What Is the Central Provident Fund?

What Is the Central Provident Fund?

The Central Provident Fund (CPF) is a compulsory savings scheme in Singapore that aims to provide financial security to all its residents in their old age. The CPF account is meant for retirement, healthcare, and housing purposes, and every resident must contribute to it. One can withdraw funds from the CPF account at the age of 55. Similar to the U.S. Social Security system, delaying withdrawals from the CPF account results in higher payments later in life. Unlike a 401(k) plan that employees can choose to opt-out of, contributing to the CPF is mandatory for all residents.


In Singapore, the Central Provident Fund (CPF) is a compulsory financial reservoir designed to secure citizens' retirement income and healthcare support. This fund sees contributions flowing in from both employees and employers, fostering a joint commitment to financial security. CPF manifests itself through three distinct accounts: the ordinary account, the special account, and the medisave account.

Evolution of the Central Provident Fund in Singapore

Established in 1955, the Central Provident Fund (CPF) was initiated to ensure a secure financial future for all Singaporeans during retirement. Despite facing initial controversy, the CPF has evolved significantly over the years, expanding its scope to encompass healthcare (Medisave) and public housing support.

Singaporean citizens are eligible to access their retirement funds from age 55, with the principle akin to the delayed benefits strategy employed by the U.S. Social Security system. Opting for a later withdrawal age translates to a higher accumulated amount in the CPF account.

Similar to pension funds, CPF accounts involve contributions from both employees and employers, with conservative investments aimed at yielding an annual return of approximately 5%. In 1968, the CPF extended its services to include housing support through the Singapore Public Housing Scheme. Subsequently, in the 1980s, the program broadened further to encompass medical coverage for all participants.

Responding to participant demands for increased investment flexibility, a new investment option was introduced in 1986, allowing individuals to manage their own accounts. Additionally, an option to convert the CPF account into a fixed annuity at retirement was introduced. Currently, participants meeting the minimum balance criteria of $40,000 at age 55 or $60,000 at age 65 can opt for the CPF LIFE annuity plan. Those receiving a monthly pension or life annuity payout are exempted from compulsory retirement sum allocation.

Comparative Overview: CPF vs. U.S. 401(k) Retirement Systems

In contrast to the voluntary nature of the U.S. 401(k) plan, the Central Provident Fund (CPF) operates as a mandatory retirement system. Unlike the U.S., where employees can opt out of a company's 401(k) plan, many U.S. companies automatically enroll new employees, deducting approximately 3% of their pre-tax income unless the employee explicitly opts out in writing.

The ramifications of opting out, particularly for younger workers, can be substantial due to the compounded interest lost over the years. The CPF and the U.S. 401(k) emphasize paying oneself first through automated payroll deductions. Employers, by matching contributions up to certain levels, essentially provide additional compensation to support employees in their retirement. Choosing not to participate in these plans amounts to forgoing the additional pay offered by the employer.


The Central Provident Fund (CPF) stands as a cornerstone of Singapore's commitment to ensuring the financial well-being of its residents during retirement. Established in 1955 and evolved over the years, the CPF not only addresses retirement needs but also extends its support to healthcare and housing. The mandatory nature of CPF contributions distinguishes it from the voluntary U.S. 401(k) plan, underlining Singapore's collective dedication to financial security. With its progressive evolution, including options like CPF LIFE annuity, the CPF exemplifies a comprehensive and adaptive approach to securing citizens' futures. In comparison, opting out of voluntary U.S. retirement plans carries substantial consequences, emphasizing the importance of proactive financial planning.

Central Provident Fund (CFP)