Budget 2024 – How Does the Closure of Central Provident Fund (CPF) Special Account (SA) Affect Me?

In the recent Budget 2024 (Feb 16), Prime Minister Lawrence Wong announced that when CPF members turn 55, their SA will be closed from early 2025.

You must be thinking

“So what is the big deal?”

“Huh? I’m not even 55, does it concern me meh?”

“All these CPF terms are confusing me lah! I don’t want to think about it.”

Let’s address these questions one at a time. But first, let’s dive into the different CPF accounts.

SA Shielding

Now, to answer the question: what is the big deal about this change? Well, before this change, CPF members can do “SA Shielding” by investing their SA funds, in excess of $40,000, into retirement-related financial products just before they turn 55. 

Once they turn 55, after $40,000 from the SA flows into RA, money from their OA will be used to top up the difference to the Basic Retirement Sum (BRS) or Full Retirement Sum (FRS).

Source: CPFB

As their investment term for their SA comes to an end after they turn 55, the money is returned to their SA which has an interest rate of 4.05%. This return is significantly higher than the OA which only has an interest rate of 2.5%. 

Source: CPFB

Thus, the purpose of “SA shielding” is that CPF members get to enjoy a higher interest rate on their CPF savings. 

Closing the CPF SA

With the closure of SA after CPF members turn 55, the money in their SA will be used to top up their RA to the FRS, with any excess savings being channelled towards their OA. 

Thus, “SA Shielding” is not viable anymore as the money from their SA investments would be returned to their OA instead, which has a lower interest rate.

Furthermore, with the SA closure, any future working contributions will go into OA, MA ,and  RA instead

This means that CPF members will have a lump sum of cash from the closure of their SA, which was intended to earn a 4.05% interest by placing it in their SA. 

They can put this money in their OA but that will only earn half the amount (2.5% interest) of what they intended. This leads to them looking for other investment vehicles for this sum of money with a return of 4.05% or more.

Government’s Option

Thankfully, the government has provided an option for 55-year-olds who are unsure of what to do with their lump sum of money from the SA closure.

CPF members can now top up their RA by four times their BRS, instead of just three times, to the Enhanced Retirement Sum (ERS). This will give retirees a higher monthly CPF LIFE payout from age 65.

Year

Basic Retirement Sum

Before Changes

From January 1, 2025

ERS

Est. Monthly Payout

ERS

Est. Monthly Payout

2025

$106,500

$319,500

$2,530

$426,000

$3,330

2026

$110,200

$330,600

$2,610

$440,800

$3,440

2027

$114,100

$342,300

$2,690

$456,400

$3,550

Source: Minister of Finance

This is practically a risk-free option with higher monthly payout for retirees with little to no investing knowledge.

Your Option

Are there any other options?

Yes but other investment options are not risk-free.

With only $426,000 in cash, it might be hard for retirees above 55 years old to consider Singapore residential properties due to high quantum with loans being inaccessible.

However, lower quantum properties such as commercial and industrial properties might be a viable option.

There are also overseas options for investors with a bigger risk appetite. For example, investing in a Bali villa, which doesn’t involve taking a housing mortgage, thus providing high cash flow through rental.

Or even investing in UK properties, which does not incur Additional Buyer Stamp Duty (ABSD).

The good part about these investments is that you’re in control of how you’re using your money. Furthermore, rather than drawing down on your savings when you reach 65, your money is working harder for you, and you get to keep your capital.

From our calculation, when you reach 65, you start drawing down on your $635k savings in your RA. Based on our calculations, it could last you around 26 years. Which means until you’re 91.

However, if you invest with financial literacy, not only are you not drawing down on your savings but you could even pass down your legacy to the next generation.

What does this mean for me?

CPF is an integral part of Singaporean’s lives. This change may not affect you now but in the future, it definitely will when you blow out the candles on your 55th birthday’s cake.

Rather than waiting till you’re 55 and start panicking, why not start by closing up your knowledge gap so you can plan your retirement? You can start by signing up for our FREE Property Stacking Workshop to find out more.