CPF – is it really bad?

22 year old me is hearing things about CPF that got me curious.

Some questioned our CPF interest rate being too low despite GIC and Temasek Holdings earning huge returns – surely our interest rates could be higher.

Others worry that they cannot withdraw their CPF monies with the increasing minimum sum. Along with the recent ‘Return Our CPF’ protest, I can’t help but to find out what is so wrong with our CPF model.

Is our CPF really such a bad scheme that so many people are unhappy of?

The Ordinary Account (OA) interest rate at 2.5% per annum remains higher than any fixed deposit saving rates of major local banks in Singapore. Consider that it is risk-free, isn’t that pretty reasonable? The money in the OA could also be used to invest under the CPF Investment Scheme if you wish to grow more money at a faster pace.

With longer lifespan and increasing cost of living, it is understandable why the minimum sum increased. We need more money to sustain our retirement to achieve the same quality of living as before. However the increasing minimum sum does make me wonder if it would be achievable in the future.

I was curious about retire and home buying. I did a simple calculation to see how feasible both of these are.

I’ll use the Graduate Employment Survey 2013 for this exercise.

Tthe median basic monthly salary for a fresh graduate ranges from $2.6k to 3.7k, depending on the area of study. Lawyers, doctors and dentists could make $4k – 5k+ for a start, but for the sake of the majority, let’s just take the starting pay of a fresh graduate to be $3000 for simple calculation.

If I were to start work at the age of 23 upon graduation, I would be able to accumulate $44,401.22 in my OA in five years’ time. This is assuming a fixed salary of $3000 for five years and 23% contribution rate (under age 35) to the OA at 3.5% interest rate as it is the first $60,000.

In short, in 5 years, I would have $44k.

Based on the prices of Build-To-Order housing, there is quite a huge difference for a 3-room flat in matured and non-matured estates. The table below are just some prices for the BTO 2013, obtained from the HDB website.




Let’s say in 5 years’ time, the price for a 3 room flat in a non-mature estate increased by 10% to be $175,000 without grants. With the accumulated $ 45,303.37, it would be enough for the 10% down payment.

Without CPF, I really wonder how I can afford that $17,500 and future housing loan repayments.

Of course it will be a lot more expensive if I were to buy a resale flat, or even a bigger flat in a mature estate. If it is just a basic living in Singapore, it is sufficient.

Also, with simple calculation, even with a fixed salary of $3000 (and never getting a raise ever), I would have $ 371,948.73 at the age of 55. If I were to keep working and continue contributing to the age of 65, I would have at least $510,278.21 in my CPF account.

Surely the minimum sum can be achieved.

Based on recent statistics from the CPF board, more people are able to achieve the minimum sum now. The proportion of active members meeting the required minimum sum has increased since 2009 and 50% of them are now able to meet the minimum required sum.




Furthermore, a study done by two NUS academics, Dr. Chia Ngee Coon and Dr. Albert Tsui, showed that about 70-80% of the new entrants to the workforce would be able to meet the Minimum Sum.

People who are unable to achieve the CPF minimum sum are usually those who left the workforce after childbearing, or other reasons. The other group who are unable to meet it would be the people of the older generation where their wages were very low. In consideration of the second group, the government has the Pioneer Generation Package catered to them.

There is also an additional 1% of interest rate for the first $60,000 in the OA to grow our CPF monies faster. For those low income earners, a component of Workfare also contributes to the CPF.

It looks to me like everything in place!

The government is trying to help everyone to meet the minimum sum for retirement and everything looks alright.

The CPF model is indeed a little complicated with all its different features. On top of retirement planning, its uses for housing needs, healthcare and even education makes it unique and incomparable to what other countries have.

It’s just a contribution that results in a smaller take-home pay, they say. It’s for retirement planning and we’ll see about it in the future. Many remain status-quo as they cannot exactly opt out of CPF anyways.

It is complex, but it is also a good savings device that allows you and your employer to put aside some money for the future. Surely I will appreciate it when I retire.






  1. Hi Yvonne
    A good analysis. How many can think like you. Actually, CPF was meant for retirement only. But with pressure from population and housing prices running up, it was opened to housing loan. Purely for retirement, it would have accumulated a healthy sum.

  2. Good work, Yvonne!
    However, you mentioned that there is also an additional 1% of interest rate for the first $60,000 in the OA to grow our CPF monies faster. This is incorrect as it only applies to the first $20,000 in the OA. And the extra 1% interest earned will be credited to the member’s SA account and not to the OA account. Sorry to rain on your parade.
    God bless you.

    Patrick Lim
    FA Director/Managing Partner
    Promiseland Independent Pte Ltd

  3. I would like to know how many Singaporeans graduated from university and can command a starting medium salary of $3K? Therefore your calculations is flawed in the beginning.

    Furthermore, based on your calculations that having half a mil upon retirement at the age of 65 years old after in the work force for more than 40 years, if you factor in inflation, half a mil is insufficient for retirement, minimum sum notwithstanding. If you factor in the amount you will need to purchase a HDB flat, your remaining funds inside CPF will be much lower than what you have calculated. Of course, no one expects to remain holding to a job of paying only $3K, but there are still a lot of Singaporeans, whose job does not even pay up to $3K.

    As for whether CPF is bad or not, I agree with you that having a CPF is better than not having a CPF. Singaporeans do not have any other safety blanket for retirement, unlike some other countries, where the government already factor in schemes like pension funds, etc.

    But you are also missing the critical point in the ongoing saga about CPF. More transparency over how the government is investing the people’s money and how the interest rates are being derived, as well as protesting against raising the minimum sum are the key points. Until now the government has not provided the full picture back to the citizens.

    1. “I would like to know how many Singaporeans graduated from university and can command a starting medium salary of $3K”

      I did.

  4. Patrick – Crediting the extra 1% interest to SA is advantageous for retirement savings because it will compound at a higher interest rate. Within the first five years, the difference is <$1K anyway.

    Yvonne – The bigger problem is that you don't seem to have taken any withdrawals for housing into account. Otherwise you cannot reach $500K in OA at 65. But then of course the conflation of retirement savings and housing "investment" is one of the original sins of the CPF system ;-)

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