How to Break Free from the CPF System
In 2015, Singapore celebrates its 50th year of independence. Not coincidentally, the ruling People’s Action Party (PAP) also celebrates 50 years of government.
The people of Singapore once had great faith in its government. This government led a third world country to join the developed nations of the first world. This government made each citizen pledge to bring about a nation of happiness and prosperity for all.
There is one promise the government made to all Singapore citizens: while you are working, put aside one fifth of your income into the Central Provident Fund (CPF) and, at age 55, we will return your savings with interest which will last you till the end of your life.
A generation or two of Singaporeans worked under this promise and it was fulfilled. Later generations continued to work under this same promise. Except now, the situation has changed.
Retirement age was once 55 with life expectancy at 60 years old. Retirement was meant to be a short-timed reward for a lifetime of hard work. But when life expectancy increased to age 85, Singapore citizens still expect their CPF to provide them till their last day. And when the promise was, reasonably, not fulfilled, Singaporeans started crying foul.
“We trusted you, PAP, but you failed us!” said the crowds.
The PAP government tried to respond, creating the CPF Minimum Sum Scheme, which held back the retirement payout till age 65, and made it last for 20 years. Singaporeans again cried foul.
“We trusted you, PAP, but you hold back our CPF.”
Worried that 1 in 3 Singaporeans might outlive their CPF payout beyond age 85, the PAP government created the CPF LIFE scheme, which provides Singaporeans with lifetime income from age 65. Once more, Singaporeans cried foul.
“We trusted you, PAP, now you won’t even let us touch our money. Return our CPF!”
There is an obvious solution to this — simply stop being part of the CPF system. The CPF system is mainly for salaried workers and employees. Self-employed persons and entrepreneurs are assumed to have the wherewithal to manage their own finances. Hence, other than the compulsory savings for medical purposes, self-employed persons need not contribute CPF.
The astonishing thing is that many still do. Many self-employed persons see the benefit of the CPF system and voluntarily contribute CPF. Some argue that’s because of the tax benefits. However, salaried employees also receive the same tax benefits from contributing to CPF.
If you know someone does not wish to contribute CPF, simply let them know that they can: “Take ownership of your finances. Do not depend on the CPF system — with its changing rules — to determine your retirement lifestyle. Do not retire at the statutory retirement age, but at the age you determine for yourself.”
It is hard work to be financially mature and truly take ownership of your finances. After all, the PAP government is simply a steward for the people it deems lacks the knowledge or maturity to manage their own finances. If a person can manage their own finances, they would not have to depend on an employer for their income, or so the system seems to reason.
Managing finances is more than having a budget, controlling expenses, and knowing where or what to invest in. It’s also knowing how to create value for customers and to be paid a fair price for it. It is knowing how to create an income for yourself without depending on an employer.
Until and unless Singaporeans take ownership of our finances — which includes generating our own income — we will continue to be dependent on an employer to provide us our salary, and our PAP government will continue to manage our retirement fund.
