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Impact of CPF’s major reform on Singaporeans’ savings strategy

The CPF reform in Budget 2024 discontinues the SA for those 55+, removes the traditional ‘shielding’ tactic for higher returns and access to their funds and also potentially leading to a loss of higher interest for those who passively manage their CPF accounts.

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by Leong Sze Hian

In his budget announcement on February 16, Deputy Prime Minister Lawrence Wong outlined significant changes to the Central Provident Fund (CPF), poised to reshape the retirement savings landscape for Singaporeans.

Among these changes, a pivotal modification stands out: the discontinuation of the Special Account (SA) for individuals aged 55 and above, set to take effect next year.

This adjustment aims to streamline retirement savings into fewer accounts, specifically the Retirement Account (RA), and to address the redundancy of the SA for those who have reached the age of eligibility for RA creation.

Under the new scheme, funds in the SA will be transferred to the RA to meet the full retirement sum, with any surplus funds redirected to the Ordinary Account (OA), which yields a lower interest rate.

This strategic move by the government will significantly impact how CPF members manage their retirement funds, particularly in terms of interest earnings.

Historically, CPF members employed a “shielding” strategy to maximize their savings’ interest income. By transferring funds to their SA, members benefited from a higher annual interest rate of 4.08%, compared to the OA’s 2.5%.

However, the upcoming changes will render this strategy ineffective for those above 55, as their ability to keep funds in the higher interest-earning SA will be eliminated.

Upon reaching 55, a CPF member’s RA is automatically created, and funds from the SA are the first to be transferred to this account, followed by OA savings if necessary to reach the Full Retirement Sum (FRS), or the Basic Retirement Sum (BRS)

The CPF Board has indicated that over 99% of CPF members above 55—around 1.4 million—can transfer all their SA savings to their RA, suggesting that the SA’s existence beyond this age has become largely redundant.

This reform aims to simplify the CPF system and ensure that retirement savings are efficiently consolidated into accounts that provide stable, long-term growth.

However, it may be good to understand the likely possible implications of the change.

Critically, the cessation of the SA for individuals over 55 could inadvertently result in some CPF members, accruing interest at the OA’s lower rate of 2.5%, if they do not opt to transfer their OA funds to their RA after the SA closure.

Firstly, we may need to note that most members would have met their BRS through their RA, leaving little to no balance in their SA.

This scenario primarily affects those whose retirement planning strategies did not involve actively managing the transfers between their accounts to optimize interest earnings.

It can be well expected that many senior CPF members passively manage their CPF accounts, believing that the CPF system works best in their interest. Consequently, the shift of SA funds to the OA could result in lower interest income for a portion of CPF members, should they decide against transferring their OA funds to their RA following the SA’s closure.

As for those who manage their CPF account, such as those who practice the “shielding” strategy and have met the BRS, they may in a sense, be denied of a long-term, high-interest, low-risk investment option and may opt to withdraw the sum to be invested elsewhere (instead of 2.5% in OA), to avoid transferring their money to the RA.

It is not “the same” to say that after your SA is closed and transferred to your OA – you can always transfer it to your RA, to still get the higher 4.08% interest of your closed SA. Because under the SA, you can withdraw all your funds at any time.

In contrast, under the RA, funds can only be withdrawn as a monthly annuity through CPF Life or the old CPF Minimum Sum Scheme.

Additionally, if you select the CPF Life Standard Default Plan, all accumulated interest from age 65 will be absorbed into the CPF Life pool upon death.

Consequently, most CPF members who wish to leave their accumulated interest to their nominees might opt for the Basic plan, which offers a lower monthly payout, instead of the default Standard plan.

For instance, the accumulated interest lost upon death at age 80, with a Full Retirement Sum (FRS) of S$192,000 (in 2022), could be about S$160,000 (accumulated interest from 65 to 80). For those deferring their payouts to age 70 under the Standard Plan, the relative loss of accumulated interest upon death may be even higher.

And also, for those who opt for the ERS which has just been increased to up to 4 times of the BRS in the Budget – similarly, the accumulated interest lost may be even higher.

Another possible implication of the change may be that there are 249,000 CPF members who have invested $5.8 billion (invested sum – not the current value) from their SA, as of 4Q2023. So, for those who liquidate after age 55, does it mean that the proceeds may be returned to the OA (2.5%), instead of the SA (4.08%) previously?

The removal of the SA after 55 may lead to less interest to those who choose not to have their money transferred to RA from their OA, after their SA closure. For those who choose to transfer to RA – they may arguably, lose the flexibility of withdrawal under the SA after 55, if they have met the BRS.

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U-Turn also possible if gov changed?
🤣🤣🤣

Ah Wong arh. Show us how to survive with $1000 salary and buy HDB. tsk tsk tsk

Can we ask Liang Por Por ?

Who will wants to work for a $1000 salary job, stand for 10hours?
A) Singaporean
B) Myanmar, Malaysian, Indian, Pinoys, Vietnam

Thank you

Does Liang por por knows almost everyone is exploiting the 9% GST increase to increase their prices?

Of course we know who is the final winner.

VTO. tsk tsk tsk

Many Singporeans ar Amazing! 😍
Before CPF SA removed they feel so grateful.
After SA removed, they don’t see any problem also.

It’s Magic…..

Amazing👏👏👏🏆🏆🏆

1M95 is one of the most actively spreading the SA shielding with huge followings. Could it have contributed to G seeing the loophole and plugging it? If not broken why change it?

No Impact based on 60 years track record

First World City. more than 2 million need handouts? tsk tsk tsk

Return all CPF!

We dont want to be called Free Riders !! Xenophobia, etc etc

What do you think cotton lovers, pineapple lovers ? tsk tsk tsk

Singapore is perceived so rich. Yet GST need to hike.
Really amazing People.

I wish to extend my gratitude to Wong for the raised GST which contributes to Inflation. I hope for gst hike every year so that I can again feel grateful for gst rebates every year if possible. This is a mathematical genius invention. The rebates can be funded by cost inflation by way of gst hike. 👍👍👍👏👏👏

Seems like sg become so rich, no need allow the use of SA to accumulate interests for the self employed ,for example , who are not given employer cpf . This is Majulah 🤣

Ah wong arh. we want solutions, not price increase every year.

so many jobs given or taken by foreigners, we all know that. so many foreigners converted to Singaporeans to vote pap we all know that. thank you hor !!!

As I mentioned a long time ago. We should not view CPF as a retirement account any longer, but as a form of taxation. If you have no control over the money, then it is a tax not a retirement fund. No other “developed” country does this because it is a violation of property rights. The money you earned and deposit into your CPF account is your money, your property. The 70% Cotton Sheep Pineapple lovers should ask themselves why the ruling government is continuously restricting access to their own money. Perhaps there is a shortfall that they wish to… Read more »

It’s basically not our money the way they run it. They seem to decide how we run our lives according to their mentality.

Do not transfer fund to your RA from OA. Once in, it is not reversible. In any case, once one has reached 55, you should have paid up your property and upon liquidfy this asset would be way more than 4% of what CPF pays you thru out the period before you reach 55. Many can even get passive income at 55 from asset investment that is way more than mere 4%. Unless you are a dud and had kept all the funds inside to get 4% yield , thereby letting Temasick /GiC make money using YOUR MONEY, rather than… Read more »

To many, whatever bad is still good. Nurtured brains die also won’t change. Psychology always hijacks the logical thinking

It’s basically giving us less and less return from our own hard-earned money.
While on the other side they expect us to work harder and harder …
And enriching themselves more and more!

Last edited 1 month ago by wee

Does this mean cpf policies can keep changing? Is it our money? Or one fine day, can we wake up and realise it’s still or not still out monies?

Ah wong arh, just returned full sum CPF and let us run our business. What do you think? tsk tsk tsk

So at age 55 an above cannot use Special Account to buy HDB flats? tsk tsk tsk

Does the $4,000 skills future help those age 60 and above? tsk tsk tsk

Who will employ ah pek at age 60 and above? Probably security guards? dish cleaners, toilet cleaners? what do you think? tsk tsk tsk

They just want to hold on to your money so that they can control you.

Once the money is transferred from SA to OA, withdraw the money from the OA and
open a fixed deposit account or buy Gov Bills. still earn more than 2.5%

Provided the Basic retirement sum (BRS) has been met.

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