Aside from forming the core of Singapore’s social welfare system, the Central Provident Fund (CPF) plays an integral role in other key aspects of Singaporean living.
In the first of our two-part series of Policy Explainers on the CPF, we introduced the history of CPF, how contributions and allocations work, as well as its uses pertaining to social welfare.
In this piece, we will be diving deeper into its role in housing and healthcare, as well as discuss the perceived strengths and weaknesses of Singapore’s CPF system.
Uses of CPF Savings (continued)
3. Enabling Home Ownership
CPF members can use their savings to finance Housing Development Board (HDB) flats or private property purchases. This was first implemented in 1968 with the goal of encouraging more Singaporeans to purchase a home – as opposed to renting – which the government believed would give Singaporeans a larger stake in the country and its future, cementing a sense of belonging to the newly independent country.¹
The move has enjoyed success by helping many Singaporeans afford the purchase of a home. In 2022 alone, over 800,000 homeowners used CPF to pay their home loan instalments, revealing how the expansion of Singapore’s social security system to include housing has been a key factor in making housing more affordable, since homeowners need not pay fully with their cash savings.²
Mortgage Payments with CPF
Specifically, payment for one’s mortgage can be made through the CPF Ordinary Account (OA). OA savings can be used for various payments such as stamp and legal fees, down payments and housing loans.³
The CPF system also offers homeowners flexibility in deciding how much of their OA savings they want to put towards mortgage payments. This means homeowners can balance between using more of their CPF savings now to finance their home loan and keeping their CPF savings for their future retirement.⁴
While most of one’s OA savings can be put towards their property, there are still various safeguards in place to ensure that one keeps enough funds in their OA for retirement.
Refunding CPF Proceeds from Sale of Property
After selling one’s property, homeowners are required to refund the amount used and interest they would have accrued if they had kept the amount in their CPF. This is because the primary function of the CPF OA is for retirement savings, rather than purchasing a home. This is to ensure one’s future retirement needs are adequately met even after they have financed their home.
If able, CPF members may also refund the CPF amount used in advance before they sell their home.⁵ This allows them to enjoy the OA’s high interest rates and accumulate even more savings for retirement.
Home Protection Scheme⁶
A safeguard to prevent the loss of one’s home is the Home Protection Scheme (HPS). In unforeseen circumstances such as death or terminal illness, CPF will settle the outstanding house loan up to the insured amount under the HPS. The insured amount is determined by the homeowner and co-owners at the time of purchase, with two requirements.
First, a homeowner or co-owner’s share of the cover should match the amount of the loan payable by them. For example, if they are paying off 40% of their monthly housing loan instalment, they have to apply for at least a 40% cover on their CPF. This is to ensure that in any unforeseen circumstances, HPS is sufficient to pay off their proportion of the loan. Secondly, cumulatively, the total share of cover between the homeowner and their co-owners should add up to 100%.
It is mandatory for HDB flat buyers to be insured under this scheme to protect them from unforeseen circumstances.⁷ For those purchasing private properties or have existing insurance that covers their loan, application to the HPS is optional.
Taken together, CPF has enabled many Singaporeans to afford a home since citizens have needed less personal savings to pay off their housing loan.⁸ This, along with a plethora of other housing policies such as the subsidies for first time buyers of HDB flats, has enabled a 89% home ownership rate in Singapore in 2022.⁹
4. Financing Public Health Expenses
The government introduced MediSave in 1984, as it was worried that the growing affluence of Singaporeans could drive up the prices of essential healthcare services and put them out of reach of lower-income groups.¹⁰ Simultaneously, there was a focus on personal financing for medical expenditures to reduce the tax burden placed on Singapore's working population. This is unlike the tax-based financing that other healthcare systems utilised.
The MediSave account helps Singaporeans to set aside part of their income to pay for medical expenses as well as healthcare insurance.¹¹ Roughly eight to ten percent of a member’s income will be allocated to their MediSave account, with the account having a base interest rate of four percent per annum.¹²
MediSave can be used to cover a range of healthcare needs, from outpatient and inpatient care, as well as long-term care.
Firstly, MediSave can be used for outpatient services. At General Practitioners, Polyclinics and Specialised Outpatient Clinics., up to $500 and $700 can be used per annum for non-chronic and chronic conditions respectively.¹³ Furthermore, it also covers vaccinations, health screenings, cancer treatments and outpatient scans (such as MRI scans), among other uses.¹⁴
Secondly, it can be used for inpatient care, such as up to $550 a day for hospitalisation charges, and between $250 and $7,550 for surgeries.¹⁵ Under the MediSave Maternity Package, MediSave can also be used for hospital charges, as well as pre-delivery and delivery expenses for childbirth.¹⁶
Thirdly, MediSave can be used for long-term care. Under MediSave Care (for disabilities), members can withdraw up to $200 a month from their own or their spouse’s accounts, if they are assessed to be unable to perform several activities of daily living.¹⁷ It can also be used to pay for inpatient and outpatient rehabilitative and palliative care, with amounts differing based on the type of healthcare provider.¹⁸
Not only does MediSave cover for a member’s personal healthcare expenses, their personal MediSave fund can also pay for some of the treatments and healthcare needs of their immediate family members, such as their spouse, children and parents.¹⁹ However, it must be noted that MediSave can only be utilised at public healthcare institutions and MediSave accredited healthcare institutions.
All Singaporeans and Permanent Residents are automatically covered under Medishield Life, a basic health insurance plan administered by the CPF Board (CPFB).²⁰ A Medishield Life payout can offset part of one’s medical bill, hence reducing the amounts that have to be paid in cash and through MediSave.²¹
However, as the benefits of Medishield Life are limited, some might choose to purchase their own private health insurance using MediSave funds under the Integrated Shield Plan. This plan allows for the Medishield Life components to be retained, while simultaneously receiving the additional benefits provided by the private insurer. However, a greater premium would have to be paid vis-à-vis the basic Medishield Life plan.²²
Other Long-Term Care Programmes
Two other long–term care insurance programmes under CPFB’s purview are ElderShield and CareShield Life.
ElderShield, launched in 2002, provides cash payouts of $300 or $400 a month for a period of up to five or six years for seniors who are deemed to be disabled.²³ It has since been gradually phased out, as no new enrolments have been registered since 2020.
CareShield Life is a more comprehensive programme that replaces ElderShield. Citizens and Permanent Residents who turn 30 years old will be automatically enrolled into the scheme, and are covered for life.²⁴ It provides higher payouts of at least $612 (as of 2023) for the same criteria as ElderShield and MediSave Care, and these payouts last a lifetime.²⁵ The premiums for the insurance scheme are also payable by MediSave.²⁶
Reviewing the CPF System
Having explored the various uses of CPF, it is also important to explore the perceived strengths and limitations of the scheme. This is because a majority of residents in Singapore are CPF members, as well as the fact that CPF is integral to financing many of the key decisions in the lives of members.²⁷
Strengths of CPF
Out of 44 assessed pension systems worldwide, consulting firm Mercer’s 2022 review rated Singapore’s CPF ninth overall, and the top in Asia.²⁸ The government touts several unique strengths of the CPF system.
One strength is that unlike other traditional pension systems that solely provide a monthly income for retirees, CPF also helps Singaporeans save for housing and healthcare, two key aspects of citizens’ livelihoods.²⁹
Another strength would be the sustainability of the model, given that each individual has their own savings account, and is not dependent on a centralised system collected from taxpayers, which places additional financial burden on working adults as society ages. Furthermore, the level of payouts is dependent on the amount in the Retirement Account, as well as when each individual chooses to receive their payout.³⁰ This view of CPF’s sustainability is corroborated by Mercer’s evaluation, which rated CPF’s sustainability to be the highest for pension systems in Asia.³¹
A final strength is how CPF’s complements many other policies that seek to provide support for Singaporeans. One example would be in healthcare, where MediSave constitutes one of the 3Ms in the healthcare funding framework (together with Medishield and Medifund).³² Another would be in supporting low-income Singaporeans, where the Workfare Income Supplement helps to top-up the earnings of lower-income workers, predominantly through contributions to their CPF.³³
Concerns about CPF
Despite its strengths, several limitations of the CPF system have been highlighted over time. This has even boiled over to rare public demonstrations, such as the “Return Our CPF” protest in 2014, which drew around 2,000 people, highlighting the strong concerns that some Singaporeans hold over the CPF system.³⁴
One concern pertains to the discrepancy between the withdrawal age and the payout age. While members can choose to withdraw from their Special and Ordinary Accounts after 55, they are not able to tap into their Retirement Account until they turn 65, when monthly payouts start.³⁵ As a result, many who expected their CPF monies to be fully returned to them when they turned 55 are displeased over having to lock away a minimum of $99,400 (as of 2023) for another ten years.³⁶
Another commonly raised concern is that personal wage increases have not risen in tandem with the increases in MS.³⁷ While this may be disproven by referring to the national average nominal wage growth, which has generally outpaced the rise in MS, it must be noted that there are differences in wage increases across industries and occupations, thus explaining why some may harbour such a sentiment.³⁸
A final cause of concern is the lack of flexibility behind the usage of CPF funds, which might not be able to address the diverse needs of many Singaporeans, particularly in retirement.³⁹ Such an issue was raised by former Member of Parliament Png Eng Huat, where he touched on the examples of older Singaporeans between the ages of 55 and 62, who may be working part-time or are unable to work, and might require the money in their Retirement Account to get by.⁴⁰
Aside from discussing the strengths and drawbacks of the existing CPF system, it is important to recognise that CPF is not well understood by a large proportion of Singaporeans. Multiple surveys have been done that demonstrated this, such as one in 2014 where only 43% of respondents knew that they would receive monthly payouts even if the MS is not met.⁴¹
There are several reasons why the public may not fully understand the system, such as the complexities of CPF, limited public communication, or a general lack of financial literacy amongst Singaporeans.⁴² This means that having more knowledge about CPF’s processes is important to building trust amongst individuals in the system, which would in turn improve the efficacy of the system for themselves.⁴³