Crossroads by Jim Baker

Author:Jim Baker
Language: eng
Format: epub
Publisher: Marshall Cavendish International

Central Provident Fund

In the 1950s, Singapore instituted a nation-wide savings plan known as the Central Provident Fund (CPF). (Malaysia has a similar program known as the Employees Provident Fund.) Originally intended as a retirement savings program for low-income workers, it has taken on an increasingly important role in the lives of most Singaporeans.

Each month, a percentage of a worker’s salary is deducted from his pay and placed in his personal account. His employer deposits a corresponding amount in the account. The contributions of both parties are tax-deductible, and the interest earned is tax-exempt. The basic premise is that workers contribute to the fund throughout their working lives and then withdraw most of the total amount, plus interest, when they retire.

At its inception in 1955, the percentages paid by worker and employer were relatively small, 5 percent by employer and 5 percent by employee. The percentages peaked in 1984 at 25 percent for both employer and employee. As of 2014, they are 16 percent for employers and 20 percent for employees. Under present guidelines, 13–19 percent of the contributions are set aside in special accounts for medical and retirement-related expenses.

In the late 1960s, the program went beyond its original aim by allowing contributors to use their savings to buy residential property. This corresponded with the government’s intention to move public housing in the direction of a home ownership program. It is highly unlikely that Singapore could have achieved the high percentage of home ownership it enjoys today without this program of compulsory savings. Singaporeans can use balances in their accounts to meet the downpayments on home loans and their monthly CPF contributions to meet the mortgage payments. Contributors are also allowed to invest part of their savings, buy insurance, obtain education loans and pay medical expenses.

Apart from the social security, medical and housing dimensions of the program, CPF funds are invested in government bonds, creating a huge pool of low-interest funding for credit that enables construction of low-cost apartments and infrastructure projects, such as roads, utilities, and the expansion of the airport and public transportation.

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