Singapore’s social policies embody its national philosophy of an active government support for self-reliance. This reinforces individual effort and responsibility for the family: values that keep our society strong.
Assurance in old age revolves around three key considerations: retirement, housing and healthcare needs. As a compulsory savings scheme, the CPF system is designed to help Singaporeans take care of these needs and support themselves in retirement. At the same time, the government provides targeted assistance to the needy through subsidies and top-ups.
Over the years, CPF has been evolving in response to the needs of each generation of Singaporeans. The CPF system now has three core strengths:
||Stay employed and save more for your retirement.|
||Accumulated savings are your own. |
||With CPF LIFE, your CPF savings will pay you a stream of retirement income for life.|
To help workers save for retirement, the CPF was established on 1 July 1955. Workers contributed part of their monthly income to their CPF to build up their retirement savings.
In 1968, the government introduced the Public Housing Scheme, allowing Singaporeans to pay for the mortgages of their HDB flats using their CPF savings instead of having to use their take-home pay. This increased the affordability of housing and provided many Singaporeans with a home. Home ownership became a key pillar of retirement security as it relieves Singaporeans from having to pay rental fees out of their retirement funds during their senior years.
Higher contribution rates and the creation of the Special Account
By the 1970s, Singapore had grown into a modern and prosperous nation. As wages and living standards rose, CPF contribution rates were increased to to help members save more for retirement. The Special Account was also introduced to provide for more targeted accumulation of savings for retirement.
Alternate means of growing retirement nest egg: Investing of CPF savings
Members were first allowed to invest their Ordinary Account savings so as to achieve higher returns compared to the prevailing interest rate under the Approved Investment Scheme in 1986. Overtime, the scheme evolved to the CPF Investment scheme (CPFIS) known today, providing members with the option to earn potentially higher returns. To prevent members from taking excessive investment risks, limits were set on the amount of investible funds and the type of financial instruments.
In 1984, the Medisave account was established to help CPF members save for their own hospitalisation expenses and those of their families. In 1990, MediShield was introduced as a medical insurance scheme to help members pay for expenses incurred by long-term and serious illnesses.
Basic retirement through the Minimum Sum Scheme
In the early days, members were able to fully withdraw their CPF savings upon retirement. However, rising life expectancy put them at real risk of outliving their CPF savings. The Minimum Sum Scheme was therefore introduced in 1987 to help members spread out their savings over their retirement years, by streaming out members’ CPF savings monthly instead of having it withdrawn in a lump sum.
In 2001, the Economic Review Committee, which was set up by the government to formulate a blueprint to restructure the economy, reviewed the CPF given its economic implications. Based on the Committee’s recommendations, the government decided on a gradual increase in the Minimum Sum over a period of 10 years, to reach a level of savings that a lower-middle income household would need for basic retirement expenses.
Life-long retirement income for Singaporeans
As life expectancy improved, the Minimum Sum Scheme, which was designed to stream out payouts for just 20 years, was no longer able to cover the longer lifespan of Singaporeans. Thus, the government introduced the CPF LIFE annuity scheme in 2009. This improved scheme provides a stream of payouts for life and ensures that members will not outlive their CPF savings.
For the low-income members
Recognising that low-wage workers need more help, the government introduced Workfare Income Supplement in 2007 to supplement the wages and retirement savings for older low-wage workers to encourage them to stay employed.
To help those with lower balances grow their CPF savings faster, the government started paying an extra interest of 1% for the first $60,000 of CPF savings from 2008.
For the elderly
In 2013, the government announced the Pioneer Generation Package to help lighten the burden of healthcare costs for Singaporeans 65 years and older. Benefits of the package include enhanced subsidies for outpatient treatment, additional annual Medisave top-ups and help with premiums for the new national insurance scheme, MediShield Life.
As the nation’s social security system, CPF’s fundamental mission is to help all members achieve a secure retirement. It is supplemented by home ownership which provides an important pot of savings that members can draw on if needed, through schemes such as the Silver Housing Bonus and Lease Buyback scheme.
Nevertheless, the CPF is still not a perfect system and there are areas that can be improved. Moving forward, the CPF will continue to evolve to benefit the lives of its diverse membership.