Meeting needs of the lower-middle income

THE cornerstone of Singapore's retirement system is the venerable Central Provident Fund (CPF) introduced in 1955 as a compulsory savings scheme. It was later expanded to cover people's needs in housing, health care and investment.

Young workers now contribute 20 per cent of their wages to the scheme, while their employers contribute 16 per cent. These rates apply up to age 50, with most of the money going into the Ordinary Account used to pay for housing needs and which accumulates interest at a guaranteed 2.5 per cent a year. A slice also goes to the Special Account for retirement needs, and the Medisave Account for medical insurance and treatment.

Contribution rates fall beyond age 50 and proportionally more money gets diverted to the Medisave Account. The Medisave and Special Accounts currently pay about 4 per cent interest a year. Slightly more interest is earned for people with lower sums in their accounts.