1M65 founder est. S$100k loss in interest from CPF Special Account closure for aged 55+

Loo Cheng Chuan, the founder of Singapore’s personal finance movement 1M65, projects a potential loss of S$100,000 in interest earnings for his account if the Central Provident Fund (CPF) Special Account (SA) closes for individuals aged 55 and older.

Amidst fervent discussions following Deputy Prime Minister Lawrence Wong’s recent announcement to shutter the SA for CPF members aged 55 and older, concerns have emerged among Singaporeans.

Some express lamentation over the discontinuation of the SA, renowned for its higher interest rates compared to the Ordinary Account (OA), and its flexibility for on-demand withdrawals, which exceeds that of the Retirement Account (RA).

Worries persist about the impact of unforeseen government changes on retirement planning.

Online sentiments have reflected disappointment with DPM Lawrence Wong’s CPF adjustments, with criticism centred around perceived “shifting goalposts” impeding early savings access and reduced interest rates for members.

10,000 “mostly negative” messages flood 1M65 Telegram chat after DPM Wong’s announcement

During a recent interview with Singapore state media CNA, Mr Loo disclosed that following DPM Wong’s announcement last week, approximately 10,000 “mostly negative” messages flooded the 1M65 Telegram chat, boasting over 30,000 members.

Mr Loo posits that individuals who are affluent and have access to relationship managers or private bankers remain relatively unaffected by these changes.

“The middle class are the ones that don’t have good investment options out there, that’s why they use CPF as a way to enhance their retirement. And this group of middle class is very sizeable,” he said.

Many individuals, beyond those practising CPF shielding to safeguard their funds from being moved into the Retirement Account at 55, employ the SA as a high-interest savings account, according to Mr Loo.

Those who still maintain savings in the Special Account after the transfer of the Full Retirement Sum to the Retirement Account, continue to benefit from higher interest rates.

Mr Loo acknowledges that the impact of the SA closure has been somewhat mitigated by existing CPF provisions.

Notably, withdrawal rules permit members born in 1958 and later to withdraw up to 20 per cent of their Retirement Account savings (excluding cash top-ups, CPF transfers, and government grants) after reaching the age of 65.

Assuming a member has attained the Full Retirement Sum, currently at S$205,800, Mr. Loo estimates that approximately S$40,000 can be withdrawn, including the S$5,000 available after turning 55. This withdrawal provides a source of high interest and high liquidity savings.

“This provides me with some high-interest, high liquidity (savings),” he said.

Additionally, Mr Loo highlights another rule allowing property owners to withdraw any amount from their Retirement Account exceeding the Basic Retirement Sum, excluding interest earned, cash top-ups, and government grants.

This option is available if the property has a remaining lease lasting until the owner turns 95, and the proceeds from selling or transferring the property can bring the Retirement Account balance up to the Full Retirement Sum.

The Full Retirement Sum is two times the Basic Sum as calculated by the Household Expenditure Survey in Singapore.

With this provision, Mr Loo said CPF members have the potential to withdraw around S$100,000, offering an alternative avenue for financial flexibility.

“The rest, you have to use CPF Life to extract it out. It is a very nice compromise because you can get some liquidity out at high interest, and the rest you compound and (it) gives you longevity protection,” he added.

In an interview with CNA, a homemaker expressed acceptance of the closure of the Special Account, acknowledging it as an anomaly.

Concern over potential impact of unexpected government changes on retirement planning

However, she voiced concerns about the potential impact of unexpected government changes on retirement planning.

“I do see that CPF can have a policy risk. I’m 46 now (and) anything can change from now till I reach 65. The amount might change, so many other things might change,” she said.

Dr Paul Ananth Tambyah, Chairman of the Singapore Democratic Party, recently scrutinized DPM Wong’s 2024 budget announcement, emphasizing its impact on individuals aged 55 and above by removing the SA, resulting in a significant drop in interest from 4% to 2.51% in the OA.

He elucidated that this equates to a loss of S$1,500 annually for someone with SS$100,000 in their special account, amounting to nearly SS$20,000 over 15 years due to compound interest.

Dr Tambyah lamented the absence of a satisfactory explanation for this change.

Expressing concern, he highlighted the financial strain on many individuals in the 55-and-above age group, fearing the loss of hard-earned retirement savings.

“We still don’t have an explanation and hopefully the government will do a U-turn on this.”