United Nations Public Service Awards Case Studies

In one generation, Singapore has transformed from a third world country into a developed nation and the Central Provident Fund (CPF) is the key instrument used to secure the social well-being of citizens.

When the CPF was started in 1955, there was no retirement security. Most workers depended almost entirely on their children to look after them in their retirement. With very low wages, there was neither incentive nor opportunity to save. So CPF started as a retirement savings scheme for 180,000 workers and S$9 million funds. Today, we operate 15 schemes for 3 million members with over S$153 billion assets. We are a fully funded defined contribution scheme built on the principle of self-reliance with monthly contributions from both employee and employer.

Back then, the key social challenges Singapore faced were pressing housing and healthcare needs. Singaporeans comprised mainly impoverished migrants living in overcrowded, unsanitary squatter colonies without piped water and basic facilities. World War II had crippled the medical system and manpower and medical infrastructure needed to be rebuilt. The post-war baby boom fuelled medical demand. Affordability of healthcare became a key concern.

To house the growing population, the Government started building low-cost housing through the Housing & Development Board (HDB). The Government encouraged home ownership to give Singaporeans a stake in the nation. However, it was difficult for Singaporeans to buy their homes as wages were very low then. The solution was to allow CPF savings to finance residential property. With this significant adaptation of the CPF scheme, today, 95% of Singaporeans own their homes.

To ensure that Singaporeans could afford healthcare, Medisave and MediShield were introduced in 1984 and 1990 respectively. Medisave is savings within the CPF for medical expenses, while MediShield is a catastrophic medical insurance administered by CPF Board (CPFB). Together, they have helped more than 2 million members pay their hospitalisation bills and those of their close family members.

Besides the three social security pillars of savings for retirement, home ownership and savings for healthcare needs, a fourth pillar – Workfare – was recently added. For low-wage workers, employers pay reduced CPF contribution rates (compared to other workers) with the difference co-paid by the Government as Workfare Income Supplements into their CPF accounts. Workfare thus enables low-wage workers to build up their savings, whilst providing incentives for individuals to work, and for employers to hire them.

The CPF is hence integral to all the pillars of Singapore’s social security framework, ensuring our social stability. And to be relevant, CPF must continue to evolve to meet the changing social and economic landscape. In this respect, we are starting a lease buy-back scheme to allow for monetisation of homes. We are also incorporating an annuity to provide a steady income stream from age 65, for life. These will be additional layers of financial security for Singaporeans as they age.

What is the initiative about? (the solution)
Today, the CPF has 3 million members, covering 88% of our resident population, 107,000 contributing employers, and more than S$153 billion in assets (about 60% of GDP). Based on the principle of self-reliance, each employee saves for his retirement as he works, hence younger generations do not need to support retirees. CPF savings earn guaranteed, risk-free returns. This shields CPF members from investment risk, giving them peace of mind that their retirement savings are secure. Members who are prepared to take investment risks are allowed to withdraw part of their savings for personal investing. The CPF has helped Singapore attain a high savings rate. The Gross National Savings is one of the highest in the world and comprises about half the GDP. Retirement needs is well-provided for CPF members. About three-quarters of CPF members aged 50 to 55 have an average of more than S$100,000 in CPF assets. For members above the retirement age of 62, CPF monthly payouts range from S$300 to more than S$900, based on monies in their individual accounts. These sums are paid over 20 years. Using CPF to finance homes has enabled Singaporeans to own homes. Home ownership motivates Singaporeans to work hard to pay for their homes, inculcates an ownership mentality, and further contributes to Singapore’s economic growth. It has also fundamentally altered the physical and social landscape of Singapore, enabling the multi-racial nation to build communities and strengthen social cohesion. CPF and home ownership have also ensured political stability, the foundation for Singapore’s uninterrupted growth and development for over 30 years. The housing equity of Singaporeans has appreciated significantly, averaging S$154,000 per household, or S$138,000 for those from the lowest quintile income. Housing also serves as another source of financial security to be tapped on for retirement income if need be. CPF’s mortgage reducing insurance gives added peace of mind. The value of family support is reinforced with the Medisave scheme. Singaporeans can use their Medisave to meet the healthcare needs of themselves, their children and parents. Two-thirds of CPF members have used their Medisave for hospitalisation expenses and medical insurance, and 80% of our resident population is insured under MediShield. Since its implementation in 2008, the Government has given out S$468 million in Workfare Income Supplements (WIS), with S$350 million going into the CPF accounts. To date, about 355,300 and 286,200 Singaporeans have received WIS for having worked in 2007 and the first half of 2008 respectively. Given CPFB’s wide reach, efficiency and comprehensive database and many partnerships, the CPF has also provided the Government with the best means to distribute budget surpluses to citizens. Since 2001, CPF top-ups have totalled about S$12 billion. More recently, CPFB administered the Progress Package (PP) and Workfare Bonus Scheme. For the PP, over 1 million Singaporeans benefited within three days of the launch. At the end of this 12-month surplus redistribution exercise, CPFB had disbursed more than S$2 billion accurately and expeditiously to 2.2 million intended beneficiaries.

Who proposed the solution, who implemented it and who were the stakeholders?
The CPF has been quoted as a success story among social security systems world-wide. From the simple retirement scheme with a lump sum withdrawal feature at age 55 established by the British, the Singapore Government has over time evolved it into one with a phased withdrawal and is in the midst of incorporating a deferred annuity called CPF LIFE to ensure that Singaporeans have income for life. The idea of using CPF savings to purchase HDB flats was first mooted by then Prime Minister Lee Kuan Yew in April 1968. Mr Lee firmly believed that home ownership was important for a nation of migrants like Singapore. Owning a home would give Singaporeans a sense of rootedness, something to work for and protect, which would reap long term benefits for our then young, developing nation. Discussions between CPFB and HDB led to the introduction of the home ownership scheme that year. Mr Lee also played a pivotal role in suggesting the concept behind the Medisave scheme. Following discussions between the Ministry of Health (MOH) and CPFB, the Medisave scheme was launched in April 1984 to allow members to accumulate savings in their CPF account to pay for their hospitalisation and that of their immediate family members. Six years later, the Government introduced MediShield, a catastrophic medical insurance scheme to help CPF members cope with the cost of serious, long-term illnesses. In 2005, the Government set up a Ministerial Committee on Low-wage Workers to develop and implement a holistic package of policies and measures to help low-wage workers and their families. Chaired by Dr Ng Eng Hen, the former Minister for Manpower, the Committee comprised members from different ministries and the National Trades Union Congress (NTUC). In January 2006, the Committee recommended a set of strategies, one of which was to reward low-income workers for working through Workfare. This proposal was accepted and the WIS Scheme was implemented in 2008. CPFB is under the purview of the Ministry of Manpower (MOM) and is tasked with the running and administration of the various sub-schemes under the CPF. This ranges from customer service, to processing of applications, and it also extends to policy development and planning. CPFB works closely with MOM to develop policies governing the CPF schemes. As the administrator of the home ownership and healthcare schemes, CPFB works closely with HDB, the Ministry of National Development (MND, which is HDB’s parent ministry), the Ministry of Health (MOH) and various hospitals and healthcare institutions. CPFB also works with the Ministry of Finance (MOF) to offer a guaranteed return on CPF members’ savings, and to distribute budget surpluses to Singaporeans. CPFB also engages private organisations, such as banks and insurance companies, to deliver the necessary services to CPF members where applicable. As employees and employers are also stakeholders of CPF, the CPF Board of Directors which oversees the governance of CPFB includes tripartite representatives from the Government, the Singapore National Employers Federation (SNEF) and the NTUC.

Describe how and when the initiative was implemented by answering these questions
a. What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
The success of the CPF scheme is driven by various key strategies. Effective Collection of CPF Contributions CPF contributions from both the employee and employer are mandatory. The current contribution rate is 34.5% of monthly wages (20% by the employee and 14.5% by the employer). CPFB has in place strict enforcement measures, resulting in a low default rate of 0.5%. (The default rate refers to the percentage of employers who have not paid CPF contributions for two consecutive months.) This ensures that employees receive the CPF contributions due to them. Guaranteed and Fair Returns During the accumulation phase, members are guaranteed risk-free returns. CPF savings earn a minimum guaranteed return of 2.5%. Those set aside for healthcare and retirement earn a return pegged to the long-term bond rate of return (4% p.a. currently). On top of that, an extra 1% interest is paid on the first S$60,000 in combined CPF balances, which translates into returns of up to 5%. These guaranteed returns shield Singaporeans from investment risk so that the vast majority, who are not investment savvy, do not have to worry about market fluctuations. At the same time, some members who wish to assume higher risk for potentially higher returns are allowed to withdraw their savings for personal investing. Adopting a Long-term View on Decumulation Policies to tighten CPF withdrawal were progressively introduced at a pace acceptable to Singaporeans, balancing Singaporeans’ desire to withdraw their CPF savings and the need to ensure retirement savings last their lifetime. Initially, CPF members were allowed to withdraw all their retirement savings when they turn 55. In 1987, the Minimum Sum (MS) Scheme was introduced. Members were required to set aside a portion of their savings, which would be paid out to them monthly from the retirement age of 62, until the money ran out. Over the years, the MS has been increased gradually to keep pace with members’ growing needs. In recent years, the MS Scheme has been significantly modified. The changes include adjusting the MS payouts so that members would receive their payouts for about 20 years, increasing the age beyond the retirement age from which members could draw down their MS, and introducing CPF LIFE to provide income for life. Adapting Housing Policies to Meet National Objectives In the 1960s, members were allowed to use CPF savings to purchase HDB flats to encourage home ownership. As the nation prospered, the housing scheme was further liberalised to allow Singaporeans to use CPF to purchase private property in order to meet growing aspirations. With the home ownership objective achieved by the 1990s, the emphasis has shifted to preventing over-consumption in housing, and limits have been placed on the amount of CPF which can be used for housing. Instilling Prudent Consumption of Medical Services Spending limits on Medisave, co-payment and deductibles for MediShield insurance and assistance for the indigent from Medifund have collectively helped contain medical cost whilst availing affordable healthcare. The outcome is a low National Healthcare Expenditure at 4% of GDP.

b. What were the key development and implementation steps and the chronology? No more than 500 words
Key milestones in the implementation of the various CPF schemes are summarized below: Central Provident Fund Scheme (1 July 1955) The CPF Ordinance became effective on this date. Employers and employees contributed 5% each with a maximum contribution of S$50 per month. CPF membership then totaled 180,000 employees with 13,000 employers. Public Housing Scheme (1 September 1968) To promote home ownership, this scheme allows the use of CPF savings to pay for HDB flats. In 1981, members were further allowed to use their CPF to purchase private residential properties. Special Account (1977) This account is to set aside savings specifically for old age. Medisave (1 April 1984) Members can use their Medisave savings to meet their personal or immediate family’s hospitalisation expenses. Approved Investment Scheme (1 May 1986) CPF members could use their CPF savings to invest in publicly listed shares and loan stocks, and unit trusts and gold. In 1997, to simplify the scheme for members, this plan was replaced by a new CPF Investment Scheme (CPFIS). In 2001, the scheme was liberalised to allow CPF members to invest their Special Account savings in approved retirement-related financial instruments. MS Scheme (1 January 1987) This is to ensure members set aside a minimum sum in their CPF account that will give them a subsistence allowance upon retirement. Members can use the MS to buy a life annuity, deposit it with a bank or CPFB to yield a monthly income for life or another 20 years respectively. MediShield Scheme (1 July 1990) Members can use their Medisave savings to pay premiums for this catastrophic medical insurance scheme. MediShield helps members and their dependants meet the costs of medical treatment for serious illnesses or prolonged hospitalisation. To meet the changing needs of members, CPFB has introduced several schemes and adapted existing ones since 2000, including: Changes to the MS Scheme (from 2003) To ensure that CPF savings are stretched over a member’s retirement, payouts from the MS have been adjusted from 2003 so that members would receive monthly payments for about 20 years. The age at which members can draw down their MS will also be raised progressively from 62 to 63 years in 2012, 64 in 2015 and 65 in 2018. Workfare Income Supplement (WIS) Scheme (1 January 2008) WIS is targeted at older, low-wage workers and supplements the lower CPF contribution rates they pay. This increases their employability, providing incentives to work and stay employed, while helping them save for their long-term needs. Extra Interest (1 January 2008) An extra 1% interest is paid on the first S$60,000 of a member's combined balances, with up to S$20,000 from the Ordinary Account (OA). The extra interest from the OA will go into the member's Special or Retirement Account to enhance his retirement savings. CPF LIFE (2010) To address longevity risk, this scheme provides members with a monthly income from age 65 for as long as they live. Members can choose the LIFE plan that best suit their needs.

c. What were the main obstacles encountered? How were they overcome? No more than 500 words
The CPF journey has always been full of challenges. In the 1950s when the CPF system was announced, public resistance came from both workers and employers. People were unhappy that their monies were being locked up and both employers and employees were disgruntled at this “tax”. Over time, people grew to accept the CPF. Contributions to CPF have been fairly painless as deductions are made before the salary is paid. Members have also come to appreciate that CPF helps meet their social security needs. One of the key challenges has been, and still is, striking a balance between meeting members’ desire to withdraw CPF savings earlier and the reality of a longer life expectancy. There was public outcry in 1984 when the Committee On The Problems of the Aged led by then Minister for Health Mr Howe Yoon Chong proposed raising the CPF withdrawal age from 55 to 60. This suggestion was never taken up. Instead, the Government introduced the MS Scheme, implemented in 1987. The lesson learnt was that changes to the withdrawal policies would have to be introduced progressively, to gain public acceptance. This is reflected in the way that the MS has been increased gradually, and how the MS draw-down age is being raised in stages. CPFB has also carried out extensive public education to help Singaporeans understand the challenges of an aging population and why these changes are necessary. Similarly, the tightening of CPF usage for housing has been introduced gradually over the years to prevent over-consumption of CPF for housing. One example is lowering the amount a member could use for each property over several years. Another is allowing members to buy a second property with their CPF only if they have set aside the MS. The introduction of Medisave in 1984 required CPF members to deposit 6% of their monthly salary into the Medisave account. This led some observers to argue that medical costs should be the responsibility of the nation. However, then Prime Minister Goh Chok Tong said: “It is dangerous logic to argue that healthcare must be provided cheaply or even free because people cannot help falling sick…. If you are a millionaire, you should pay. If you are genuinely poor, you can get free treatment.” To help Singaporeans get started, money from the Special Account was transferred to the newly set up Medisave Account. Subsequently, 6% of the member’s monthly salary was credited into this account. We also cap the accumulation of medical funds and require co-payment to avoid the moral hazard of over-consumption of medical services. Three macroeconomic factors continue to affect CPF planning – inflation, unemployment and increasing life expectancy. To counter their impact, CPFB policymakers take a flexible approach and do regular reviews to monitor the macroeconomic indicators and their impact on Singaporeans. CPFB continues to works closely with MOM, HDB, MND, MOF, and MOH to fine-tune CPF policies to meet the housing and healthcare needs of Singaporeans without neglecting retirement adequacy.

d. What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
CPFB is a statutory board under MOM. The Government, through MOM, sets policies for CPF schemes while CPFB implements these schemes to meet policy objectives and provides effective communication and customer service platforms. A 15-member CPF Board of Directors oversees the governance of CPFB. The Board includes tripartite representatives from the Government, SNEF and NTUC. Specialists (e.g. in investment areas) are also appointed to lend their expertise. The Board ensures that our strategies, policies and practices are in line with the Government’s and MOM’s objectives. CPFB is a self-funded organisation, with a total annual operating budget exceeding S$100 million. The average servicing cost of S$30 per member per annum is highly efficient [compared to S$57 per member for the Employees Provident Fund (EPF) of Malaysia and S$34 per member for the Federal Retirement Thrift Investment Board of the United States, based on 2006 figures]. CPFB’s operating expenditure is funded largely by the interest differential between investments income and interest paid to members. Other sources of income include fees from agency services, rental income, service charges, car park receipts, and compounded fines from employers among others. CPFB is staffed by more than 1,300 officers, involved in executing CPFB's core business of collecting CPF contributions; disbursing CPF monies for members' retirement, healthcare, and home ownership needs; and providing agency services to other Government organisations and self-help groups. CPFB currently administers more than 15 schemes for its 3 million members and manages one of the largest and most comprehensive personal information databases of Singapore residents. The technical resource that CPFB relies heavily on is information technology (IT). From the onset, CPFB has had to manage a large quantity of members’ account information. In 1963, CPFB was one of the first Government agencies to computerise its operations, using computers that were then among the most advanced in the country. Today, CPFB continues to leverage on IT, using it to serve its large member base in a cost-efficient manner, while maintaining a high level of personalisation and responsiveness. This is exemplified by the concept of “my cpf”, which packages comprehensive CPF information according to the life stages which a member is likely to go through. “my cpf” also comprises a comprehensive suite of personalised online services and educational tools and information on retirement planning, all delivered through the CPF website. This initiative won the “Service Innovation” category in the regional Asia Pacific ICT Alliance Government Technology Award 2008, distinguishing itself from 144 submissions by 11 countries across the Asia Pacific region. CPFB provides customer services to its members from its main office and four other strategically located branch offices. From 2003 to 2007, CPFB service counters - with an average operating cost of about S$17 per member - were reduced from 69 to 37. Concurrently, e-transactions - averaging S$0.38 per transaction – increased five-fold from 8 million in 2003 to 39.5 million in 2007. 96% of all transactions in 2007 were e-transactions.

Is the initiative sustainable and transferable?
The CPF is a financially sustainable system. It is widely regarded as a world-class social security system by the World Bank and IMF, social security experts and policy makers. Many countries have cited the CPF as a model to structure their social security system. CPF’s success can be attributed to the principle on which it is built: self-reliance. Every worker takes individual responsibility to plan and accumulate his own CPF savings for old age, which does not shift any burden to younger generations. By design, the CPF is a fully-funded, self-financing social security system, so it does not require the injection of funds by the Government. CPF is also able to provide members with fair and sustainable returns on their savings. To ensure that CPF continues to meet the social security needs of Singaporeans, CPF policies are continually reviewed and improved in light of shifting demographics, members’ aspirations and the need to innovate to meet rising expectations. CPF System Replicated in Suzhou Industrial Park, PRC The CPF system has been replicated by the Suzhou Industrial Park (SIP) in China, where it is known as the SIP Provident Fund (SPF). The SPF was first launched in 1997 and had 329 participating companies and a total membership of 24,000 as at 30 May 2001. Similar to the CPF, the SPF addresses the three major social security needs of retirement, housing and healthcare. CPF Consulted for Housing Scheme in Chengdu, PRC In 2002, Singapore assisted Chengdu in formulating housing payment schemes under their Housing Provident Fund. This fund has features of a defined contribution scheme, which provides savings for retirement as well as subsidised mortgage rates. Chengdu officials chose to learn from CPFB because of its wealth of experience in the administration of such a scheme. The CPF system has also been replicated in some form in Shanghai and Xian. Rwanda Learns from the CPF Recently, Rwanda invited the former deputy general manager of CPF (from 1980 to 1992), Mr Chay Yee, to advise them on the reform of their Social Security Fund. Mr Chay will be introducing aspects of the CPF system which could be adopted in Rwanda’s reform of their social security system. Malaysia EPF, our counterpart in Malaysia, has adopted some of the features of our schemes, such as the Investment Scheme, the Top-Up Savings Scheme and the lowering of contribution rates for older workers to enhance their employability. ASEAN Social Security Association (ASSA) ASSA is a regional body comprising social security organisations from Brunei, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam. CPF Board is the current chair. Many CPF innovations and experiences shared at ASSA’s half-yearly forums have been adopted by our Asean neighbours. Visits to CPFB The CPF system has generated keen overseas interest. CPFB has received numerous foreign visitors who wish to learn from the CPF experience. Social Security Programmes run annually by CPFB have also been well received, attracting participants from more than 30 countries.

What are the impact of your initiative and the lessons learned?
The key success factors of our social security system are identified below. CPF Reflects Societal Values The CPF has evolved into a system which reflects the society’s values of self-reliance, family support and good work ethics. Singaporeans accept the need to save for their own retirement, and not rely on future generations. CPF savings can be used to meet the housing and healthcare needs of families. CPF members are encouraged to work to build up their CPF savings, and home ownership also spurs them to work so as to finance their homes. Strong Government Support Since its inception, the Singapore Government has viewed the CPF system as an integral part of the social, economic and political fabric, and has always given its fullest support to ensure CPF’s continued success. Continual reviews of the CPF policies through partnership across Government agencies are carried out to ensure that the system meets the changing needs of the nation. This has resulted in the tightening of CPF withdrawal policies in recent years, and the implementation of limits on the amount of CPF which can be used for housing. CPF members can also look forward to CPF LIFE from 2010, which would guarantee them a monthly income for as long as they live. The Government provides guaranteed risk-free returns on CPF savings. The current rate of return of up to 5% is attractive especially in the current financial turmoil. It is for this reason that the CPF system and members are relatively unaffected by the collapse of the financial markets. The Government has also strengthened the CPF system by channeling many of its social assistance schemes through the CPF. Budget surpluses have been shared with Singaporeans through top-ups to members’ CPF accounts. Even the recently introduced WIS scheme channels part of the incentives to the individual’s CPF account. Active Tripartite Engagement Given that CPF contributions would form part of wage costs, active engagement of employers and employees is required. The continuous tripartite engagement allows for discussion among the Government, employers and employees before any change to the CPF system is made, so that a good balanced outcome can be achieved. More critically, it ensures that changes to the CPF system would receive commitment and support from both employers and employees, making them less contentious and expedient to implement. This is especially important during critical periods such as economic downturns. Gradual Refinement of Policies The success of the CPF system depends on getting the buy-in of Singaporeans. To achieve this, changes to the policies are implemented at a pace which Singaporeans can accept, and announced in advance so that Singaporeans are prepared for them. For example, the extension of the MS draw-down age which would take place in stages from 2012, was announced in 2007. Competent Personnel This comprehensive CPF system today cannot be administered successfully without competent personnel. In 2004, CPFB received the Singapore Quality Award, the highest accolade given to organisations in recognition of their world-class standard of performance excellence.


Institution Name:		Central Provident Fund Board
Institution Type:		Government Agency
Contact Person:		Laura, Quee Eng Lim
Title:		Deputy Director (Research and Management Studies)
Telephone/ Fax:		62293550
Institution's / Project's Website:
E-mail:		laura.lim@cpf.gov.sg
Address:		79 Robinson Road #30-02 CPF Building
Postal Code:		068897
City:
State/Province:
Country:		Singapore

The Problem

Solution and Key Benefits

Actors and Stakeholders

(a) Strategies

(b) Implementation

(c) Overcoming Obstacles

(d) Use of Resources

Sustainability and Transferability

Lessons Learned

Contact Information