CPF at 70: A success story built on self-reliance and constant adaptation

Straits Times

07-07-2025

The following is an edited abridged version of a speech by Senior Minister Lee Hsien Loong at the launch of the Central Provident Fund's 70th anniversary commemorative book on July 5.
The CPF story is, at its heart, the Singapore story – one of self-reliance, ingenuity, and constant adaptation.
The Central Provident Fund is older than independent Singapore itself. It was born in 1955, in a very different Singapore. We were much poorer then. Most workers lived from payday to payday. Retirement was a distant luxury, yet an eventual reality that needed to be provided for. The colonial government had a simple and practical idea: If workers could save just a small share of their wages every month, matched by their employers, then over time, they could build up significant savings for when they eventually stopped working. Thus, the CPF was created.
It started off as a simple retirement savings scheme. Along the way, we enhanced and developed it to achieve other related objectives. In particular: To enable home ownership. To help Singaporeans cover some of their medical expenses. And from time to time, when economic circumstances demanded, as an instrument to trim business costs and restore our cost competitiveness.
Retirement adequacy remained the key aim. But even purely from the retirement adequacy point of view, specific CPF policies needed constant adjustment. As the economy grew, incomes rose dramatically. Equally significantly, so did life expectancies. That meant that we had to continually adjust the CPF rules and schemes − sometimes drastically − to ensure retirement adequacy for Singaporeans. This called for some very tough choices.
I once met the late Lord Paul Myners, a British financial expert and UK city minister. He had done a comprehensive review of the institutional investments made by UK insurance companies and pension funds. He explained to me bluntly that with people living longer, there were basically only three ways for them to still have enough for retirement: one, save more while working; two, spend less every month, to make their retirement savings last longer; or three, work longer and retire later. There is no other painless way out.
All countries are confronted with this trilemma. Neither can Singapore escape these choices. But that does not mean there is no way forward. It is still possible to make balanced, practical and politically workable arrangements in these three dimensions, to ensure Singaporeans' retirement adequacy. But we have to design and implement the right schemes and evolve them as circumstances change. And we must bring the public along − get them to understand how these schemes work in their best interests and win their support. That has been the essence of the CPF journey over the past 70 years.
I have been involved in much of this journey, ever since I entered politics, which is more than half of these 70 years. Today, let me share a little on each of these three aspects.
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CPF contribution rates
First, how to save more while working? How much is enough? The contribution rates have to be high enough to enable workers to meet their housing, medical and retirement needs. But at the same time, firms, workers and the economy must be able to afford paying these rates. Firms must still break even, families must still live and put food on the table, and the country must still remain competitive. So how do we balance that?
When the CPF scheme first started in 1955, the total contribution rate was only 10 per cent − 5 per cent each from employees and employers. That was all we could afford.
From the late 1960s, as Singapore's economy took off and incomes rose rapidly year after year, the Government seized the opportunity to progressively raise contributions rates for both employers and employees. So that Singaporeans could set aside more for their housing and retirement needs, and later on for their medical needs.
But it was not a straight-line process. Sometimes we went too far, and we had to cut back the contribution rates when we had overshot or the economic conditions changed drastically.
The first time this happened was in 1985. By then, we had raised the total CPF contribution rate to 50 per cent – 25 per cent from employees; 25 per cent from employers. This proved too high to sustain. The economy suddenly dived into a severe recession. After resisting the decision for many months, we finally concluded that we had to cut the CPF employer's contribution rates, and we decided to do it sharply − 15 percentage points cut from employers. Their contribution rates went from 25 per cent to 10 per cent.
I can tell you it was a very painful decision. Effectively, it was a 15 per cent pay cut for workers. It was the only quick way to restore our cost competitiveness and revive our economy. Fortunately, the unions and workers supported the move. The rate cuts worked, and the economy recovered strongly. In the ensuing years, we gradually and carefully raised the CPF contribution rates.
But we had to repeat this process twice more, and cut rates twice more. Once during the Asian financial crisis in 1997/1998, and again in the early 2000s after the 9/11 terrorist attacks.
It took us until 2015, just 10 years ago, before we finally reached our desired total contribution rate of 37 per cent (now 20 per cent from employees, 17 per cent from employers), which we think is about the right level for the long term.
But this is provided we get the other two strategic decisions in retirement planning right too.
Withdrawal arrangements
This leads to the second key question: How to manage the disbursement of CPF savings during retirement?
This is a delicate matter − because people view their CPF savings as their own hard-earned money. They will always prefer more flexibility on what they can spend it on, and when they can get hold of it.
At first, members could withdraw all their CPF savings in one lump sum, once they reached 55. This was not unreasonable for an era when life expectancy was only around 60.
But as life expectancies lengthened, members who withdrew all their CPF savings at 55 could expect to live for another 20 years or more, into their 70s or 80s. Those who did not carefully husband this lump sum could easily exhaust their CPF savings early, when they still had many more years to live. Withdrawing everything at 55 no longer made sense. Something had to be done.
In 1984, Mr Howe Yoon Chong, who was then the Minister for Health, delved into the matter, and published a report which proposed to raise the CPF withdrawal age from 55 to 60. This triggered an intense public reaction. The Government decided it should take this negative reaction into account, and did not implement the proposal. But the problem did not go away, and we had to continue to look for solutions to the problem.
Eventually, Professor S. Jayakumar, who was then Minister for Labour, proposed the concept of a CPF 'Minimum Sum', which was introduced eventually three years later. When members reached 55, they would keep a 'Minimum Sum' in their CPF, to be spread out in monthly payouts over a period of years. The excess, if any, they could withdraw but the Minimum Sum they have to keep. And then it would be paid out progressively... so much per month, for as long as it lasted. The balance of their savings after putting aside the Minimum Sum and MediSave, they could immediately withdraw at the age of 55. This was a major change, but it was essential to ensure retirement adequacy for CPF members.
We continued to tinker with the arrangements for retirement payouts over the years. The Minimum Sum became the Retirement Sum. Now there are three Retirement Sums – the Basic, Full and Enhanced.
We raised the Retirement Sum regularly to keep pace with rising incomes and cost of living. We also pushed the withdrawals later, to better reflect longer working lives and higher retirement needs. But we still allowed a small part of the CPF savings to be taken out at 55 and also at 65.
In 2009, we took another radical step – we introduced CPF Life, which is Lifelong Income For the Elderly, that converted members' CPF savings into annuities. CPF Life uses risk-pooling to provide members with retirement payouts for life – however long they may live. This was another major improvement to the scheme. In 10 years' time, we expect almost all CPF members turning 65 then to be automatically enrolled on CPF Life.
Retirement and re-employment ages
But after dealing with the retirement disbursements, there was a third piece we had to deal with: How to get people to work longer?
This is a vexed subject in many countries, especially those with state-funded pension schemes. Because there, retirement payouts usually start at the national retirement age. You work, you pay social security. It goes into the pot where other people benefit − the older ones. The moment you retire, you stop paying, you start receiving. So you want to retire early, and receive early. When the government has to push that back – retire later and start receiving later – there is an enormous pushback, huge resistance, sometimes demonstrations, occasionally riots.
We encountered similar pushback when we were pushing for people to work longer and simultaneously delaying the bulk of their CPF payouts. Because to retire at 55, in effect, was too early. And at 55, to withdraw was too early. We had to push both back. It is your own money, but you still wanted it sooner rather than later. Delaying the payouts did not short-change you − the money is there, it is safe, it is earning good CPF interest, but you want to touch it. And so we had a lot of resistance.
But with a lot of hard political work, we did get it accepted. We passed the legislation, we created a national statutory retirement age. At that time, retiring at 55 was not by law; it was just by practice. But we made a statutory retirement age by law, which was 60, and then later on, we raised that to 62. And when we raised it to 62, we also introduced a statutory re-employment age of 65. So in effect, many people now work until they are 65 years old. And in parallel, we shifted the bulk of CPF payouts to start from 65, to align with the re-employment age.
But as we raised the retirement and re-employment ages beyond 65, we decided not to correspondingly delay CPF payments further. Because by now, we had in place the Retirement Sum Schemes − the Basic, Full and Enhanced Retirement Sums − and we also had the CPF Life scheme. This ensured a baseline of retirement adequacy for everyone. We could afford to give Singaporeans more choice and control over their retirement arrangements.
This delinking of the CPF withdrawal arrangement from the retirement age has made it much easier for us to raise our retirement and re-employment ages further, and to encourage workers to work longer. Today, the national retirement age is 63, but many choose to continue working, perhaps in a lighter job, well beyond that. And we are on track to raise the retirement age to 65, and the re-employment age to 70, by 2030.
Key points about CPF system
So, this is how we have, in many complex ways, managed to get Singaporeans to save more while working; managed to re-arrange and pace out their retirement finances in a measured and prudent way; and managed to get people to stay employed longer, achieving both social and economic objectives.
Several key points on this journey are worth highlighting.
First , the CPF's central philosophy of self-reliance remains as pertinent as ever. What you take out depends on what you put in yourself − each person. So in Singapore, each generation funds its own retirement needs. We avoid burdening younger generations with the retirement needs of older generations. The ethos of fairness and personal responsibility fosters the right attitudes towards work, retirement and active ageing.
This is in sharp contrast to countries which have adopted tax-based 'Pay-As-You-Go' pension systems. Because in these systems, retirement benefits are entitlements, paid for not by themselves, but by the next generation of taxpayers.
While self-reliance works for the majority of the population, we recognise its limits for lower-income workers and for those who have not been in the workforce, such as housewives. Hence the Government complements members' own savings with targeted state support for those who need it more. We have built this into structural components of our social safety nets, such as the Workfare Income Supplement scheme, Silver Support Scheme, and tax incentives to encourage voluntary CPF contributions from family members.
The Government also provides additional support − discretionary, but substantial − through generous packages for the Pioneer, Merdeka and Majulah generations, and through periodic CPF top-ups in the annual Budgets whenever the economy does well.
But the basic principle remains: You must try your best to provide for your own future needs. If that is still not enough, the Government will be there to help you. But you must try your best.
Second , each decision and change to the CPF system must be carefully thought through, because it affects the lives and plans of millions of people. The Government must take care to design good schemes that will work for Singaporeans. It must patiently and clearly explain these to Singaporeans, to win their support. In the end, for the whole CPF system to function and to endure, Singaporeans must have faith that the system is sound, and that the rules ultimately serve their best interests.
I am glad that today, public trust in the CPF is very high. People faithfully make their contributions month after month. Many members also voluntarily top up their own and their family members' CPF accounts with cash. Last year, members made 875,000 such tops-ups,totalling nearly $5 billion. Even when members reach 65, a significant minority do not make any withdrawals. They just leave their money in the CPF's good hands. In fact, sometimes people ask, 'Can I add more money into the CPF?', treating it like a savings bank.
It took us a long time to build this trust; we must never take it for granted.
Last lesson learnt: T here is no perfect CPF system. We are in a generally good state now. But as circumstances change – as society's needs and working patterns change, and life expectancies lengthen further − we will have to revisit the topic again and again, to adapt and update the CPF scheme to keep it fit-for-purpose for new generations.
This will be a perpetual process of innovation and adaptation. But that is the nature of many public policy issues. The CPF story is one such government policy. But the same can be said of so many others − housing, healthcare, education, security, and many more. Collectively, these tell the Singapore story too – one of self-reliance, ingenuity, and constant adaptation.