CPF contribution are allocated first to Medisave Account, followed by the Special Account. The remaining is then allocated to the Ordinary Account. Below is the function of each account:
Funds in Ordinary Account can be used for a wide variety of purposes, but earn a lower interest rate. The savings in Ordinary Account can be used for investments, insurance, education, property and of course, retirement. Special Account can only be used for retirement and some other low-risk investment such as retirement-related financial products. The Medisave Account is primarily used for healthcare and can be used to pay medical care, hospitalization expenses and approved medical insurance.

A fourth account, the Retirement Account will be created upon reaching the age of 55 where savings from both the Ordinary and Special Accounts will automatically be transferred to form the Retirement Sum. Retirement sum is the amount of retirement saving primarily for retirement that will provide member a monthly payout to support a basic standard of living for the next 20 years.

Contribution Rates 

Below is a comparison between the CPF and EPF contribution rate.

In Singapore, all employed Singapore citizens and permanent residents up to the age of 55, earning $750 above, are obligated to contribute 20% of their monthly wage to their respective CPF account every month. The employer, on the other hand, are required to contribute 17% of employees' monthly wage to their CPF account. Those in high age groups (55 and above) contribute at lower rates. This is to encourage employers to retain older workers.

Whereas, in Malaysia, all employed Singapore citizens and permanent residents up to the age of 60, are obligated to contribute 11% of their monthly wage to their respective EPF account every month. Corresponding, the employers are required to contribute an additional amount equivalent to 13% of the employees' monthly wage.

However, for employees who earns a monthly income exceeding RM 5,000 and above, the employers are only required to contribute an additional amount equivalent to 12% of the employees' monthly wage. For employees aged 60 and above, they may opt to continue to contribute to EPF at reduced 50% rate.

Recently, EPF announced that the statutory rate for employees age 60 and below will be reduced from 11% to 8%. For employees age 60 and above, the contribution rate will be reduced from 5.5% to 4%. For employers, the contribution rate will however, remain the same. The changes above will start from March 2016 to December 2017. However, employees are given the option to maintain their EPF contribution rate at 11%.
Contribution Interest Rate

Next, let us take a look at the interest and dividend rate declared by CPF and EPF.
Funds in Ordinary Account earn a guaranteed interest rate of 2.5% per annum while funds in Special, Medisave and Retirement Account earn guaranteed interest rates of 4%. Despite inflation and rising cost of living, the interest rate has remained unchanged over the years.

Members are given a choice to transfer their balance in Ordinary Account to Special Account to enjoy the higher guaranteed interest rate, provided that the balance in the Special Account have not reach the minimum Retirement Sum of $161,000. However, I would not recommend doing so because the Special Account offers lesser flexibility for members to use the funds. Once the saving in the Ordinary Account is transferred to the Special Account, it cannot be transfer back.

Starting from 2016, CPF announced that an additional 1% interest will be paid on the first $60,000 of a member's combined balance (with up to $20,000 from the Ordinary Account). On top of that, members aged 55 and above will also earn an extra 1% interest on the first $30,000 on their combined balance. In total, CPF members aged 55 and above will earn up to 6% interest per year on their retirement balances.

EPF, on the other hand, also guaranteed a minimum 2.5% dividend rate every year, but usually, it is much higher. Despite the poor market performance last year, EPF has declared a 6.40% dividend rate for 2015. Over the past 5 years, the EPF Board has continuously declared above 6% dividend rates to its contributors.

CPF Withdrawals vs EPF Withdrawal

Both CPF and EPF provides various withdrawal options (pre-retirement and retirement) for members to use their savings in their accounts. Please note that the options below only applies to Singaporean / Malaysian citizen or permanent citizen of Singapore / Malaysia.

1. Retirement

EPF

For EPF, pre-retirement withdrawal is allowed. EPF members are allowed to withdraw all their saving in Account 2 upon reaching the age of 50 in order for them to start planning for their retirement. This is 30% of the total savings in the EPF Account. Upon reaching the age of 50, members can either choose to withdraw all the saving or a partial amount in Account 2.

Upon reaching the age of 55, members are allowed to withdraw all their EPF savings from both Account 1 and 2 to fund their retirement. Members can choose to withdraw their savings according the following options.

1. A single lump sum

2. A partial amount and/or transfer a partial amount for monthly payment and/or retain the balance in their account to enjoy the higher interest rates

3. Transfer the entire savings for monthly payments

CPF

Upon reaching the age of 55, CPF members are allowed to withdraw their CPF savings ONLY after setting aside a Full Retirement Sum or Basic Retirement Sum with sufficient property pledge in their newly created Retirement Account.

All the saving from both Ordinary and Special Accounts are automatically transferred to the Retirement Account to meet the Minimum Retirement Sum required. There are two types of Retirement Sum for members to choose from - Full Retirement Sum or Basic Retirement Sum.

Full Retirement Sum

The following Full Retirement Sum applies to members who turned 55 from 1 July 2013 to 2015:

The Full Retirement Sum has been increasing over the years as to combat inflation or rising cost of living. As of 1 July 2015, the Full Retirement Sum is $161,000.

Basic Retirement Sum

If you own a property, you will qualify for the Basic Retirement Sum with sufficient property charge or after you pledged your property to the CPF. A CPF charge is automatically created when member use their CPF savings to purchase the property. The value of the charge is the total amount of CPF savings plus the accrued interest that can be earned from those savings.

The CPF charge is considered sufficient only if it can restore the Full Retirement Sum after the property is sold, transferred or disposed. Members are required to pledge their properties if the CPF charge is not sufficient.

Member can pledge their properties for up to 50% of Full Retirement Sum required, which is $80,500 ($161,000/2). Pledging a property means that when the property is sold, the amount of the pledge have to be refunded to the CPF.


Please note that property to be pledged must have more than 30 years of remaining lease to qualify and studio apartments are not allowed to be pledged. So, if you do not own a property, you will not have much of a choice because you do not qualify for the Basic Retirement Sum.

After setting aside the Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge, members will then be allowed to withdraw any remaining balance in their CPF account. Members who have reached the age of 55 in 2016 are allowed to withdraw based on the following criteria:

Members are allowed to withdraw up to 5,000 even if the Full or Basic Retirement Sum cannot be met. Withdrawal of savings from the RA will be based on monthly payment under the CPF Life Scheme upon reaching the payout eligibility age, which is currently at age 65. Apparently, the more savings you have in your CPF Accounts, the higher the monthly payout will be.

Enhanced Retirement Sum

Starting from year 2016, there is an additional option for members to choose from - Enhanced Retirement Sum. For members who have some spare cash in hand, they can choose to put in more of their money into their CPF Account to meet the Enhanced Retirement Sum, which is currently at $241,000. The good thing about this that you will receive a higher payout upon reaching the eligibility payout age at 65. But the bad thing is members will not be able to withdraw the amount of money they have put in after they have joined. So, I would advise anyone to think carefully before choosing to go for the Enhanced Retirement Sum.

CPF Life Scheme

CPF Life Scheme is a mandatory annuity bought using the savings in the Retirement Account. The Scheme provides members with a monthly payout for as long as they live. All CPF members will be automatically placed on the CPF Life Scheme if they have at least:

1. $40,000 in their Retirement Account upon reaching the age of 55
2. $60,000 in their Retirement Account upon reaching the age of 65

There are two types of CPF Life plans for members to choose from - LIFE Standard Plan and LIFE Basic Plan. So, how much is the monthly payout? The amount of payout vary for individuals, depending on the type of LIFE Plan they choose.

For members who own properties and choose to pledge their properties to CPF, they will receive a monthly payout of $660 to $720. For members who do not own properties or do not want to pledge their properties to CPF, they will receive a payout of $1,220 - $1,320 per month. For members who decided to put in more money in their CPF Accounts to meet the Enhanced Retirement Sum, they will receive a monthly payout of $1,770 - $1,920.

My Thoughts

EPF offers their members more flexibility to choose and manage their own finance. Unlike CPF, the EPF system is pretty much straightforward and relatively easy to understand.  However, the bad thing is there is a possibility that people might mismanage their finance and squander their savings within a few years time. But at least, people get to take responsibility for their own savings.

On the other hand, Singaporeans are 'forced' to set aside 20% of their income every month to contribute to the fund and most people would only get at most $5,000 back before you turned 65. The monthly payment that you will receive upon receiving the age of 65 is probably not enough for you to live a comfortable life, especially in a country where cost of living is forever rising.

How can a monthly payout of $650 to $700 even enough for one to sustain a basic standard of living in Singapore? A monthly payout of $1,220 to $1,320 might be good enough, but the Full Retirement Sum might be a little difficult to meet. Most Singaporeans probably would not have that much savings in their Accounts since most of it would be used on housing.
The government should consider increasing the CPF interest rates rather than keep increasing the Retirement Sum. Obviously, the government guaranteed CPF interest rates are unable to keep up with inflation rate in Singapore.

2. Home Ownership

EPF

EPF members are allowed to withdraw their savings from their Account 2 to buy or build a residential house or a shop lot with residential unit. Members are allowed to withdraw 10% of the property price for down payment or all the savings in Account 2, whichever is lower but not less than RM 500. Withdrawal to purchase second residential house is allowed, but only after the first residential house is sold or disposed.

Please note this option is not available to members who purchase a land or house lot only. Withdrawal is also not allowed when the loan is taken to:

1. Renovate, repair or carry out additional works to the existing house.
2. Purchase third property
3. Purchase non-residential property
4. Overseas property
5. Taken an overdraft loan

In addition to that. members are also allowed to use their savings to:

1. Reduce or fully settle the housing loan balance
2. Make monthly housing loan installment payments
3. Or both

However, for withdrawal to reduce or fully settle the housing loan balance, application can only be made once a year.

CPF

CPF members are allowed to use their savings in the Ordinary Account to buy or build new or resale Housing and Development Board (HDB) flats and private residential properties in Singapore. The funds in the Ordinary Account can be used to pay the purchase price of the property and/or service the monthly loan installment taken to buy the property. It can also be used to pay the stamp duty, legal fees and other related costs.

Members who have used their CPF savings to finance their properties are required to refund the principal CPF amount that was withdrawn from their account and the accrued interest which they would earned to their CPF Account. For those who have pledged their property to withdraw their savings in the Retirement Account, they are also required to refund the pledged amount to their Account once the property is sold.

3. Healthcare

EPF

EPF members are allowed to withdraw savings from Account 2 to pay for medical expenses incurred for the treatment of critical illnesses and/or to buy medical aid equipment approved by EPF Board for yourself, spouse, children (including step children and legally adopted children), parents (including step parents), parents-in-laws and siblings. Members can withdraw all the savings in Account 2 or the actual medical cost, whichever is lower.

In the case where members become physically or mentally unfit to work, they are allowed to withdraw all the savings in both Account 1 and 2.In addition to that, they are also eligible to receive an one-time incapacitation benefit from EPF amounting RM 5,000.

CPF

Part of the monthly CPF contribution is allocated in the Medisave Account, which is basically a national medical savings scheme that help members to save for future medical and hospitalization expenses. Medisave can be used at all public healthcare institution and approved private hospitals and medical institutions, up to the respective Medisave withdrawal limits.

Medishield Life is a compulsory all-inclusive health insurance scheme that provides lifetime coverage for all Singaporeans and permanent residents. All Singaporeans and permanent residents will be automatically covered under Medishield Life and premium will be paid from member's Medisave Account.

Besides Medisave and Medishield Life, CPF members are allowed to withdraw their CPF savings on medical grounds.Withdrawal is allowed if the member is physically or mentally unfit to work, suffering from an terminal illnesses or have a reduced lifespan. Members can withdraw up to $5,000 or savings after setting aside a reduced Retirement Sum and will receive a monthly payout (minimum $450) from the Retirement Account until the account is exhausted.

4. Education

EPF

EPF members are allowed to withdraw the savings in Account 2 to pay for their own, children (including step-children or legally adopted children) tuition fee at an approved Institute of Higher Learning either locally or abroad. Your children must undertake a course at Diploma, Advanced Diploma, Bachelor Degree, Master Degree, Doctor of Philosophy or equivalent.

CPF 

CPF members are allowed to withdraw the savings from the Ordinary Account to pay for their own, children, spouse or relatives' subsidized tuition. However, only approved full time subsidized diploma/degree courses conducted locally at the approved institutions are covered under the Education scheme. Diploma/degree courses conducted locally but awarded by foreign institutions will not qualify for the CPF Education scheme.

The CPF Education scheme is actually a loan scheme where member can take up a loan with their own CPF Account. The student supposed to repay the principal amount withdrawn plus any accrued interest in cash to the CPF Account, one year after graduation or termination of studies whichever is earlier.

My Thoughts

So, instead taking up an education loan with commercial banks, you will getting the loan with CPF. All you just need to have sufficient savings in the Ordinary Account and Available Withdrawal Limits. But the funny thing is that you will have to repay your own or your parents' CPF Account when you are using your own money and with interest charged. I believe most parents would not charge their children any interest if they would like to borrow some money from them. So, why is CPF charging their members interest when they are using their OWN money?

Well, CPF might argue that the withdrawal will cause the member to 'lose out' since they are not able to earn the 2.5% fixed interest for the money taken out. This will result the member to have lesser savings in their accounts for retirement. Thus, it is logical to ask the student pay the loan amount plus all the accrued interest back. This is just to ensure that the CPF member has sufficient funds for retirement.

Well, the good thing about the CPF Education Scheme is that you do not need a guarantor in order to secure a loan from CPF. The interest rate charged by CPF is also lower than the rate charged by the banks.

5. Leaving The Country

EPF

Malaysian citizens or permanent residents who have renounced their citizenship and and planning to migrate to another country are allowed to withdraw all their savings in their EPF Accounts. Foreigners who have ceased employment and wish to return to their country of origin are also allowed to withdraw all their savings in the EPF accounts under this option.

CPF

Whereas, in Singapore, Singaporean citizens or permanent residents who have renounced their citizenship are ONLY allowed to withdraw their savings in full if they are about to leave or have left Singapore and West Malaysia permanently with no intention to return to either country for employment or residence.

Those who intend to reside in West Malaysia after they have renounced their citizenship are only allowed to withdraw if they are 55 years old and above, below 55 but above 50 years old and have not worked in Singapore for the last two years or physically or mentally incapacitated. The restriction does not apply if you are residing in the East Malaysia.

Conclusion

Click here is a quick summary of the differences between the CPF and EPF systems.

I would not say which is the better systems as there are flaws in both. However, it is apparent that both the CPF and EPF will not be enough for most people to live a comfortable life after retirement. Most people would have used a large part of their savings for housing. Thus, I would like to emphasize the importance of personal savings. It is never good enough to rely on your CPF or EPF savings for retirement.

EPF

Comparing to CPF, the EPF actually offers its members more flexibility to use their savings. The high dividend rate declared by EPF Board has helped members to enhance their retirement savings. It is good that the savings in the EPF Accounts can be fully withdrawn upon the reaching the retirement age of 55 since members are given the freedom to choose what they would like to do with their money. But sometimes, too much freedom may not a good thing because there are always possibilities that people might mismanage their finances and squander their savings in just a few years. The flexibility to withdraw will also mean that there will be lesser savings for retirement.

Unlike CPF, the EPF does not offer a medical saving or all-inclusive healthcare insurance scheme to its members. Although public healthcare in Malaysia is heavily subsidized and are made affordable to the Malaysian citizens and permanent residents, it is still important to have health insurance coverage. However, the thing is there are still a high percentage of people who do not have a medical insurance or enough insurance coverage. The inadequate healthcare insurance coverage is worrying because healthcare costs are usually the largest expenses after retirement.

CPF

The CPF system is good in the way that it provides lifelong monthly income to its members upon reaching the age of 65. Most CPF members would not have to worry about their life about retirement.

However, it seems like the government is treating Singaporeans like children who cannot manage their own finances well. The Singapore government should let Singaporeans have more freedom to choose what they would like rather than 'forcing' them to follow their rules.

CPF should allow greater flexibility for its members to use their savings and they should not be asked to pay back the accrued interest for using their own savings. Whatever amount the members withdraw from their accounts, they have to put them back eventually, plus any accrued interest that could be earned over the years. I understand the purpose of this is to make sure that the members does not lose out but it just does not make sense to me. Furthermore, even if the people pay this accrued interest back, most Singaporeans still do not have enough to retire.

The ever-increasing Retirement Sum is also very frustrating and I believe this is not going to stop. Instead, the government should consider increasing the CPF interest rate to help enhance the retirement savings of its members and perhaps, decreasing the interest rate charged for the savings withdrawn will help too.
Overall, it seems that the CPF system might have been 'intentionally' complicated to confuse its members. It will be good if the government can make it simpler and less complicated for its members to understand.

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