The government’s move to close the CPF Special Accounts (SA) of members who are 55 or older from 2025 has sparked online and offline buzz .

If you’re in your 50s and counting the days to your dream retirement, the news might’ve come as a surprise. Perhaps you even cheekily joked “I think I just spotted a new grey hair!”

Do you feel like your retirement plans have been derailed because of the impending closure of the SA? Fret not! There are still effective ways to keep your retirement plans on track 😊.

Retirement readiness is a major concern

Retirement adequacy is a big priority in Singapore. Singlife’s Financial Freedom Index survey revealed that
 

- S$566,640 is the median amount of savings people need to have in order to feel financial free; and

- 70% are not confident about having the choice to stop working or retire when they want to.  

These figures may be daunting. However, the reality is that being financially free is a key ingredient for a fulfilling retirement, and every small effort you make today will go a long way to achieving that.

Whether you’re a young senior in your 50s or older, you’ll be relieved to know that there are ways to save better towards your desired retirement lifestyle and confidently decide when to kiss work goodbye.

In this article, I’ll delve into the recent changes to the CPF SA and explore various approaches to retirement planning:

• Understanding the CPF SA change
• Reasons behind the controversy
• Three possible scenarios if you have excess SA savings

Understanding the CPF SA change

In his Budget 2024 address, Deputy Prime Minister and Minister for Finance Lawrence Wong announced that starting in 2025, once a CPF member turns 55 years old, their CPF SA will automatically close. SA savings up to the prevailing Full Retirement Sum (FRS) will be used to form the Retirement Account (RA) and any excess flows into the Ordinary Account (OA).¹

The table above shows the interest you can get on SA, RA and OA balances. CPF interest rates are higher than what most banks typically offer for a standard savings account or even fixed deposit. They’re reviewed periodically and have been pretty consistent – something market-driven investment instruments can’t give.

During Budget 2024, the Minister also announced that the Enhanced Retirement Sum (ERS) will be raised from three to four times the Basic Retirement Sum (BRS). For more on Retirement Sums, read this.

Reasons behind the controversy

I’m neither a financial adviser nor an expert on CPF matters, but I get the impression that two things have riled people up after the CPF changes were announced at Budget 2024:

1. No more flexi withdrawals from SA after 55 years

Currently, CPF SA savings up to certain limits can be withdrawn from the age of 55, and members will have both their RA and SA open. With the closure of the SA come 2025, members can no longer make these withdrawals on a whim from age 55.

2. Less interest earned on CPF savings post-55 years

These so-called withdrawable savings I mentioned in point #1 will be channelled into the OA which earns lower interest rates (2.5%) instead of 4% in the SA. Perhaps some members may feel this isn’t attractive.

A well-known CPF hack was to “shield” SA savings from going into the RA where they’re untouchable until a member reaches at least 65 years. Members would invest their SA money via the CPF Investment Scheme months before their 55^th birthday. Then once their RA was created at 55, they’d liquidate their investments and leave the money in their SA for the twin advantage of higher interest rates of around 4% plus the flexibility of on-demand withdrawal.

Clearly, it’s people who have been using this hack to take advantage of the SA’s above-market interest rate and no lock-in period who are most flustered about the changes.

Not all is lost, however.

Three possible scenarios if you have excess SA savings

Now that you understand the recent CPF changes, these are some possible scenarios you may consider if you have SA savings that exceed the FRS when you turn 55 years old:
 

• Scenario 1: Leave the excess that flows into your OA there to earn 2.5% per annum – guaranteed interest, your capital is safe, no action needed
• Scenario 2: Use the excess to top up your RA to the ERS – RA earns 4% per annum and you’ll get higher monthly retirement payouts, but you can’t touch this till you’re 65
• Scenario 3: Withdraw the excess that flows into your OA to invest in private instruments outside the CPF system – potential to earn higher returns but may carry significant risk depending on the product you choose

If you are inclined towards Scenario 3 and looking for a better way to grow your retirement nest egg that gives more than the OA’s 2.5% interest per annum, there’s a host of investment instruments at your disposal, from government-backed Savings Bonds and Treasury Bills to private insurer-provided investment-linked plans and whole life savings plans such as Singlife Flexi Life Income II which gives guaranteed returns and offers yearly payouts.

Conclusion

Many people are concerned about the closure of SA at age 55. The government’s move to close the SA at age 55 is intended to “right-site” CPF savings by ensuring that money meant for retirement needs earns the higher interest rate for long-term savings.

While the closure of SA at 55 is a significant change, it’s not the end of the world, but the beginning of the realisation that you have more options than you previously thought. Take this as an opportunity to reassess and optimise your retirement strategy. With careful planning and the right approach, you can still achieve a secure and fulfilling retirement.

Not sure how to navigate the sometimes complex journey of retirement planning? It might be helpful to have a chat with a professional financial adviser representative, who’ll be able to share expert tips and help you customise a plan based on your unique needs.

^Notes
 

<sup>1. Source: Ministry of Finance, Budget Statement for Budget 2024, accessed on 25 March 2024.

2. Source: Central Provident Fund Board, CPF Interest Rates, accessed on 25 March 2024.

3. Source: Central Provident Fund Board, How CPF Works, accessed on 25 March 2024.</sup>