Central Provision Fund

In lieu of managing Singapore's aging population, instead of just learning about the surface facts of various methods used to tackle this problem, I decided to find out more about one particular measure in depth. This simple yet effective scheme aims to encourage financial planning in Singapore - the Central Provision Fund (CPF).

CPF, in a nutshell, helps people save up money from the moment they have a stable income, such that they will have enough money for their retirement and other expenses (resulting in the government having to subsidize less people). However, there is much more than that. How much one contributes to CPF varies with age. An employee 50 years of age and below contributes 20% of his monthly income and gradually reduces to only 7.5% of his salary once he reaches 65 years old. For employers, they contribute 16% of their income and gradually reduces to 6.5%

CPF is a stat board which can be split into 3 different categories : Ordinary account, Special account and Medisave account. The ordinary account of CPF can used to purchase houses and for investment purposes, the Special account is reserved for old age and retirement while the Medisave account is used for hospitalization expenses or medial insurance.

The interest rates for ordinary account is 2.5%, 4% for special account and 4% for medisave. This shows that the government prioritizes adequate money for health care and retirement over investments. In my opinion, it is reasonable as more money is needed for retirement to ensure that the elderly of Singapore are independent, living blissfully without having to worry about their houses not being fully paid for. In addition, as people get older, visits to the doctor will increase and so will hospital bills. The higher the interest rate allocated to Medisave accounts, the more money is saved and reserved for medical expenses, thus reducing the amount of funds the goverment directs to help the needy/elderly with subsidies.

I have noticed that there have been quite a few negative reactions to the scheme, especially towards the fact that when one uses money from his ordinary account to invest, the profit earned + the original amount withdrawn all goes back to CPF. In other words, the money will be 'stuck' under CPF until one reaches the age of 55, when a certain amount of money can be withdrawn. Or, at 62 years old, the government will allow a certain amount of money to be withdrawn monthly to prevent people from splurging/gambling, using too much money at once and having no savings left for necessities.