III. Various schemes under the Fun


Three schemes—Medisave, MediShield and MediShield Plus—help CPF members and their dependants pay for hospitalization expenses. A portion of a member’s monthly CPF contributions is deposited into his Medisave Account. It ranges from 6 percent to 8 percent of this wages, depending on his age.3 To provide for healthcare in retirement, members must retain $16,000 in their Medisave Account when they withdraw their CPF at 55.

Started in 1984, the Medisave scheme can be used to pay for members’ or their dependants’ hospital expenses at government restructured or approved private hospitals. Members can also use their Medisave savings to pay certain outpatient treatment expenses including those incurred for Hepatitis B vaccination, radiotherapy, chemotherapy, thalassaemia treatment, assisted conception procedures, renal dialysis and registered anti-retroviral drugs for AIDS/HIV.

In 1990, MediShield was introduced as a low-cost medical insurance plan for members and their dependents that are Singapore citizens or permanent residents. It helps to meet hospitalization expenses and the high costs of prolonged illnesses. Presently, for as low a premium as $12 a year, an insured person can claim up to a yearly limit of $20,000 and a lifetime limit of $80,000. The annual premium is deducted automatically from the member’s Medisave Account, unless he decides not to be insured. MediShield Plus is similar, but the claims and premiums are higher. It allows members to stay in the more expensive wards.

Home Ownership

When the Home Ownership for the People Scheme was introduced in 1964, it was not very popular. It was only after the PAP government had introduced legislation in 1968 to allow citizens to use their CPF contributions to purchase HDB flats that the demand for public housing increased. In sum, without the PAP’s government’s support for, and intervening in, public housing, the housing crisis in Singapore would not have been solved.

When the Public Housing Scheme was launched in 1968, it was to help average Singaporeans buy government-built flats in large housing estates. Initially, members could use only a portion of their CPF to finance HDB flat purchases. Gradually, the scheme was liberalized and the entire cost of the flat could be paid for with CPF funds in the Ordinary Account. From 1981, CPF savings could be used to finance the purchase of private property.

The CPF devised two schemes—the Public Housing Scheme and Residential Properties Scheme—to assist members in purchasing homes.

The Public Housing Scheme applies only to HDB flats, either new or resold by existing owners. Members can make a lump sum payment from their Ordinary Account, pay in cash, or apply for a loan from the HDB and pay the monthly installments with future CPF contributions. If members sell the property, they need to refund the principal amount withdrawn plus interest to their Ordinary Account. This ensures members of adequate savings for retirement.

The Residential Properties Scheme covers all residential properties in Singapore built on freehold land or with a lease of at least 60 years remaining. Members can use their Ordinary Account savings to buy the property. As with the Public Housing Scheme, members who sell their property must refund the principal amount withdrawn plus interest to their Ordinary Account.

The success of the home ownership schemes is evident from two facts. First, the scheme has made home ownership a widespread phenomenon in Singapore. Today, nine out of ten Singapore families own the homes they live in. Most of these are HDB flats that the residents have purchased through the Public Housing Scheme. Second, many members’ first homes have enhanced their rate of wealth accumulation. Because of the buoyant property market for a large part of the 1980s and 1990s, members have been able to trade their government-built flats for better housing.

For majority, the need to meet the monthly payment is not even part of their conscious budgeting. That it will be paid is taken for granted because it is deducted at an anonymous bureaucratic distance from their CPF accounts. Indeed, the CPF device for financing home ownership may have succeeded a little too well, judging by the relative unconcern with which Singaporeans spend on decorating their HDB flats and private condominium.

Family Protection

CPF members are allowed, indeed encouraged, to use their savings not just to take care of their own needs but also those of their immediate families. The CPF offers two insurance schemes to give members and their families’ financial protection against the unexpected. This is in addition to the member’s own CPF savings.

The Dependent’s Protection Scheme is a term-life insurance scheme that covers members up to 60 years of age. Should the member die or become permanently disabled, his family will receive some money to tie them over the first few years. The annual premiums range from $36 to $360, depending on age. The maximum sum assured is $36,000. All CPF members who are under 60 and making CPF contributions are automatically included in the scheme unless they opt out.

The Home Protection Scheme offers protection to CPF members and their dependants from losing their homes should the members die or become permanently incapacitated before the housing loans are paid in full. The premium is a one-time payment, and coverage is up to 60 years of age. All members who are using CPF savings to pay the housing loan installments on their government-built flats must be insured.

D. Asset Enhancement

Over the years, a variety of investment schemes have been introduced and expanded to help Singaporeans secure a better future. These include a host of investment opportunities involving shares, commercial properties, gold and even education.

The CPF Investment Scheme (CPFIS) has evolved from what was originally known as the Approved Investment Scheme, launched in 1986. Today, under the CPFIS, members can invest their CPF savings after setting aside the Minimum Sum. The instruments available under the scheme include fixed deposits, trustee shares and loan stocks, endowment insurance policies, fund management accounts, unit trusts, Singapore Government Bonds, non-trustee shares and loan stocks, and gold.

Popular interest in shares and stocks-investment can be traced back to the 1992 National Day Rally when Prime Minister Goh Chok Tong announced the government’s intention for Singaporeans to increase their assets and become a nation of shareowners. The government also planned to give the people a larger stake in the nation. Towards this end, it planned to privatize and float major profitable government organizations such as Singapore Telecom, the Mass Rapid Transit, and the Public Utilities Board’s electricity and gas services. Shares in these companies would then be sold to Singaporeans. As Prime Minister Goh told the people: "The aim is to let you build up your assets—giving you title, paper, personal ownership of as many of these assets as is practical." (Quoted in The CPF Story)

To accelerate the process of share ownership, the government implemented the Share Ownership Top-Up Scheme in 1993. It gave $200 to every Singaporean aged 21 and above who had contributed $500 to his CPF account during a six-month period. With the money, members could buy Singapore Telecom shares at a discount. Singaporeans who did not have a CPF account could open one, while those with dormant accounts could reactivate them by depositing $500. Parents could open it for their children aged 21 and above, husbands for non-working wives, and children for their retired parents. As a result, 1.4 million Singaporeans became shareholders when Singapore Telecom was first floated in 1993.4

Aside from the Investment Scheme, other plans have been devised to enhance members’ assets. The Non-residential Properties Scheme allows CPF members to buy commercial properties in Singapore, including office premises, shop units, factories and warehouses. As investments, commercial property can offer good returns in a buoyant market.

The Education Scheme enables members to finance their own or their children’s tertiary education. This loan scheme covers all full-time degree and diploma courses at the local universities and polytechnics. Members may use up to 80 percent of their CPF balances in excess of the Minimum Sum or the remaining portion of the Ordinary Account, whichever is lower. The student must repay the loan plus interest to the account from which the funds were drawn, beginning one year after graduation. This can be a lump sum or by installments over 10 years.

From December 1, 1999, CPF members can do less investing in individual shares on their own, but will be encouraged to invest more of their savings through fund managers. The new rule allow a CPF member to invest only 50 percent – not 80 per cent as was the case – of his investible funds in individual stocks. However, there is no limit when the savings are invested in unit trusts, fund management accounts, insurance policies, statutory board bonds and bonds issued and guaranteed by the Government.

One of the objectives of this move is to help reduce the risk exposure of these savings meant for old age needs, as figures show that only about one in five CPF investors mad money last year.