Chart of the Day: Here's proof that 2013 CPF-to-household debt ratio almost hit a historical high

January 2014 total CPF reached $255b.

According to Barclays, Singapore’s Central Provident Fund (CPF) is a comprehensive social security savings plan, for which part of the savings can be accessed to fund a housing downpayment or repay mortgage debt.

As of January 2014, total CPF amounted to S$255bn or 25% of system deposits. Meanwhile, the CPF-to-household debt ratio reached 91% in 2013, close to the historical high of 94%.

Here's more from Barclays:

Working Singaporeans and their employers make monthly contributions to CPF and Singaporeans can withdraw from the fund after they reach 55 years of age.

The monthly contribution initially goes into three accounts, namely Ordinary Account (OA), Special Account (SA) and Medisave Account (MA).

In order to increase the potential return of CPF funds, the balance in the OA is allowed to be invested in capital market and various investment schemes, as well as repay housing loans.

If the funds are not invested elsewhere, they can earn a 2.5% interest rate or the prevailing market deposit rate, whichever is higher.

As the risk free return on funds in OAs at 2.5% is currently higher than the mortgage rate in Singapore (1.3-1.5%), this interest differential has fuelled the rapid rise and reliance on mortgage debt over the past six years.

In the event that mortgage rates rise to a level higher than the return on OA funds, we believe households will more heavily rely on CPF to repay outstanding mortgage debt and provide some relief to debt servicing ability.

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