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What is the Central Provident Fund?

By Christine Hudson
Updated May 17, 2024
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Central Provident Fund (CPF) is Singapore's social security savings plan that was created in 1955. Much like the American social security plan, it was designed to give the working class a sense of security in their retirement. Since its development, the Central Provident Fund has grown to not only encompass provisions for member retirements, but includes home ownership, health care, insurance plans, and family education as well. The savings plan is funded by mandatory contributions by employees and employers. It was set up to promote thrifty living and self-reliance, as opposed to a reliance on state or government assistance for the working class.

When Singapore gained its independence in 1965, the Central Provident Fund not only remained an important savings and investment plan, but it began to evolve. The sole purpose of the CPF when it was created was to provide financial security for workers during their retirement, and the savings could only be withdrawn after a person retired. As the needs of the people changed, the plan was revised to allow withdrawals for home purchases, college loans, health care, and investments, as well as retirement.

Compulsory funding rates for the Central Provident Fund have also changed throughout the years. In the late 1960s, the contribution rate reached a peak of 25 percent of an employee's wages, which was paid by the worker and by the company. This made for a total of 50 percent of a worker's earned income. Since that time, rates have fluctuated in response to the nation's economic state, and employees pay differing amounts depending on their age. Of the total amount contributed, certain percentages are dedicated to their retirement, called Ordinary; medical, called Medisave; and expenses, called Special, accounts with the largest amount still being saved for retirement.

CPF payments are guaranteed and the savings earnings are not subject to taxes. Earnings on a member's individual account can vary, as there are several investment options available. The main focus is prudent decision, and the CPF Board provides information to assist its members in making their investment and savings choices.

The Central Provident Fund is intended to provide a comfortable retirement and social and economic insurance. It encourages Singaporeans to work, and allows them to support themselves and their family. As most CPF accounts cover three generations, members are allowed to use the savings to care for themselves, their spouses, children, parents, and siblings. This has evolved the Central Provident Fund from a simple retirement plan into a comprehensive life-savings plan.

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