What is CPF ?what can CPF be used for?

Did liberalizing CPF to buy property break it as a retirement scheme?

• Almost 20 years ago, CPF(Singapore's state retirement scheme) was liberalized to allow Singaporeans to use it to buy property. Today, 20 years later, with the benefit of hindsight, is it fair to say that this liberalization has broken the original purpose of depending on CPF for retirement? Can Singaporeans afford to retire today with their CPF, particularly if the property market tanks? Was it a policy mistake or was there no better option then? How could it have been done better then? How can it be done better going forward?

• Answer:

  Depends on how you look at it. On the one hand it improved the usability of the Central Provident Fund (http://mycpf.cpf.gov.sg/Members/home.htm) that people were contributing and made the money more accessible without the usual penalties associated with traditional retirement accounts of other countries. The problem ultimately lay in the fact that people were exhausting their CPF and over-extending themselves in the purchase of flats they couldn't normally afford. That lay in the failure of the scheme that there were no safeguards against over extension. In the past this wasn't such a huge problem as housing loans had to be paid in 20 years which meant that there was plenty of time left after the loan was repaid to build up your retirement nest egg. However as loans creep-ed up to 30 years and people spent more on "upgrading" from their first home, that became less and less likely. For example if you talk to folks who have lived and raised their families in only one HDB flat they tend to have more personal savings and leftover balance in their CPF then those that upgraded (though this isn't always the case for professional couples, due to their income curve). But as a pure retirement scheme, the CPF continues to be one of the best in the world due primarily to the fact that you know how much there is in the first place and secondly you know how much you get upon retirement. There is some level of certainty that is lacking in other national retirement programs. The one flaw that I can see is that people who are sophisticated investors are penalised as their own personal rate of return is often higher than the CPF rate and as such they suffer massive opportunity cost over their lifespan.