CPF Explained

The Roy-PM Lee saga has initiated loads of queries, doubts, excitement and interest in our CPF. 

The Central Provident Fund (CPF) is a social security saving plan for Singaporeans. Working Singaporeans and their employers make monthly contributions to the CPF which are divided into three accounts:

Ordinary Account - Funds which can also be used to buy a home, investment and education.

Special Account - Funds that are specifically earmarked for retirement. However, investment in retirement-related financial products are allowed.

Medisave Account - Funds which can be used for hospitalization expenses and approved medical insurance.

To better communicate with the public, the Ministry of Manpower and CPF Board recently launched a CPF & YOU educational series. This educational series explained, or at least tried to explain, our complex CPF system.  The various info-graphics (shown below) should give a layman a certain understanding of our CPF system. 

My views on our CPF System

There are always strengths and weaknesses in each system. In each system, it might appeal to some and might also repulse some. There are just to many possibilities to discuss on how to make a system that can benefit everyone. A Policy for Everyone! Possible? Never possible, in my humble opinion.

The minimum sum has been a sore point for a lot of Singaporeans. "Why can't we withdraw all our CPF money when we reach 55?" Why? Why? I certainly do not like that idea, I hate it! But I do believe it is really better for the greater population. Because there are just too many people that do not know how to manage money. Their retirement fund will be gone before they know it. Yes, yes, it is your money. I shall stop here. 

Moving on, 20% of our salary goes to CPF whether we like it or not. If we were not allowed to use our CPF for our housing, that essentially means paying our mortgage from other income source. Since most of us are using our CPF to pay for our housing mortgage, that actually gives us more disposable cash (technically). And that savings should be invested. My view is that we should not over-rely on the CPF System. We know for sure that the minimum sum will only increase with inflation. Prices of public or private housing will always rise in the long run. 

There is one thing for sure. As long as you stay employed, funds in the CPF will continue to grow. Whatever amount you have in there, you will get one source of income when you retire. So it should always be in your plans to build a second or third source of retirement fund.