What is the Central Provident Fund?

by Investing School on August 24, 2012

The Central Provident Fund is Singapore’s social security savings plan that was first introduced by the Progressive Party in 1948. It was highly controversial because it made saving for retirement compulsory. Similar in nature to the plan that exists in the United States, it was put in place to offer the working class some security for their retirement years.

When Singapore gained its independence in 1965 things began to change and it expanded to cover much more. Home ownership, insurance plans, education and health care have all been added to the original package.

Contributing to the plan is mandatory for both employers and employees. With a goal of promoting thrift and self-reliance, the Central Provident Fund started as an important savings tool, but has moved way beyond its original purpose. The level of investment varies with the individual’s age, and the lion’s share of the contribution falls to the employee. The specific rate of contributions has changed over the years, based upon the overall economic situation in Singapore; at its highest levels payments equaled up to 50% of the employee’s annual salary.

The current structure does more than just set aside funds for retirement. It allows Singapore’s citizens to use the funds to support themselves and their families. Savings can be used to care for spouses, children, parents and siblings, making the Central Provident Fund much more than a retirement plan – it makes it a comprehensive, whole-life savings plan. This flexibility is considerably greater than the American Social Security Fund and it has added to the stability of the CPF significantly.

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