Monday, May 10, 2010

The Long Shadow of Ideology — An Examination of the Political Thinking Behind Singapore’s CPF Scheme

What follows below is a reproduction of a term paper I wrote for my "Politics of Social Policy" module.

Last year, in 2009, two new schemes were introduced by the Singapore government. One was the Central Provident Fund Lifelong Income Scheme For The Elderly (CPF Life) while the other was the Lease Buyback Scheme.

Officially, the reason stated for why the first scheme was introduced was that, in light of the increasing life expectancy of Singaporeans, a new scheme, in addition to the existing CPF scheme which only provided maximum twenty years of payouts, was necessary to provide lifelong income for the elderly in Singapore following their retirement.[1] As for the second scheme, it was touted as an additional option “to help low-income elderly households in 3-room and smaller flats to unlock part of their housing equity while continue living in their homes, and receive a lifelong income stream to supplement their retirement income”.[2]

However, while not discounting the validity of the officially stated reasons, this paper will argue that there exist also other unstated factors which motivated the Singapore government’s decision to introduce these two schemes.

Specifically, this paper will argue that previous modifications made to the CPF scheme, combined with the political ideology of the Singapore state towards social or welfare policy, have rendered the CPF scheme inadequate in catering for the welfare of elderly retired Singaporeans. This thus resulted in the decision to introduce the CPF Life scheme and the Lease Buyback Scheme as a means to compensate for the inadequacy of the CPF scheme. This paper will further contend that these compensatory measures do not however mark a departure from the long-standing state ideology in Singapore towards social or welfare policy.

In doing so, this paper aims to highlight that while there may be exceptions to the case, a country’s social or welfare policies are rarely formulated in a vacuum or purely due to considerations about the citizenry’s welfare. Instead, these policies, perhaps similar to all other public policies, are often, if not always, formulated by policymakers who may be more inclined towards a particular ideological worldview and this will most likely shape, if not determine, the policy output. Indeed, in some cases, some viable policy options are prematurely excluded due to ideological biases amongst policymakers.

Hence, accordingly, in the first section of this paper, a brief overview of some of the main characteristics of the CPF scheme will be provided. Next, in the second section, there will be a discussion of what aspects the CPF scheme has arguably been successful in. As for the third section, attention shall be put on examining the deficiencies and inadequacies of the CPF scheme as a fund catering to the welfare of post-retirement elderly Singaporeans. And in the fourth section, this paper will posit a link between the Singapore state’s ideology towards social or welfare policy and the design of the CPF scheme. This will then be followed by a discussion of what measures the Singapore government has recently implemented, specifically the CPF Life scheme and the Lease Buyback scheme, to compensate for the inadequacies of the CPF scheme and how these measures remain grounded firmly in Singapore’s overall stance towards social or welfare policy.

Singapore’s CPF Scheme – a brief overview

Singapore’s CPF scheme started off originally in 1955 as a basic saving scheme for retirement purposes, “with 5 per cent of wages contributed by the employee with a matching 5 per cent by the employer, to be withdrawn at 55”, under the British colonial government situated in Singapore.[3]

However, after Singapore gained independence in 1965 under the political leadership of the People’s Action Party (PAP), the CPF scheme was expanded into a compulsory savings scheme that had, until the mid-1980s, steadily increasing contribution rates from both employees and employers (the reason as to why contribution rates stopped their steady increase in the mid-1980s will be discussed later); notably, before CPF contribution rates started to drop in the mid-1980s, they reached a high of 25% of an employee’s wages contributed by both employees and their employers.[4] Currently, CPF contribution rates varies mainly according to an individual’s age with, taking the example of a local private sector employee, the total contribution rates being 34.5% of one’s wages for those aged 35 and below and tapering off to 10% for those aged above 65.[5]

In addition, while the CPF scheme was originally designed to cater only for an individual’s post-retirement needs, modifications have, since 1968, been introduced over the years to expand the range of purposes for which an individual’s CPF funds may be used for. Specifically, an individual’s CPF funds, given that he or she has enough surplus funds in his or her CPF account on top of the mandated minimum set aside for post-retirement needs, may be used to finance the purchasing of public housing, education fees, healthcare and, for some, private investment.[6] This expansion in the range of purposes for which an individual’s CPF funds may be used for would, as shall be evident later in this essay, however undermine the CPF scheme’s utility as a retirement fund.

Furthermore, as shall be discussed in greater detail later on in this essay, the CPF scheme has also taken on the role of being a macroeconomic instrument in the hands of the Singapore government.

The Success of the CPF Scheme

One aspect which many observers most often cite as being a significant success of the CPF scheme would be that it was through this scheme that many Singaporeans were and are able to finance their purchasing of local public housing. The result of this is that, in contrast with other countries where homelessness or slums are perhaps prevalent, public housing in Singapore is “Home to more than 80% of Singaporeans, with 95% of them owning their HDB flat”.[7] This, as analysts have observed and which Singapore’s political leaders do not deny, has in turn contributed not only to the political legitimacy of the Singapore state but also towards maintaining social stability and spurring economic growth, not least because the scheme provides the state with significant amounts of funds which may be used for developmental purposes, in Singapore.[8]

Similarly, as was mentioned above, the CPF scheme has also arguably been a key component in the financing of Singaporeans’ payments for tertiary education tuition fees and healthcare bills through the complementary scheme of Medisave.[9]

In addition, in light of how the CPF scheme is based on a model of compulsory savings by employees through mandating that they set aside a portion of their monthly wages to be deposited into their individual CPF accounts, the Singaporean state has managed to avoid the need for large government expenditures to provide for its citizenry’s post-retirement welfare. Some have also touted this emphasis on self-reliance inherent within the CPF scheme as positively contributing towards the preserving of Singaporeans’ work ethic, through keeping “welfarism” at bay, and the reinforcement of “the Confucian tradition that a man is responsible for his family – his parents, wife and children”.[10]

Deficiencies of the CPF Scheme

However, while it is undeniable that the CPF scheme has its positive contributions, much criticism has nonetheless been made against its adequacy as a scheme catering for the post-retirement needs and welfare of Singaporeans.

One key criticism against the CPF scheme that has been made by analysts would be its incomplete coverage. Specifically, it may be noted that while it is mandatory for employees who are Singaporean citizens or Permanent Residents to have a CPF account and to make monthly contributions to it, the CPF scheme however notably does not provide coverage for foreign workers, the self-employed and those who are, for whatever reason, unemployed on a long-term basis.

Here, it is important to note that that as of the end of 2009, there were “1,053,500 foreigners forming 35.2% of total employment”[11]  in Singapore; this will thus imply that at least 35.2% of Singapore’s employed workers are not covered by the CPF scheme. And although self-employed individuals may join the CPF scheme on a voluntary basis, few of them take up this option.[12]  As for those who may be unemployed on a long-term basis, which may be due to a physical incapability to work or because they are women working at home as homemakers, they too are evidently not covered by the CPF scheme. Hence, “those who have no or low income during their working life will have nothing or little in their CPF account to draw upon when they retire”.[13]  “In other words, the CPF does not cover the people in greatest need of social protection”.[14]

Responsibility for the post-retirement needs and welfare of the groups above thus falls primarily on the individuals in these groups to plan and provide for their post-retirement livelihood. While there are schemes and assistance plans catering to those desperately in need of help or were unable to work due to a physical incapability to do so, the amount of aid provided by these schemes and plans is however minimal and applicants for such aid have to meet a set of stringent conditions in order to qualify to receive it.[15]

More importantly, even for those who are covered by the CPF scheme, concerns have repeatedly been expressed about the adequacy of the funds in their CPF accounts to cater for their post-retirement needs and welfare, in light of the extensive pre-retirement withdrawals individuals can make. As was already mentioned above, individuals may draw upon the funds in their individual CPF accounts to finance the purchasing of public housing, further education, healthcare bills and even private investment. This thus, as some observers have pointed out, is most likely to result in the premature depletion of funds in individuals’ CPF accounts that may be used for post-retirement purposes.[16]

Particularly, as a recent study has arguably shown, while it is estimated that only 10% of Singaporeans’ CPF funds are set aside for post-retirement purposes, up to 68% of these funds however may be used to finance the purchasing of public housing.[17]

In response to concerns about Singaporeans depleting their retirement funds prematurely to finance their purchasing of public housing, the Singapore government has repeatedly assert that a public apartment unit is “an asset that appreciates over time in tandem with the growth of the country” and which “can be monetized to pay for expenses in old age”.[18] Two ways which have been suggested that this may be done would be for Singaporeans to either rent out their public apartment unit or to sell it and downsize to a smaller and, hopefully, cheaper unit. Thus, in the Singapore government’s point of view, the purchasing of a public apartment unit with one’s CPF funds “complements, rather than depletes, CPF savings in supporting retirement adequacy”.[19]

However, while the government’s response is not entirely unreasonable, it however is evidently based on the assumption that Singapore’s economy will continue to grow at a rate that will result in the continued appreciation in the value of housing assets; thus, if for whatever reason, Singapore’s economy falters, the value of housing assets will most likely depreciate and will no longer serve as a sufficient source of retirement income.

Also, the government’s response perhaps fails to take into account the fact that in Singapore, public housing is “constructed on land which is only leased from the state. Thus, the ownership rights are incomplete. As the expiry date of 99-year lease nears…, truncated property rights would make it difficult to obtain a reverse mortgage”.[20]  Admittedly, the Singapore government has implemented a new scheme to resolve this dilemma but as will be shown later in this paper, this new scheme is arguably an imperfect one.

In addition, the government’s response arguably also does not take into account the difficulties and the personal or social cost of requiring elderly retirees to sell their houses, in which they may have lived for years, and uproot themselves to a smaller unit which may possibly be in an entirely different locality.

Furthermore, as the government itself acknowledges, individuals may run into financial difficulties that force them to sell their houses before their retirement to settle their debts. In such cases, the question of where individuals would then turn to for the financing of their post-retirement livelihood will be a critical question, especially in light of how most individuals most probably have used up the bulk of their CPF funds to purchase their houses.

Also, as was mentioned above, while the CPF scheme is designed to fulfil the function of a retirement fund, it has however also become a macroeconomic instrument in the hands of the Singapore government. Specifically, it can be noted that in the late 1980s when Singapore plunged into an economic recession, the government introduced cuts to the CPF contribution rates as means of reducing labour costs in Singapore.[21] Since then, there have been several occasions during which the Singapore government made changes to the CPF contribution rates in accordance with the changing economic situation of Singapore.

In essence, the fundamental problem of the CPF scheme is arguably that “that too many objectives… are sought to be achieved through a single CPF instrument. This is inconsistent with the theory of economic policy which suggests that a policy targeted at more than one objective will result in sub-optimal outcomes”.[22]

The Political Thinking Behind the CPF Scheme

Having discussed and examined the various deficiencies of the CPF scheme in the previous section, this paper would now turn its attention to examine Singapore’s stance towards social or welfare policy and how this is arguably reflected in the CPF scheme.

Essentially, it is this paper’s contention that when trying to understand why the CPF scheme, with all its strengths and deficiencies, is designed the way it is, it would be necessary to examine the stance adopted by the political leaders of Singapore with regards to social or welfare policy. This is important because the CPF scheme, as extensive as it may be, is nonetheless just one component of Singapore’s overall system with regards to providing a social safety net for its citizens. Hence, an examination of the Singapore government’s stance towards social or welfare policy in general would serve to provide crucial insight into the CPF scheme.

Thus, in light of the above, it may be noted that, generally speaking, Singapore’s stance towards social or welfare policy is one of “anti-welfarism” or anti-welfare dependency. Specifically, it is Singapore’s stance that in the “balance between unconditional welfare and self-reliance”, it will base its approach on the “time-tested values of hard work, self-reliance, family responsibility and community support for those in need”.[23]  And was mentioned above in the second and third sections of this paper, Singapore is highly concerned that universal or unconditional welfare will lead to an erosion of Singaporeans’ strong work ethic and thus, in order to prevent this and to ensure that only the deserving receive social assistance, any aid or welfare provided is minimal and only those who are able to meet the different sets of stringent eligibility criteria will receive such aid.[24]

Thus, while the Singaporean approach towards social or welfare policy may not totally correspond to the productivist welfare regimes as described by Ian Gough, there is nonetheless arguably a high level of similarity between the Singaporean approach and the productivist welfare regime.[25]

Particularly, in Singapore, social policy is arguably “subordinated to the dominant economic policy of maintaining high rates of economic growth”, in light of how cuts were made to CPF contributions during the economic recession of the 1980s. It has also “largely been driven by the imperatives of nation-building and regime legitimation” when considering the original political motivations of Singapore’s political leaders in allowing CPF funds to be used to finance the purchasing of public housing.[26]

Hence, when placed in the context of Singapore’s overall stance towards social or welfare policy, it is clear that the CPF scheme is largely a reflection of the “anti-welfarism” stance adopted by Singapore.

CPF Life Scheme and Lease Buyback Scheme – Old Wine in New Skins?

Moving on, in an apparent acknowledgment of the CPF scheme’s inadequacy, especially with regards to inadequacy of retirement funds in individuals’ CPF accounts and the difficulties experienced by those who have used the bulk of their CPF funds to purchase public housing to convert this asset into a steady stream of retirement income, the Singapore government introduced in 2009 the two new schemes of the CPF Life Scheme and the Lease Buyback Scheme.

In brief, the CPF Life Scheme is essentially an annuity scheme which Singaporeans may enter into with funds from their CPF accounts. After entering into this scheme, Singaporeans will be provided with a monthly payout, depending on which of the four plans offered they chosen, starting from the Draw Down Age stipulated in the plan they chosen until their death.[27]

As for the Lease Buyback Scheme, it allows elderly Singaporeans to sell back the tail-end of the lease of their public apartment unit back to the Singapore state. Besides receiving an upfront lump sum payment for this, Singaporeans entering into this scheme will also receive monthly payouts for 30 years while they continue to live in their public apartment unit.[28]

On the surface, these two schemes will appear to be appropriate responses to the key inadequacies of the existing CPF scheme as was discussed above.

However, if one looks deeper into the details of these two schemes, it would be arguably clear that these schemes are nonetheless still grounded firmly in the Singapore state’s stance of “anti-welfarism” and do not constitute a comprehensive resolution of the CPF scheme’s deficiencies.

Firstly, both schemes are still schemes which emphasise self-reliance over welfare provision by the state. The CPF Life scheme, as was mentioned above, is still dependent on Singaporeans having adequate CPF funds to enter into the scheme. Likewise, a necessary condition to qualify for the Lease Buyback Scheme is that one must possess an eligible public apartment unit which one can sell back the tail-end of its lease. In neither of these schemes are there any direct welfare provisions by the state.

Also, these two schemes do not provide coverage for those who are currently not covered by existing CPF scheme. As was discussed above, this would include foreign employees, the self-employed and those who do not have long-term employment. Hence, the question of social protection for those who have little or no wage income during their working years remains unresolved.

In addition, it may be noted that for the Lease Buyback Scheme, a set of relatively stringent eligibility criteria still applies. Specifically, in order to be eligible for the scheme, individuals will need to be currently living in a three-room or smaller public apartment unit for at least five years, have a gross monthly household income not exceeding S$3000, “must not have enjoyed more than one housing subsidy in the past” and must not have previously owned a four-room or larger public apartment unit or private property unit.[29]  Even with the recent waiving of the requirement that individuals should not have previously owned a four-room or larger public apartment unit, the eligibility criteria nonetheless still remain rather stringent.[30]


In conclusion, it may be seen that the design of Singapore’s CPF scheme, with all its strengths and deficiencies, was largely shaped, if not determined, by the Singapore state’s “anti-welfarism” stance and not by considerations on what would best serve the welfare and interests of the people. Admittedly, it may be argued that Singapore’s stance of “anti-welfarism” is a consequence of the particular circumstances Singapore finds itself in and would best serve the interests of the country and its people in the long term. However, despite the possible validity of the above argument, it remains a fact that such a stance has arguably contributed to significant deficiencies in Singapore’s social welfare system and that improvements would need to be implemented.

The improvements which have been implemented recently however, as was argued above in the previous section, remain firmly grounded in Singapore’s “anti-welfarism” stance and thus may be seen as largely cosmetic changes and not as fundamental changes which can resolve the elemental deficiencies within the system. Fundamental changes thus still remain to be found and implemented. The question of what these fundamental changes would be is however beyond the scope of this paper and is best left to better minds to answer.



[1]Gan 2009
[2]HDB Infoweb 15th March 2010
[3]Lee 2000, p. 117
[4]Asher 1999, p. 3689
[5]CPF website 2009
[6]Asher 2004, p. 2115
[7]HDB Infoweb 6th April 2010
[8]Park 1998, p. 284 and Lee 2000, pp. 116-118
[9]von Eiff, Massaro, Voo & Ziegenbein 2002, p. 192
[10]Lee 2000, pp. 126-127
[11]Ministry of Manpower (Singapore) 2010, p. 5
[12]Asher 2004, p. 2114
[13]Ramesh 1992, p. 1095
[15]The Economist 2010
[16]Asher 2004, pp. 2115-2116
[17]Ho 2010
[18]Balakrishnan 2010
[20]Asher 1999, p. 3689
[21]Ibid, p. 3687
[22]Asher 2004, p. 2115
[23]Eng 2010
[24]The Economist 2010
[25]Gough 2004, pp. 190-191
[27]CPF Board December 2009, pp. 2-4
[28]HDB Infoweb 15th March 2010
[29]HDB Infoweb 15th March 2010
[30]Teo 2010



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“Welfare in Singapore: The Stingy Nanny”. 2010. The Economist. February 13th. Date accessed: 13/2/2010

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