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Singapore Budget 2024 closure of CPF Special Account (SA): How will it affect workers aged 55 and above?
Here's what happens to the money in your Singapore CPF Special Account (SA) for those aged 55 and above.
SINGAPORE — In his Budget 2024 speech, Deputy Prime Minister (DPM) and Finance Minister Lawrence Wong announced that the Central Provident Fund (CPF) Special Account (SA) for members aged 55 and above will be closed starting in 2025.
Presently, CPF members who turn 55 will have a Retirement Account (RA) created in addition to the SA. With the closure of the SA in 2025, CPF members aged 55 and above will have three accounts instead of four.
What will this mean for CPF members aged 55 and above?
How will the CPF Special Account (SA) closure be done?
Upon closing the SA, savings in the account will be transferred to the RA up to the Full Retirement Sum (FRS), which is set at S$213,000 for those who turn 55 in 2025 or two times the Basic Retirement Sum (BRS). Any remaining savings in the SA will then be transferred to the CPF member's Ordinary Account (OA). Money in the OA can be withdrawn from when members turn 55, and earn a lower interest rate of 2.5 per cent compared to the RA's 4.08 per cent. Members can then choose to transfer their OA savings to the RA at any time, up to the prevailing Enhanced Retirement Sum (ERS).
Assuming the member is still working at 55 years old, all mandatory CPF contributions that would normally be allocated to the SA will be reallocated to the RA instead, up to the FRS.
What is the new minimum and maximum sum in the Retirement Account (RA)?
The CPF Board uses the retirement sum as a reference point that indicates how much a member would need to save to meet their desired monthly payout during retirement. There are three levels of retirement sums used by CPF, namely the BRS, the FRS and the ERS.
The BRS can be used as a minimum gauge of how much CPF members would need when they retire. According to the CPF Board, meeting the BRS, which is set at S$106,500 for those who turn 55 in 2025, would enable members to receive monthly payouts during retirement to cover basic living needs, excluding rental expenses.
The maximum sum allowable in the RA can be measured with the ERS. It represents the upper limits of allowed CPF RA top-ups and the CPF LIFE scheme monthly payouts. During the Budget 2024 announcement, DPM Wong announced that the ERS will be increased to S$426,000 in 2025, going from three times the BRS to four times.
What is the difference between Special Account (SA) and Retirement Account (RA)?
Essentially, the SA and RA both earn the same floor interest rate of four per cent per annum. However, the differences lie in their functions and the flexibility to withdraw money.
Currently, some SA savings can be withdrawn on demand from age 55, where the amount withdrawable is subject to certain terms and conditions. On the contrary, savings in the RA generally cannot be withdrawn. Any CPF top-ups or savings from the OA or SA that are transferred to the RA are also non-reversible. That being said, members can still withdraw part of their RA savings down to the BRS if they are aged 55 and above and own a property with a remaining lease that can last until the member turns 95. It is also important to note that the withdrawable amount from the RA excludes any interest earned, government grants received and CPF top-ups.
Savings in the CPF SA can be used to invest in various financial products such as insurance, unit trusts, fixed deposits, Exchange Traded Funds (ETFs), bonds and shares that are approved under the CPF Investment Scheme (CPFIS). On the other hand, savings in the RA are meant to provide members with payouts in retirement and, therefore, cannot be used for investing in such instruments. Members are eligible for CPF LIFE payouts by age 65.
What is Special Account (SA) 'shielding'?
The Special Account 'shielding' is a practice of using savings from the SA to invest through the CPFIS in order to prevent the funds from being transferred to the RA when the account is created at 55 years old. This has to be done before the member turns 55, and if the investments are liquidated after the RA is created, the fund can be kept in the SA instead of being automatically transferred to the RA at 55. This move allows the member to enjoy withdrawal flexibility.
Following the announcement of the SA closure for members aged 55 and above in 2025, any investment gains or proceeds from selling the investment will be transferred to the RA or to the OA if the FRS has been reached.
Who will be affected by the CPF Special Account (SA) closure?
Those who have accumulated the Full Retirement Sum (FRS)
When a member turns 55, savings from their SA, followed by savings in the OA, will be transferred to the newly opened RA, up to the FRS. With the closure of the SA in 2025, any excess savings from the SA will be transferred to the OA if the FRS in the RA has been reached. Although the OA earns a lower interest rate than the RA, savings in the OA are withdrawable from age 55, with the withdrawal amount subject to certain terms.
Those who want to increase their savings to meet the Enhanced Retirement Sum (ERS)
For those who intend to receive higher CPF LIFE payouts after 65 and want to earn higher interest rates, consider transferring the savings in the OA to the RA. Members are free to transfer money from their OA at any time, up to the prevailing ERS. However, do note that savings transferred to the RA cannot, in general, be withdrawn.
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