to 100% of the Valuation Limit (VL). The VL is the lower of the purchase price or the value of the property at the time of purchase.
Click here for more information on Public Housing Scheme.
c) Private property
One can use the Ordinary Account savings, and the future monthly CPF contributions in this account to buy a property and/ or to pay the monthly instalments of the housing loan up to 100% of the Valuation Limit (VL). The VL is the lower of the purchase price or the value of the property at the time of purchase.
Click here for more information on residential properties.
[edit] Family Protection
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.
[edit] Asset Enhancement
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 May 2009, only monies in excess of $20,000 in the Ordinary Account and $30,000 in the Special Account can be invested.
[edit] See also
- Social Security
- Employees Provident Fund, Malaysia's Provident Fund
- Provident Fund, for other "Provident Funds" in other countries.
- Economy of Singapore
