99% can transfer SA to RA, suggests lack of full FRS in cash for most

by Leong Sze Hian

In a recent parliamentary session on Monday, Minister for Manpower, Tan See Leng, unveiled figures that have ignited a significant conversation about the Central Provident Fund (CPF) and the realities of retirement savings in Singapore.

According to Minister Tan, an impressive 99% of CPF members aged 55 and above are able to transfer their entire Special Account (SA) savings into their Retirement Account (RA), leaving a mere fraction of less than 1% unable to do so.

“In other words, more than 99% of CPF members aged 55 and above today will be able to transfer all their Special Account savings to their Retirement Account to continue to earn the higher long-term interest rate, and receive higher retirement payouts, should they wish to do so,” he stated.

“The number and proportion of CPF members with withdrawable Special Account balances have also increased and will continue to do so,” he added.

However, Minister Tan highlighted a discrepancy with the principle that only long-term savings should earn a higher long-term interest rate, indicating a shift in policy focus.

Dr Tan also noted that nearly 720,000 members with withdrawable Special Account balances — with a median balance of around S$2,000 — may experience “some loss” in liquidity.

Such members have options to mitigate this, including transferring the balance to their Ordinary Account (OA) for liquidity, investing in safe instruments through the CPF Investment Scheme, topping up their Retirement Account up to the raised Enhanced Retirement Sum for higher retirement payouts, or withdrawing the monies to invest outside the CPF system.

He further elaborated that, at the median, the difference in interest earned in OA compared to SA is about S$30 per year.

This disclosure raises poignant questions about the adequacy of retirement savings and the structure of Singapore’s CPF system. At first glance, the statistics suggest a positive scenario where the vast majority of older Singaporeans are well-prepared for retirement. However, a deeper analysis reveals arguably, a more nuanced picture.

The ability to transfer SA savings to RA, up to the Full Retirement Sum (FRS), ostensibly indicates that 99% of those above 55 do not have the FRS in cash. This interpretation aligns with the minister’s explanation of a new initiative to consolidate retirement savings to earn higher long-term interest rates.

While this move appears beneficial in enhancing retirement payouts through better interest rates, it inadvertently highlights a potential liquidity challenge for nearly 720,000 members.

These members, with a median SA balance of around S$2,000, may face a loss in liquidity as their funds may be locked into the RA (if they choose to transfer to the RA), underscoring the delicate balance between long-term savings and immediate financial flexibility.

Encouragingly, the minister revealed that the proportion of active CPF members meeting their FRS by age 55 has improved from five in ten to seven in ten.

Yet, this also implicitly acknowledges that a significant segment of the population remains unprepared for retirement, underscoring the need for ongoing efforts to increase financial literacy and planning among Singaporeans.

Furthermore, the transition of funds from the SA to the RA and potentially to the Ordinary Account (OA), which attracts a lower interest rate, raises critical questions about the principles governing CPF interest rates.

The intent to reserve higher interest rates for long-term savings is understandable, but it also necessitates a broader discussion about the flexibility and accessibility of CPF savings, especially in light of economic uncertainties and varying individual circumstances.