Tan See Leng: CPF Special Account closure not for "saving interest monies"

SINGAPORE: Minister for Manpower Tan See Leng clarified that the closure of the Central Provident Fund (CPF) Special Account (SA) is not intended to enable the Government to save on the higher interest it pays to account holders.

Dr Tan, also serving as the Second Minister for Trade and Industry, addressed Parliament on Wednesday (28 Feb) in response to a question from Mr Leong Mun Wai, Non-constituency Member of Parliament (NCMP) from the Progress Singapore Party (PSP).

Following Deputy Prime Minister Lawrence Wong had delivered his Budget 2024 wrap-up speech in Parliament, Mr Leong posed several inquiries.

Mr Leong asked about the additional government payments to SA due to the difference in interest rates between the SA and Ordinary Account (OA).

He also asked whether the government will consider "grandfathering" the SA for Singaporeans who are both 55 years old now going forward.

Mr Wong, also serving as the Finance Minister, stated that he currently lacks specific details regarding the additional amount the Government is paying.

He suggested that this matter can be further discussed during the upcoming Ministry of Manpower's Committee of Supply (COS) Debate.

Reiterating the Government's reasoning behind closing the Special Account at age 55, DPM Wong emphasized that, coupled with the other CPF adjustments introduced, Singaporeans stand to gain enhanced retirement payouts through CPF Life.

"Many commentators out there recognize that CPF life is the best annuity product that anyone in Singapore can get today, " said DPM Wong.

“I think it's important members of the House understand that the closure of the Special Account is not aimed at saving interest monies,” he asserted and mentioned that he would offer a more comprehensive explanation during the Ministry of Manpower's Committee of Supply (COS) debate scheduled for next Monday.

“I don't think that there's any system in the world, any financial institution in the world, any bank in the world, that will pay a long-term assured fixed deposit interest rate but to allow you the flexibility to withdraw like an ATM machine.”

The CPF Board has stated earlier that with the increase in the Enhanced Retirement Sum, over 99 per cent of the approximately 1.4 million CPF members above the age of 55 can transfer all their Special Account savings to their Retirement Account, a point reiterated by Dr Tan on Wednesday.

He also clarified that individuals seeking flexibility after turning 55 can still leave their savings in the Ordinary Account, which they can use for investment purposes if desired.

“(The CPF changes are) not about saving money (for the Government). It is not about locking up money,” Dr Tan continued.

“In fact, if anything at all, (CPF members) at age 70, CPF Board doesn't have any option for members to continue to accumulate."

"If there's such a word, at 70, everyone has to 'de-cumulate'. I hope that clarifies.”

He referred to the oldest age at which the CPF Board allows members to start their CPF Life monthly payouts.

The CPF website states that this is "to facilitate effective decumulation of CPF savings during a member’s lifetime."

CPF members express concerns over retirement planning

Singaporeans aged 55 and above maintain two CPF accounts dedicated to retirement savings: the Special Account and the Retirement Account (RA).

Both accounts now earn a uniform interest rate of 4.08 per cent, surpassing the 2.5 per cent offered by the OA.

The balance will then go into their OA.

Simultaneously, the Government plans to elevate the Enhanced Retirement Sum, the maximum amount eligible for placement into the Retirement Account to receive monthly payouts after the age of 65.

This sum will be increased to four times the Basic Retirement Sum, up from the existing three times.

DPM Wong characterized the adjustment to the Special Account as part of the Government's broader initiative "to rationalize the CPF system."

The Ministry of Finance (MOF) in a statement explained that savings in the SA, some of which can be withdrawn anytime for members aged 55 and older, should not be earning a higher interest rate.

According to the ministry, “As a principle, only savings that cannot be withdrawn on demand should earn the long-term interest rate, and savings that can be withdrawn on demand should earn the short-term interest rate.”

While SA savings up to the Full Retirement Sum will be transferred to the RA, MOF emphasized that these savings will continue to earn the long-term interest rate.

Any remaining SA savings will be moved to the OA, where they remain withdrawable and earn the short-term interest rate.

During CNA’s Ask the Finance Minister show, DPM Wong defended the decision to close the CPF Special Account for individuals aged 55 and older, asserting that it aligns with “the purpose and intent of the CPF.”

Nevertheless, there is growing apprehension among CPF members.

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

Concerns linger regarding the potential consequences of unforeseen government alterations on retirement planning.