Recently, it was announced that the CPF Special Account (SA) for those aged 55 years old and above will be closed from 2025 onwards, causing shock amongst many CPF members who didn’t see this coming.

The closure of the SA means that any savings you have in your SA will be moved to your Retirement Account (RA) up to the Full Retirement Sum (FRS) once you turn 55.

This change affects how you manage your retirement funds, especially if you’ve been relying on strategies like SA shielding to maximise returns.

Let’s take a closer look at the implications.

What is the CPF Special Account (SA) vs Ordinary Account (OA) vs Retirement Account (RA)?

We must first understand what exactly is the CPF SA for, compared to the Ordinary Account (OA) and RA.

• The SA is primarily designed to help Singaporeans save for retirement. It’s meant to be a long-term savings account with higher interest rates (~4.05% per annum).
• In comparison, the OA, typically used for housing and education, only yields ~2.5% per annum.
• Meanwhile, the RA is created once you turn 55 years old. The funds here are meant to provide you with payouts in retirement under the CPF LIFE scheme.

Why Are Some Individuals Upset Over the CPF Special Account (SA) Closure?

Currently, the SA remains open after the RA is created, but that will no longer be the case from 2025.

With the new change, all SA savings up to the FRS will be transferred to your newly created RA when you turn 55 years old, which earns the same interest of ~4.05% per annum. For those who have set aside the FRS in the RA, the remaining SA funds will be channelled to your OA.

So, what’s the issue when your RA funds will technically be earning the same SA interest rate (~4.05% p.a) up to the FRS?

Liquidity

Compared to the SA funds which can be withdrawn on demand after you turn 55, monies in your RA are essentially “locked up”.

Only individuals who meet the below criteria can withdraw part of their RA savings up to the Basic Retirement Sum (BRS):

• Above 55 years old,
• Own a property with remaining lease that can last the individual up to at least 95 years old, and
• Expected CPF housing refund (if you have used CPF for property or if you pledge your property) is able to restore the withdrawn amount or your RA to your FRS when you sell/transfer the property in the future.

Even then, the funds withdrawn from your RA excludes all the interest earned, any government grants received, and top-ups to your RA.

The CPF SA closure from the government is based on the principle that short-term savings should receive short-term (lower) interest rates, while long-term savings should earn long-term (higher) rates.

Also, there is no need for two “retirement” accounts (SA and RA) that essentially serves the same purpose.

Say Goodbye to SA Shielding

If you’ve been using the SA shielding strategy to boost your CPF retirement savings, you’ll need to rethink your approach.

For the uninitiated, members above 55 years old were able to preserve significant sums in their SA by investing funds exceeding S$40,000 in their SA before their RA was established.

Upon reaching 55, these investments were liquidated, and the initial capital along with any profits were returned to their SA. This allowed them to enjoy the high ~4.05% per annum interest rate while still being able to withdraw their SA funds on demand.

It was good while it lasted-the closure of the SA marks the end of this tactic.

In fact, SA shielding only benefits wealthier Singaporeans who have surplus funds in their SA. Overall, it’s a benefit to more Singaporeans as it results in a more equitable CPF system from 2025 onwards.

Higher Enhanced Retirement Sum (ERS) in Your CPF Retirement Account (RA)

For those who are bemoaning the loss of your risk-free, high-interest SA, don’t fret.

One silver lining is that the Enhanced Retirement Sum (ERS) in your RA will be raised to four times the Basic Retirement Sum (BRS), up from three times currently.

ERS refers to the maximum amount that Singaporeans can place in their RAs to secure the highest CPF Life payouts.

This means you can have up to S$426,000 in your RA in 2025, leading to higher monthly payouts under the CPF LIFE scheme in future.

4 Tips to Help Navigate the New CPF Changes

The closure of the CPF SA for those aged 55 and above may seem daunting, but it’s an opportunity to reassess your retirement plans and make adjustments.

Consider these four tips to navigate the new CPF changes effectively:

1. Keep Excess Funds in Your Ordinary Account (OA) The easiest way is to simply accept the change and keep your remaining money in your OA. The funds there still earns a relatively decent interest of 2.5% per annum–risk-free and liquid!

2. Explore Opportunities Through the CPF Investment Scheme (CPFIS) Or, given the high interest rate environment now, you’re still able to invest in T-bills, fixed deposits, or insurance plans via the CPF Investment Scheme (CPFIS). This can yield you potentially better returns than the OA interest of 2.5% pa.

3. Withdraw Funds From Ordinary Account (OA) to Invest in Other Products Came across investment opportunities like the S&P500 that aren’t covered under the CPFIS but seem promising?

   You also have the option to withdraw a portion of your funds from your OA to invest in them on your own.

   Be careful though as all investments carry a certain sort of risk.

4. Transfer Funds to Your Retirement Account (RA) up to the Enhanced Retirement Sum (ERS) For those who still want a steady interest rate of at least 4% per annum, consider transferring your OA savings to your RA up to the new ERS amount. You’ll also be able to enjoy higher monthly payouts during your retirement. However, take note that this method is irreversible and the transferred funds can no longer be withdrawn. Only do so if you’re sure you don’t need your monies for other purposes, such as investments or emergencies. Our take? Personally, we think that individuals up to their mid-forties shouldn’t be executing this move. There are better products outside the CPF system that provide greater flexibility and potentially higher returns for those willing to take on additional risks. You can afford to take on these risks as you have a longer runway to retirement. You also never know when the CPF rules might change again as our government continuously tries to help citizens secure their retirement and financial future.

Change is Inevitable

As seen from these big policy changes, we can’t afford to take for granted that the CPF system will remain unchanged forever. But hey, it’s not all doom and gloom. Amidst these changes, there are opportunities to optimise your retirement planning. For instance, the Enhanced Retirement Sum (ERS) increase offers higher CPF LIFE payouts. You can also explore various options such as keeping funds in the OA, utilising the CPF Investment Scheme (CPFIS), or withdrawing funds for alternative investments. After all, the art of life is a constant readjustment to our surroundings.