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CPF Series Part 1: Introduction

One of the perks of being a kid is that we receive allowances from our parents. With that sum of money, we are encouraged by our wise elders to ration our daily expenses and save up for things we want to buy. Consequently, we would usually in the course of growing up, encounter one (or both) of these scenarios:

  • Our impulse overpowers our good sense and we go for a huge MacDonald’s meal or buy that shiny item at the bookshop even when we know we will suffer with empty stomachs later in the week.
  • We ration our money appropriately, spending only a specified amount of money. Things look rosy until we realise we have to pay for an unexpected class fund contribution, or buy brownie cookies to appease our Girl Guide friends. Suddenly, we find ourselves with insufficient funds to last the week.

The result of either scenario would be to request additional money at the expense of much chiding and even a spank or two. No biggie you may say. You may even feel proud at being able to wangle extra cash on top of your allotted allowance.

However, if we were to extend this phenomenon to a societal level, then we will easily see why our ‘clever schemes’ as kids would not work. If working citizens (kids) spend recklessly without having a pool of savings for use during emergencies such as illness or accidents, then the burden of having to fork out money as a social safety net would fall to the government (parents).

Ultimately, the normal expenditure pool of the government come from a wide range of sources – income tax, GST, road taxes, fines, etc. However, according to population projections,while today 8.5 economically active persons are supporting one elderly person, by 2030, only 3.5 persons will be supporting one elderly person! In other words, there is a real danger of the government not being able to finance large social care costs without plunging itself into a vicious deficit.

Enter CPF – a ‘forced social security savings’ programme for all Singaporean citizens and Singapore Permanent Residents (PRs). CPF is structured with rules which govern how one’s CPF savings can be used to ensure a healthy balance between the needs of the present and the needs of the future. It also uses incentives such as bonus interest and top-ups to encourage saving. This is akin to our parents safekeeping our red/green/white packets until we reach a mature age, or when we are old enough to know this is happening and demand to have our money.

The political aspect of the CPF system is beyond the scope of this article series, and CPF amendments will be explored from a perspective of what it means for you and your CPF savings. Like it or not, CPF contributions are mandatory under law. Subsequent articles will explore the various mechanisms of the CPF system and highlight CPF rules you should be aware of to maximize returns on your CPF monies.


Original photo by Benjamin Lim. Used with permission. 


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