The Central Provident Fund (CPF) is a key component of Singapore’s social security structure. Introduced on 1 July 1955, the CPF is a mandatory savings system in which individuals receive post-retirement benefits based on their own contributions. Over the years, the CPF’s role has widened to help individuals meet other social needs such as housing, healthcare and education.

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, which reduced their post-retirement financial security. In January 1951, the Singapore Progressive Party completed a draft bill proposing the establishment of a Central Provident Fund to ensure retirement benefits for workers. The bill was tabled in the Legislative Council on 22 May 1951 before being sent to a Colony Select Committee. 

However, the proposed legislation faced prolonged delay in the Council and was not passed until 24 November 1953. The delay was attributed to another retirement scheme proposed by the Retirement Benefit Commission. This 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. The Select Committee eventually opted for the CPF scheme and recommended the establishment of a statutory board to operate it. The CPF Board was set up on 28 January 1954 shortly after the enactment of the Central Provident Fund Ordinance on 11 December 1953. Its office was located at the Victoria Memorial Hall.

One of the first tasks of the CPF Board was to register all employers and employees in Singapore who were to be included in the scheme. At the time, employers that already had retirement benefits for their employees were excluded from the CPF. The registration exercise began on 4 January 1955 and by 30 March 1955 the CPF Board reported that about 17,000 out of an estimated total of 24,000 employers in Singapore 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. However, the launch date was postponed to 1 July 1955 after the newly elected Labour Front coalition felt that the mandatory five percent monthly contribution rate was not practical for low-wage workers as it would further diminish their already meagre income. 

In response to this concern, an amendment to the 1953 Ordinance was 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. The amendment also stipulated that workers who were earning between $200 and $210 would only need to contribute an amount that would not reduce their take-home pay to below $200. The CPF scheme has grown to encompass all employees in Singapore, with only foreigners and the self-employed exempt.

CPF scheme
The CPF is a compulsory savings scheme that requires all employers and employees to contribute a percentage of the employee’s monthly gross salary to the CPF. Contributions are credited into the Ordinary, Special and Medisave accounts belonging to the employee. Savings in the Ordinary Account earn an interest rate based on the average deposit interest rates of local banks, but are guaranteed a minimum interest of 2.5 percent. Funds in the Special and Medisave accounts earn an interest rate equal to the 12-month average yield of 10-year Singapore Government Securities with an additional one percent. 

Upon reaching the retirement age of 55, the CPF holder may withdraw the savings to meet his or her daily needs after setting aside a minimum sum. The minimum sum can be used to buy life annuity from a participating insurance company, placed with a participating bank or left in the Retirement Account with the CPF Board. After reaching the drawdown age of 62, the member will then receive the minimum sum in the form of a monthly payout.

CPF changes
Since 1955, the CPF has undergone many significant changes. Among these changes was the liberalisation of the use of CPF funds. When the CPF came into effect, CPF savings could only be used for retirement purposes. However, on 1 September 1968, the government decided to launch the Public Housing Scheme to allow CPF members to use their CPF savings to buy public housing. This move was a government initiative to increase property ownership among Singaporeans. On 1 June 1981, this financing scheme was extended to private residential property under the Residential Properties Scheme. 

Besides housing finance, the government also extended the usage of CPF funds to healthcare with the setting up of a Medisave Account for CPF members on 1 April 1984. The funds in the Medisave Account can be used by the member to cover medical expenses incurred from hospital or outpatient treatments. CPF funds may also be used for investment in shares, tertiary education fees or for housing and medical insurance premiums.

There have also been periodical adjustments to the monthly CPF contribution rates since 1955. In most cases, the adjustments were made in response to the prevailing economic climate as well as the age of employees. 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. As of 2011, the CPF contribution rate for employers and employee stood at 16 and 20 percent respectively. Other adjustments to other key components of the CPF since 1955 include the interest rates for the CPF accounts and the minimum sum. 

In September 2009, the CPF Life scheme was introduced to set aside a portion of the member’s cash savings in his or her Retirement Account as the premium for an annuity. Combined with the remaining savings, the member would then receive a lifelong monthly income after reaching the drawdown age. In addition, the CPF Board will also be raising the minimum sum gradually to reach S$120,000 (in 2003 dollars) in 2013. The drawdown age will also be raised progressively to 65 by 2018.

1 Jul 1955 : CPF implemented.
1 Jun 1957 : Members are required to nominate beneficiaries for their CPF savings.
1 Sep 1968 : Public Housing Scheme introduced.
1 Mar 1972 : Pensionable government officers join the CPF scheme.
1 Jul 1977 : Special Account created.
1 Jun 1981 : Residential Properties Scheme, which allows members to use their CPF savings to buy private homes, was introduced.
1 Jan 1982 : Home Protection Insurance Scheme (HPIS) introduced.
1 Apr 1984 : Medisave Scheme/Account introduced.
1 Jul 1984 : CPF contribution rate reached its peak at 50 percent (25 percent from employer and 25 percent from employee).
1 Mar 1986 : CPF began paying market-based interest rates.
1 May 1986 : Approved Investment Scheme (AIS) introduced. Members are allowed to use up to 40 percent of their CPF savings to buy gold, shares, unit trusts and stocks.
1 Jan 1987 : Minimum Sum scheme introduced at S$30,000.
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.
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.
1 Jul 1990 : MediShield Scheme introduced.
1 Jul 1992 : Medisave Scheme extended to the self-employed.
1 Mar 1993 : The Share Ownership Top-Up Scheme (SOTUS) was set up to help CPF members buy shares in government-owned companies.
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.
1 Jan 1997 : The Basic Investment Scheme (BIS) and the Enhanced Investment Scheme (EIS) were merged to form the CPF Investment Scheme (CPFIS).
1 Jan 1999 : Members are allowed to use Special Account savings to help meet their housing instalment shortfalls.
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.
1 Jul 2006 : Contributions to the Medisave Account which are in excess of the Medisave Contribution Ceiling are automatically transferred to members’ Ordinary Accounts. 
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.
1 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.
1 Sep 2009 : CPF Life introduced.
1 Jul 2010 : First $40,000 of members’ Special Account balances are not allowed to be used for investments.
1 Jul 2011 : CPF minimum sum reaches S$131,000.

Lim Tin Seng

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