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CPF 

CPF stands for Central Provident Fund - as you would discover by searching for it on google; in fact, as one of the numerous acronyms used in Singapore, CPF is among the best known internationally. (You could compare by searching with others like GIC, DBS, PIE - I think the only competitors for search engine prominence are HDB and NUS; NTU produces National Taiwan University first and MAS Malaysian Airlines first ; PSC/GLC do not even come close).

CPF was actually started under the British colonial regime, in 1955, as a simple compulsory savings scheme under which every employee in Singapore is required to maintain an account into which he deposits a percentage of his salary, with the employer making a matching contribution. The accumulated saving, with interest, may be withdrawn at the age of 55, or when the account owner leaves Singapore permanently, with the exception of leaving for Malaysia because of historical association. Since then, however, there have been many complications.

First, the CPF account constitutes a large portion of a person's total savings; with this amount of money tied up in the CPF account,  he may have little savings left for such needs as purchasing a home, children's education, or alternative investments. So throughout the history of CPF there have been a steady streams of schemes worked up to "borrow" from CPF the money in his account. It started in 1968 with purchasing HDB apartments, later extended for use with other properties as well; in 1978 for purchasing shares of Singapore Bus Company which went IPO at the time; later this scheme was extended to other share purchases. To limit the total amount that can be "withdrawn", separation of a non-withdrawable portion into a "special account" was introduced, but as investment possibilities proliferated with unit trusts, life insurance, even gold added to the scheme, rules were formulated on permitted withdrawals from the "ordinary account". Computerization played a major part in making all these rules manageable.

Second, ways to use some of the savings for medical expenses and health insurance were also added with a portion of the savings separated into the Medisave account. Again through computerization and network linkup, hospitals and government clinics can access each patient's medisave information, allowing both medical/hospital payments and insurance claims to be processed against Medisave in a streamlined manner.

Third, since around 20 years ago the issue of an aging society began to attract notice. This has led to several initiatives: the raising of the retirement age and retention of older workers was one, and this remains only a partially implemented idea; the introduction of a legal mechanism to force children to take care of aging parents was actually tried, though this is probably part of Singapore legal history everyone would prefer to forget; the issue of deferring CPF money withdrawal caused perhaps the greatest controversy, and the eventual result was the Minimum Sum scheme under which some money had to remain with CPF and is available for withdrawal only over a specific age schedule, which has been gradually shifted upwards and the target period is now set for age 65 to 85.

This leaves the question of what happens after age 85, which is now being addressed with yet another proposed scheme. While the number of people who live that long is small, it is not negligible either (at present there are about 25K Singaporeans in that group, women outnumbering men 2:1, but the number is likely to grow.) One could hardly produce yet another legal requirement to make their children financially responsible, since the children themselves would be close to retirement already. So the latest thought is to require every person to purchase an annuity at age 55 with the target payout date at age 85 and beyond.

I am sure the logic is perfectly sound to an accountant/actuary, but it is weird to ordinary human beings - the immediate thought is "what if I die before 85? I would pay the premium for nothing" - looking at insurance as investment is actually illogical, because the whole point is choice between alternative negatives (If I die, I get paid big sum of money; if I dont, I get nothing; so do I prefer to die or not die? - that's not the right way to look at life insurance). Annuity schemes have actually been available as part of CPF settlement for some years now, but few people take them up. Whereas life insurance is getting people who do not die early to help those who do, a relatively easy idea to absorb, annuity is asking people who die early to help those who live long, an idea much harder to grasp. 

Because CPF membership is compulsory by government decree, it is not an ordinary investment house, but an instrument of social policy, of government servicing the needs of the public, often giving them what is good for them rather than what they want. As an issue of social policy, I would have thought it is far simpler, and more popular, to provide every citizen over age 85 with an old age pension, i.e., get taxpayers in general to help those who live long, and leave CPF out of the picture altogether. 

In fact, as soon as the idea of delaying the withdrawal of CPF money was raised for the first time during the 1984 election, the issue has been "on the burner" continuously over the years. The issue is touchy because of the emotionalism of "the government took my money and doesnt want give it back". The reaction might look small scale, but in tightly controlled Singapore, any open grumbling is serious, and some grumblings are more serious than others, so that measured steps were taken to deal with them. The initial raising of an idea was followed by a series of steps to and fro and sideways, before a concrete scheme, the minimum sum, was put into place. The annuity at 85 idea would presumably go through the same process, eventually yielding some form of partial funding from general tax revenue rather than strict commercial funding of the payout from income and investment returns within the CPF system only.

Another long standing CPF  issue relates to Malaysians who go home. There was a time when the two governments tried to negotiate a package of agreements tying together the supply of low cost water to Singapore with Malaysians taking money out of CPF, but these discussions bogged down repeatedly, with the latest twist caused by Malaysia's desire to replace the Johor-Singapore causeway by a new bridge to facilitate shipping to the (then) new Johor port. Currently the discussion is ajourned without any date for restarting, and in the mean time Singapore has added to its water source by going for waste water recycling and sea water desallination in a big way.

The CPF contribution rates for employees and employers have been used as an instrument for the macromanagement of Singapore economy. Until 1985 the rates were steadily increased, topping out at 25% on each side (employer + employee) so that the CPF savings amounted to 50% of a person's nominal salary (the cost to the employer is 125% of the nominal salary). Taking away the income tax, the take home pay of an average emplyee was not much more than the amount going into his CPF account. This constituted an unusually high national savings rate, especially in comparison to the high debt orientation of USA consumers. This and other factors also provided an unusually high level of financial resource control in the hands of the government.

At the time this high CPF rate requirement was part of a deliberate high wage policy, with the justification that high manpower cost would encourage employers to adopt productivity increase measures and lead to upgrading of the economic system. This played some part in triggering the 1985 economic recessions when a 2% increase (on each side) was put in place; the rates were then reduced as part of a set of recession fighting measures, with promise of reversal after economic recovery. There have been many ups and downs since then, with variations depending on age added in to reduce the cost of hiring people above 55, but tops at 36%.

One would think that, if my saving each month is comparable to my take home pay, then I am putting a side a big sum for my retirement and the final result should be more than adequate. It is therefore not an issue of amount of money saved, but how to schedule the deployment of the amount. However, the situation is not so simple. In particular, when CPF savings are withdrawn to buy property, the initial withdrawal is normally followed by monthly withdrawals to repay bank housing loan, with interest, so that the amount "owed" to CPF increases, meaning that at age 55 there might be little in the ordinary account available for withdrawal as a lump sum. 

Self reliance, Market forces and Meritocracy

The philosophical basis of CPF, with each person being responsible for funding his own retirement, rather than on government handouts in one's old age, is self reliance. By providing mechanisms whereby some CPF money could be taken out to other investments of an account holder's own choice, personal enterprise of a sort and market forces are brought into play. Those who do it well stand to gain more, hence we have an element of meritocracy as well.

"Self reliance", like "justice", "development" and "democracy", is a good word, easily accepted by any audience, and good words are liable to be overused, with the speaker deliberately conveying his own particular meaning, and it is always necessary to look into it a bit further. Does self reliance eliminate the need for social welfare of any kind?

Some selfs are easier to rely on than others. Some people are born smarter, calmer, healthier, richer, etc, than others, or are simply luckier. Just as social welfare has its limitations, so does self reliance. We might have a meritocratic system, but this does not mean every benefit one enjoys is due to merit and is well deserved. Market forces might in the most cases operate towards the optimal deployment of resources, but there are also cases beyond its reach, e.g. in a totally free market for health services, a doctor would probably get paid a lot more for wart removal or breast enlargement for wealthy clients, than  for saving the life of a poor person, but it would be hard to argue that the former has more merit than the latter. It is usually necessary for governments to step in and fill gaps market forces miss out. Similarly, pornography and prostitution are easy ways for a girl to make money because there is constant demand, but governments usually would place some restrictions on such self reliance and market forces.

Taken to extreme, you could say both annuity and life insurance are anti self reliance: in life insurance, the people who pay premium but do not die are subsidizing those that die early; in annuity, those who pay premium but die soon are subsidizing those that live long. You see how essential it is to define the exact content of the words you use