Central Provident Fund (CPF)

What Is the Central Provident Fund?

The Central Provident Fund (CPF) is a mandatory benefit account giving retirement earnings and healthcare to Singaporeans. Contributions to the retirement account start from both the employee and the employer. There are three types of CPF accounts: ordinary, special, and medisave accounts.

Figuring out the Central Provident Fund

The Central Provident Fund began in 1955 as a method for guaranteeing all Singaporeans would have income and financial stability in retirement. The CPF was questionable when originally acquainted with extensive resistance with the concept of a forced retirement program, yet it turned out to be more well known throughout the long term and has expanded to incorporate healthcare (medisave) and public housing assistance.

Singaporeans can start drawing from their retirement account at age 55, and like the Social Security system in the U.S., waiting to receive funds until a more seasoned age means more money will be in the account.

The employee and employer each add to the CPF account. The funds in the CPF account are moderately invested to earn around 5% each year. In 1968, the CPF expanded to give housing under the Singapore Public Housing Scheme. During the 1980s, the program expanded again to give medical coverage for all participants.

Some CPF participants wanted an option for taking on greater investment risk to earn a better return than the average 5 percent, so in 1986, another investment option permitted participants to manage their own accounts. Presently, the program added an option to change over the account into a fixed annuity upon retirement.

Right now, participants with a base balance of $40,000 in their account at age 55, or $60,000 at age 65, can choose a CPF LIFE annuity plan. Participants can opt out of CPF LIFE in the event that they receive a month to month pension or life annuity payout and are completely excluded from being required to set to the side their retirement sum.

Special Considerations

The CPF is a mandatory retirement system not at all like the 401(k) plan in the U.S., where employees can choose to opt-out of a company's 401(k) plan in the event that they decide. Many company 401(k) plans in the U.S. will auto-enlist new employees into their retirement plan and normally deduct 3% of their pay on a pre-charge basis except if the employee explicitly demands recorded as a hard copy not to partake. The effects of this decision can be extensive for more youthful workers who opt out given the numerous long periods of lost interest compounding.

At the core of the CPF and the 401(k) retirement plan is the wisdom in paying yourself first through an automatic payroll deduction system. These normal contributions are matched up to certain levels by the employer, who is in effect giving the employee extra pay to support them in retirement, so deciding not to take part in the plan means turning down that extra pay.

Features

• Like the U.S. Social Security system, deferring CPF withdrawals means a higher payment sometime down the road.
• Occupants can pull out from the CPF at age 55.
• The Central Provident Fund (CFP) is an obligatory benefit account (for retirement, healthcare, and housing) in Singapore that all occupants are required to add to.
• The CPF is mandatory, not normal for a company's 401(k) that employees can opt-out of.