What is Central Provident Fund (CPF) and How It Works

Key Takeaway:        

       
• The Central Provident Fund (CPF) is a mandatory savings scheme in Singapore that aims to provide for individuals' retirement, healthcare, housing, and education needs.
       
• Employees, employers, and self-employed individuals are required to make contributions to the CPF, which is divided into three different accounts: the Ordinary Account, Special Account, and Medisave Account.
       
• CPF funds can be used for various purposes, including funding housing purchases, paying for healthcare expenses, and financing retirement. The CPF Investment Scheme also allows individuals to invest their CPF funds for potentially higher returns, although this comes with some risks.
   

Are you looking to learn more about CPF and how it works? Look no further! In this article, you will find all you need to know about CPF and how you can make the most of it.

What is the Central Provident Fund (CPF)?

The Central Provident Fund (CPF) is a government-mandated pension fund in Singapore. It serves as a safety net for citizens and permanent residents, providing retirement, healthcare, and home ownership financing.

The CPF is funded by both employers and employees, with contributions coming from monthly salary deductions. These contributions are invested in various investments such as bonds, stocks, and real estate. The CPF provides a guaranteed interest rate and compound interest that helps grow the savings of individuals. The fund is managed by the Central Provident Fund Board, an agency under the Ministry of Manpower.

CPF has a range of account types, catering to different life stages and purposes, such as the Ordinary Account for daily expenses, the Special Account for retirement, and the Medisave Account for healthcare. The funds in each account have different withdrawal and usage rules.

Interestingly, the CPF was launched in 1955 as a voluntary programme but became compulsory in 1957 to ensure that citizens had adequate savings for retirement and healthcare expenses. Over the years, CPF has evolved to adapt to the changing needs of the population, with enhancements such as the introduction of the Minimum Sum Scheme which ensures that individuals have a basic retirement sum upon reaching age 55. Today, CPF remains a vital part of the social security system in Singapore.

Contributions to CPF

Contributions made to the Central Provident Fund (CPF) are crucial for individuals in Singapore. The amount contributed to CPF is calculated based on an employee's monthly salary, which includes both the employer and employee's share of the contribution. These contributions are mandatory and serve as a retirement fund for Singapore citizens and permanent residents. The CPF Board regulates the contributions made, and the funds collected are invested in various schemes to ensure long-term sustainability.

It is important to note that contributions to CPF are also eligible for tax relief. In addition to the mandatory contributions, the government may also provide top-ups and grants to the account holder. These funds collectively create a substantial retirement nest egg for individuals, ensuring their financial independence in their golden years.

Pro Tip: Individuals can also increase their contributions to CPF, which in turn increases their retirement savings. It is advisable to consult a financial advisor to determine the optimal amount of contributions for one's financial needs.

How CPF Works

CPF: A Breakdown of the Singaporean Retirement Fund

The Central Provident Fund, commonly known as CPF, is a compulsory comprehensive social security savings plan in Singapore that can be used for retirement, healthcare, and housing. It works as a defined-contribution pension plan, in which contributions are made by employees and employers and are invested in various funds. These funds yield interest rates that determine the amount of money accumulated by individuals over the years.

CPF offers four different accounts, including ordinary, special, Medisave, and retirement accounts, each with their respective functions and withdrawal conditions. For instance, the ordinary account allows withdrawals for several purposes, including housing, education, investment, and even insurance. In contrast, the special account is reserved for investments in stocks, bonds, unit trusts, and annuities, providing higher returns and longer-term savings.

Apart from the contribution from employees and employers, the Singapore government also contributes to the CPF in terms of tax reliefs and grants. In particular, the Supplementary Retirement Scheme (SRS) provides additional tax relief and encourages voluntary contributions to the CPF, facilitating long-term savings and investment growth.

In 1986, the CPF was restructured and became the comprehensive social security savings plan it is today. It has undergone several changes and amendments over the years, including in areas of contribution rates, withdrawal policies, and investment options. Today, it plays a vital role in ensuring that Singaporeans have a solid foundation for retirement and healthcare after their working years.

CPF Investment Scheme

Investing in CPF: Maximizing your Retirement Fund

Investing in CPF can enhance your retirement fund and give maximum benefits after retirement. CPF Investment Scheme (CPFIS) allows CPF members to invest in different products like unit trusts, bonds, stocks and ETFs. It is available for members who have hit the age of 18 and have saved the Basic Healthcare Sum.

CPFIS offers two investment schemes, CPFIS-OA and CPFIS-SA. The former allows investment only in the Ordinary Account, while the later allows investment in both OA and Special Account. Investment is limited to 35% of the investible balance in SA and Ordinary Account (OA) for CPFIS-SA, and 10% of the investible balance in OA for CPFIS-OA.

Apart from the available investment products, there is an option to invest through the CPFIS-MA, which is a medical account investment scheme, intended to cover medical expenses. Also, CPFIS offers various levels of risks through the available investment options, which should be carefully chosen based on the individual's risk tolerance.

Don't miss out on making the most of your CPF. With CPFIS, it is vital to invest in the right scheme as early as possible to achieve maximum benefits in the long run. Plan your investments early and secure your retirement today!

Withdrawals from CPF

When it comes to accessing funds from the Central Provident Fund (CPF), there are certain rules that individuals need to follow in order to withdraw their contributions and earnings.

One can withdraw CPF savings for specific purposes such as purchasing a home, furthering education, and healthcare. Rules and conditions apply for each type of withdrawal. Withdrawal limits are based on one's age and the amount available in their CPF account. Partial withdrawals can be made for some purposes, while others require a full withdrawal. Some types of withdrawal may affect the amount of CPF contributions made by the employer and employee in the future. Generally, withdrawals from CPF can only be made after the age of 55.

It is important to note that the CPF system is designed to provide a retirement income for individuals in Singapore. Therefore, withdrawals from CPF should be carefully considered and planned to ensure a stable source of income during retirement.

According to a report by Channel NewsAsia, as of March 2021, the CPF had a total asset size of SGD 463.5 billion.

Five Facts About the Central Provident Fund (CPF) in Singapore:

• ✅ The CPF is a mandatory social security savings scheme for all Singaporeans and permanent residents. (Source: CPF Board)
• ✅ Contributions to the CPF are made by both the employee and employer, and the funds can be used for retirement, healthcare, housing, and education. (Source: Ministry of Manpower)
• ✅ The CPF has different accounts for different purposes, including the Ordinary Account, Special Account, and Medisave Account. (Source: CPF Board)
• ✅ CPF members can also invest their savings in approved investments, such as stocks, bonds, and unit trusts. (Source: CPF Board)
• ✅ The CPF has faced criticism and controversy over issues such as low interest rates, minimum sum requirements, and restrictions on withdrawal of funds. (Source: Channel NewsAsia)

FAQs about Central Provident Fund (Cpf): What It Is, How It Works

What is the Central Provident Fund (CPF)?

The Central Provident Fund (CPF) is a mandatory social security savings plan in Singapore that helps working individuals save for retirement, healthcare, and housing needs.  

How does the CPF work?

Every month, employees contribute a percentage of their salary to their CPF accounts. Employers also contribute a matching amount. These savings are then invested by the CPF Board and earn interest over time.  

What are the benefits of CPF?

CPF provides financial security to Singaporeans by giving them savings for retirement, healthcare, and housing needs. It also provides various insurance schemes and has tax benefits.  

Can I withdraw my CPF savings?

CPF savings can be withdrawn at the age of 55 or later, subject to certain conditions. However, there are also options for partial withdrawals for specific purposes such as healthcare expenses and housing payments.  

What happens to my CPF savings if I pass away?

If a CPF member passes away, his or her CPF savings will be distributed to the beneficiaries according to his or her wishes. In the absence of such instructions, the savings will be distributed according to the Intestate Succession Act.  

How do I check my CPF balance?

CPF members can check their balance online via the CPF website or CPF mobile app. They can also receive statements via mail or review their balance at any CPF Service Centre.