The Central Provident Fund is not a social security welfare model but a savings scheme that encourages self-reliance.
Evolving the CPF scheme
The government regularly assesses and adjusts the CPF parameters, considering increasing costs of living, economic forecasts and changing social needs. For example, an increase in contribution rates for the age group of 55 to 70 was announced in 2019, directly impacting the individual’s disposable income and the employer’s cost.
Additionally, the CPF Board conducts a retirement and health study every two years to identify the population’s needs to implement changes and improvements to its policies and services. A recent update is MediShield Life, which was launched in 2015 to address concerns about access to medical care. Another one is CareShield Life, which was introduced in 2020 to provide financial support should an individual require long-term care due to disability or chronic conditions. The Workfare Income Supplement was also introduced in 2015 and enhanced in 2022 to help low-income earners build their CPF savings and meet immediate needs.
With the cost of living rising in tandem with the increase in wages, an increase in CPF contributions may be timely. There are two possible ways: increase the CPF contribution rate or increase the CPF wage ceiling. Increasing CPF contribution rates would impact everyone, which may be detrimental to low-income earners as the cost of living rises. It may also result in people delaying certain life milestones, such as pursuing further education, getting married or purchasing a home.
Raising the wage ceiling in CPF contributions could be a more viable alternative. An increase in the Ordinary Wage (OW) ceiling will only impact those earning over S$6,000 a month and will not impact lower-income earners.
Historically, the OW cap reflects the salary of individuals in the 80th percentile of income. In 2011, the OW cap was increased from S$4,500 to S$5,000, followed by a further increase to S$6,000 in 2016. Now, more than six years later, an increase in the OW cap looks timely. For an individual who draws a monthly salary of S$7,000 or more from the age of 35 to retirement at 65, this would equate to an additional S$133,200 of contributions without calculating the compounding interest benefit. This additional contribution could be allocated in part or in full to the Special Account for retirement. This would build up the individual’s prospective retirement sum, resulting in a higher payout through CPF LIFE at retirement.
The CPF Board can also consider reviewing the avenues for using the funds. For example, the education scheme may be extended to cover overseas education, perhaps for certain areas of study to build specific knowledge and skills that are in demand or strategically important to the Singapore workforce.
Arguably, an increase in CPF contribution is a matter of when, not if. As the world recovers from the pandemic’s impact amid risks of recession and inflation, Singapore needs to be agile in adapting its policies. Yet, the country cannot lose focus on the fact that the CPF is an intentional savings scheme so that individuals can meet their retirement needs. Balancing current and future needs is a long-term commitment — prudent adjustments or concessions now will help everyone to be more prepared for retirement and old age without compromising the principles of self-reliance and personal responsibility.
Summary
The Central Provident Fund (CPF) scheme seeks to encourage self-reliance and is not a social security welfare model. It can be evolved to further address issues arising from increasing costs of living and changing social needs. Raising the wage ceiling in CPF contributions could be a more viable alternative than increasing CPF contribution rates, which may be detrimental to low-income earners as the cost of living rises. The CPF Board can also review avenues for using the funds.
