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

The Central Provident Fund was started in 1955 as a way to assure all Singaporeans would have income and financial stability in 澳洲幸运5官方开奖结果体彩网:retirement. The CPF was controversial when first introduced, with considerable opposition to the concept of a forced retirement program, but it became more popular over the years and has expanded to include healthcare (Medisave) and public housing assistance.

Singaporeans can begin drawing from their retirement account at age 55, and similar to the 澳洲幸运5官方开奖结果体彩网:Social Security system in the U.S., waiting to receive fund🐎s until an older age means mo🌳re money will be in the account.

Provident funds are similar to pension funds in that both the 澳洲幸运5官方开奖结果体彩网:employee and employer contribute to the CPF account. The funds in the CPF account are conservatively invested to earn up to 5% per year. In 1968, the CPF expanded to provide housing under the Singapore Public Housing Scheme. In the 1980s, the program expanded again to provide 澳洲幸运5官方开奖结果体彩网:medical coverage for all participants.

Some CPF participants wanted an option for taking on more 澳洲幸运5官方开奖结果体彩网:investment risk to earn a better return than the average 5%, 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 澳洲幸运5官方开奖结果体彩网: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.

Special Considerations

The CPF is a mandatory retirement system unlike the 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网: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 t꧅he plan means turn꧟ing down that extra pay.