Singapore's much-vaunted savings rate--and much of the funding for development, particularly public housing--resulted in large measure from mandatory contributions to the Central Provident Fund, as well as voluntary deposits in the Post Office Savings Bank. The Central Provident Fund was set up in 1955 as a compulsory national social security savings plan to ensure the financial security of all workers either retired or no longer able to work. Both worker and employer contributed to the employee's account with the fund. The rate of contribution, which had gradually risen to 50 percent of the employee's gross wage (coming equally from employer and employee), was lowered to 35 percent in 1986. In 1987 new long-term contribution rates were set calling for 40 percent for employees below fifty-five years of age, 25 percent for those fifty-five to fifty-nine, 15 percent for those sixty to sixty-four, and 10 percent for those over sixty-five, with equal contributions coming from employee and employer. A series of transition rates leading to the new long-term rates were first applied in 1988. The contributions were tax-exempt and subject to maximum limits based on a salary ceiling. Beginning in 1986, the government paid a market-based interest rate on Central Provident Fund savings (3.19 percent per year in June 1988).

Every employed Singaporean or permanent resident was automatically a member of Central Provident Fund, although some self-employed people were not. Membership grew from 180,000 in 1955 to 2.08 million in 1989. At the end of 1988, the 2.06 million members of the Central Provident Fund had S$32.5 billion to their credit. That same year, a total of S$2,776 million was withdrawn to purchase residential properties S$9.8 million was paid under the Home Protection Insurance Scheme S$1,059 million was paid under the Approved Investments Scheme and S$13.7 million was withdrawn for the purchase of nonresidential properties.

Each member actually held three accounts with the Central Provident Fund: Ordinary, Special, and, since the mid-1980s, Medisave Accounts. The first two were primarily for old age and contingencies such as permanent disability. The Ordinary Account, in addition, could be used at any time to buy residential properties, under various Housing and Development Board programs, and for home protection and dependents' protection insurance. Two further programs were established in 1987: a Minimum Sum Scheme, which established a base amount to be retained in the account against retirement, and a Topping-up Extension under which, as well as adding to their own, members could demonstrate "filial piety" by adding to their parents' accounts. Since the late 1980s, members could use their accounts to buy approved shares, loan stocks, unit trusts, and gold for investment. Part of the rationale for the latter was to allow Singaporeans to diversify their savings and to gain experience in financial decision making.

Although comparable to social security programs in some Western countries, the Central Provident Fund's concept and administration differed. Rath892 ther than having the younger generation pay in while the older generation withdrew, whatever was put into the Central Provident Fund by or for a member was guaranteed returnable to that person with interest.

Thus, at the individual level, Central Provident Fund savings promoted personal and familial self-reliance and financial protection, an economic attitude constantly encouraged by government leaders. Collectively, the Central Provident Fund savings assured the government of an enormous, relatively cheap "piggy bank" for funding public-sector development the savings also served as a mechanism for curtailing private consumption, thereby limiting inflation. The result, according to some critics, was that the city-state had become overendowed with buildings, with too few productive businesses to put in them. They also noted that the bloated size of the Central Provident Fund (S$32.5 billion in 1988, equivalent to 82 percent of the GDP) was the most important factor behind the unwieldiness of public savings. Some analysts advised that the fund was beginning to outlive its usefulness and should be dismantled and replaced by private pension funds and health insurance plans. As a result, they stated, savings would be channelled to private businessmen rather than to bureaucrats.

Data as of December 1989