Central Provident Fund (CPF)

What Is the Central Provident Fund?

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

Understanding the Central Provident Fund

Singaporeans can begin drawing from their retirement account at age 55, and similar to the Social Security system in the U.S., waiting to receive funds until an older age means more money will be in the account.

Some CPF participants wanted an option for taking on more investment risk to earn a better return than the average 5 percent, so in 1986, a new investment option allowed participants to manage their own accounts. Shortly thereafter, the program added an option to convert the account into a fixed annuity upon retirement.

At the present time, participants with a minimum balance of $40,000 in their account at age 55, or $60,000 at age 65, can select a CPF LIFE annuity plan. Participants can opt out of CPF LIFE if they receive a monthly pension or life annuity payout and are fully exempted from having to set aside their retirement sum.

Special Considerations

The CPF is a mandatory retirement system unlike the 401(k) plan in the U.S., where employees can elect to opt-out of a company’s 401(k) plan if they choose. Many company 401(k) plans in the U.S. will auto-enroll new employees into their retirement plan and typically deduct 3% of their pay on a pre-tax basis unless the employee specifically requests in writing not to participate. The impacts of this choice can be far-reaching for younger workers who opt out given the many years of lost interest compounding.

At the heart of the CPF and the 401(k) retirement plan is the wisdom in paying yourself first through an automatic payroll deduction system. These regular 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 choosing not to participate in the plan means turning down that extra pay.