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Retirement planning is a crucial pillar of financial stability, yet many of us tend to neglect it in favour of our current aspirations and needs. Consequently, a significant number of people experience inadequate retirement savings, which led governments worldwide to introduce retirement systems to help their citizens save for their retirement needs during their golden years. Among them, Singapore’s retirement system is highly regarded as the top Asian retirement system, ranking consistently among the top 10 globally. Here’s what sets Singapore’s CPF retirement system apart from other prominent non-pension retirement systems around the world. Introduced in July 1955, Singapore’s Central Provident Fund (CPF) is a mandatory social security savings scheme funded by contributions from employers and employees. It serves various purposes, including retirement, housing, and healthcare needs. CPF contributions vary based on age, income, and employment status and are allocated into three main accounts: At age 55, savings from the OA and SA are transferred to the to form the retirement sum. The funds are used to join CPF Lifelong Income For the Elderly (CPF LIFE), a national longevity insurance annuity scheme that provides monthly payouts for the member’s lifetime starting anytime between ages 65 and 70. Established in 1978, the United States’s 401(k) is a retirement savings plan for private sector employees. Employees can designate a portion of their wages to be contributed by their employers to an individual account under the scheme, subject to annual limitations. There are two types of 401(k) accounts: Employees can voluntarily contribute up to US$23,000 (2024 limit), with an additional US$7,500 in catch-up contributions for those above 50, making the total employee contribution limit US$30,500. On the other hand, the combined employer and employee 401(k) annual contribution limit is US$69,000, or US$76,500 for those over 50, which is updated annually. Employees have flexibility in investing their 401(k) balance in various options, including mutual funds, index funds, stocks, and bonds. Early withdrawals before age 59½ would incur a 10% tax penalty plus a 20% mandatory income tax withholding for traditional 401(k) accounts. The 401(k) contributions, unlike Singapore’s CPF system, primarily serve retirement savings and are voluntary, potentially leading employees to opt out of maximising their matching limit. Additionally, unlike Singapore’s CPF system, which provides a guaranteed floor interest rate on members’ savings, the 401(k) allows members the flexibility to invest their savings in a variety of investments with different risk levels. Launched in December 2000, Hong Kong’s Mandatory Provident Fund (MPF) provides retirement protection for its rapidly ageing population. The MPF covers all employees in Hong Kong aged 18 to 64, regardless of their employment status (full-time, part-time, casual, or contract workers). Both employers and employees contribute 5% of the employee’s income, up to a cap of HK$1,500 each. However, only employees earning above HK$7,100 are required to contribute to their share of savings. Additionally, employees can make voluntary contributions of up to HK$60,000, which are tax-deductible. Savings can be invested in any of the 24 MPF funds offered by 12 MPF trustees. These funds include equity, mixed assets, bonds, guaranteed funds, and money market funds, with an overall annualised internal rate of return (net fees) of since the MPF’s inception. The image below depicts the expected range of returns for the different asset classes. Source: Similar to the CPF system, the MPF mandates mandatory contributions from both employers and employees, and restricts withdrawals to the age of 65 (or, in some cases, early retirement at 60 years old). However, like the US’s 401(k), members are required to invest in private funds to generate the returns on their savings, which has a low annualised internal rate of return (net fees) of 2.5% compared to the CPF system, which gives up to 6% interest on member savings. Established in October 1951, Malaysia’s Employees Provident Fund (EPF) helps private sector and non-pensionable public sector employees save for their retirement. Contributions to the EPF vary based on age and income, with employees contributing 11% and employers contributing up to 13% for those below 60. The EPF system also addresses members’ current life cycle needs through three accounts: The government guarantees a minimum 2.5% annual dividend for the EPF, which invests in a diverse portfolio that includes fixed income, equity, REITs, and money market instruments. The latest EPF dividend rate for Simpanan Konvensional in 2023 was 5.50%. The EPF shares certain similarities with the CPF system in that it focuses not only on members’ retirement savings but also on other purposes, such as housing, education, and health. Additionally, although the government guarantees a minimum annual dividend yield of 2.5% on EPF savings, it has historically generated returns ranging between 5% and 6%. Unlike the CPF system, the EPF allows its members to withdraw their savings early in various forms and does not offer an annuity scheme like Singapore’s CPF LIFE scheme, which could guarantee monthly payouts for life. Among various retirement schemes, Singapore’s CPF system guarantees high savings rates and facilitates 100% tax-free accumulation of cash savings through asset-based policies. This includes using CPF savings for home purchases and investing excess savings in various financial products through the CPF Investment Scheme (CPFIS). There are also various government schemes meant to support expenses in retirement. This includes the lease buyback scheme that allows elderly flat owners to sell part of their flat’s lease back to HDB to receive a stream of income while continuing to live in their flat, as well as the workfare income supplement, which provides cash payouts and CPF top-ups for lower-wage Singaporean workers. When planning for our retirement adequacy, we should not neglect our CPF savings, but rather use it as a base to build upon with other strategies.