The impact of CPF SA closure concerns beyond interest savings claims

by Leong Sze Hian

The Minister for Manpower, Tan See Leng, clarified in Parliament on Wednesday (Feb 28) that the decision to close Central Provident Fund (CPF) Special Accounts (SAs) for individuals aged 55 and over is not aimed at reducing interest payouts or “locking up money”.

Instead, Dr Tan explained during the Budget 2024 debate; this policy aims to ensure that savings designated for long-term use are appropriately allocated to a retirement-focused account. Scheduled for implementation in 2025, this measure was highlighted in the 2024 Budget announcement by Deputy Prime Minister and Finance Minister Lawrence Wong.

Following this adjustment, SA funds will be transferred to the Retirement Account (RA)—which offers a similar interest rate of 4.08%—up to the Full Retirement Sum limit, with any surplus transferred to the Ordinary Account (OA), which has a lower interest rate of 2.5%. Dr. Tan elaborates that this strategy is intended to secure long-term savings in an account dedicated to retirement, noting that while OA and SA funds are currently accessible to members over 55, RA funds are not.

In response to Minister Tan See Leng’s assertion that closing CPF Special Accounts for those aged 55 and above is not about conserving interest costs or restricting fund access, it’s crucial to examine the implications of this policy change. For those directly affected by these changes, understanding the subtleties beyond the narrative is imperative.

Dr Tan’s comparison of the CPF system to global financial institutions showcases our system’s unique ability to offer fixed deposit-like interest rates combined with withdrawal flexibility. This flexibility, especially for those of us over 55 who meet the Basic Retirement Sum (BRS) criteria, has been a key element of our financial planning.
The recommendation to maintain funds in the OA for greater flexibility, despite its lower interest rate, or to invest in T-bills, which currently offer less than SA’s 4% interest, might miss the core issue. It’s not merely about flexible access but ensuring our funds grow at a competitive rate, vital for our financial security in retirement.

Dr Tan insists the policy change is not meant to “lock up” money or save on interest payouts. Yet, transitioning from SA to RA, with its more stringent withdrawal conditions, prompts questions about our retirement savings’ liquidity and utility. Understanding the government’s intention to direct our savings toward long-term security, the diminished accessibility and potential impact on interest growth remain concerns.

Moreover, the focus on the CPF Life scheme and its post-retirement options, including withdrawal possibilities after age 65 or choosing between the Standard and Basic plans, highlights the complexity of retirement planning.

The potential loss of significant accumulated interest upon death under the Standard plan reminds us to carefully consider our choices. For those affected by the SA removal, deciding between a higher monthly payout and preserving estate value for beneficiaries is critical.

In summary, while I value the government’s efforts to protect our retirement savings, these policy shifts warrant a closer look at their effect on our financial independence and long-term well-being. Balancing adequate retirement funding with the flexibility and growth of our savings is delicate, and these changes may, arguably, seem to skew that balance towards more restrictive fund access and use.