Central Provident Fund: Difference between revisions

Central Provident Fund Board
	File:Cpf Logo.jpg Logo of the CPF Board
Agency overview
	250px;
	250px;
Jurisdiction	Government of Singapore
Headquarters	79 Robinson Road, #02-00, Singapore 068897
Minister responsible	250px;
Deputy Minister responsible	250px;
Agency executive	250px;
Child agency	250px;
Key document	250px;
Website	www.cpf.gov.sg

Browse history interactively

← Previous edit Next edit →

Content deleted Content added

VisualWikitext

Inline

Revision as of 13:21, 13 June 2011

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.

History of CPF

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.

Under the scheme, a part of the workers' monthly income is set aside, accumulating until retirement when the savings can be withdrawn.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 1970s, 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. 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.

About the CPF Logo

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 between 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.

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.

Employer and Employee CPF Contribution Rates

In September 2010, the employer's contribution to the CPF, a national pension fund, will go up by 0.5% and added into the Medisave Account and in March 2011, the employer's contribution would go 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%.

Scope and benefits

The overall scope and benefits of the CPF encompass the following:

Retirement

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.

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.

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.

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.

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. 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.

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.

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 July 2010, only monies in excess of $20,000 in the Ordinary Account and $40,000 in the Special Account can be invested.

Criticisms

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 compulsory nature of CPF and the inability for the individual to opt out does produce some problems for society. One would be the locking up of funds for the high-income, which do not require the services of such a fund anyway, having access to possibly greater yield funds. This leads to an opportunity cost in terms of the potential income that could be generated by investing the money in CPF in a higher-yield vehicle.

Another problem for people on lower incomes would be that the CPF takes up a sizeable chunk of their income, and forces them to consume less in the short term. This could lead to an inability to afford personal health insurance or accident insurance, for which the Medisave component of CPF may be inadequate in coverage.

The most severe problem of force saving is that people has no way to prevent government from stealth confiscation of wealth. If a person buy S$100 worth of gold in 1970, that amount of gold would be around S$1900 in 2011. In comparison, the same amount of money would be S$740 today if assume that CPF pays 5% interest every year. Hence, it is no coincidence that majority of Singapore are unable to retire even if they have saved a third of their income.

Despite these criticisms, no action has been taken to allow greater flexibility with the CPF program.

External links