It is sponsored by the Government
It is funded through taxes or premium paid by (or on behalf of) participants
It is defined by statute
It serves a defined population
Participation covers most individuals within the society or is compulsory to all
Many western counties, including the UK, finance the social insurance system on a pay-as-you-go (PAYG) basis. In social security, PAYG refers to an unfunded system where current contributors pay for the benefit of the current recipients. No reserves are accumulated in a PAYG system. The opposite of a PAYG system is a funded system, where contributions are accumulated and paid out later when eligibility requirements are met. This is the approach that Singapore has taken. It has a compulsory savings scheme delivered through the Central Provident Fund (CPF). The aim of the project is to explore the distinct features of the Singaporean style of social security provision.
The CPF is essentially a mandatory, public managed defined contribution system based on portable individual accounts, accepting only Singapore citizens and permanent residents as members. Under the defined contribution system, contributions are paid into the Fund by the employer and the employee, and these are invested with the proceeds from the contributions and investments being used to buy benefit schemes.
The then British colonial government launched the Central Provident Fund in 1955, which was based on a national philosophy of self-reliance rather than state welfarism. Initially, this compulsory savings scheme was solely aimed to provide working Singaporeans with a source of income for retirement. Since then, it has gradually evolved into a comprehensive social security savings scheme, which went beyond the scope of retirement support. It now also encompasses home ownership, healthcare needs, children’s education, family protection and asset enhancement.
Singapore became independent from the British rule and the Federal government of Malaysia in 1965. It is enlightening to pay attention to the country’s background at that time. It was a small third world economy with little nature resources. It even relied on Malaysia for water supply. It was a tiny city state with a size merely about 600 km2 and a population of fewer than 2 million. The main ethnic group was Chinese. The State was unable to provide a comprehensive welfare system and it would make sense to expect any policies introduced by Singapore government to reflect the traditional Chinese values, but also heavily influenced by the British ruling history.
The Singapore government inherited the provident fund scheme, and the fundamentals have indeed never changed: it remains a
