During the Budget 2024 announcement, then Deputy Prime Minister Lawrence Wong announced a major and unexpected change to the CPF. When CPF members turn 55, their CPF Special Account (SA) will be closed, along with a one-off closure of all Special Accounts for those already 55 and above.
There was about 1 year for CPF members to digest this information, and the closure happened on 19 January 2025. In summary, those who are 55 and above will see all their Special Account savings transferred into their Retirement Account – up to their Full Retirement Sum (FRS). Any remaining funds will be transferred to their Ordinary Account – and they can withdraw these savings.
This may have been a long time coming, especially since many people were picking up on the CPF Shielding Hack previously. Here’s how this change will improve the way CPF works.
#1 Solving The Problem Of Paying High Interest Rates On Liquid Funds
Since the purpose of the Special Account is for retirement savings and investments, it was designed to lock in funds for the long term to earn a higher guaranteed interest rate.
However, for those who were 55 and above previously, they were able to store funds in their SA will retaining the ability to withdraw it on-demand. All the while, they would be able to earn 4.0% on their liquid funds, rather than what it is now, where they will only earn 2.5% on their liquid funds.
Read Also: Complete Guide To CPF Retirement Account
#2 Closure Of Loopholes
The CPF Shielding Hack involved transferring Special Account savings into investments shortly before turning 55 to prevent the funds from being channelled into the RA. These investments will then be sold to return the funds into the SA to continue earning a higher 4% interest rate.
While individuals would not be able to withdraw the funds, they have effectively shielded it from pouring into the Retirement Account, and ultimately into CPF LIFE. Moreover, interest rates earned on these savings would go to individuals rather than into the CPF LIFE scheme – where it is pooled to reduce longevity risks with lifelong CPF LIFE monthly payouts.
Closing the SA after age 55 is a tidy resolution to resolve this loophole. Members who had topped up their CPF funds intending for it to earn high interest can still transfer it into the RA up to the ERS to get higher CPF LIFE payouts. The remaining funds can be withdrawn to be invested or kept in the OA to continue earning the 2.5% interest rate.
Read Also: Guide To Using Robo Advisor Fixed Deposits
#3 More Funds Go Into CPF LIFE
Under the old scheme, CPF contributions from salary were still entering the SA rather than the RA, which means that unless the CPF member makes a transfer from the SA to the RA, the funds will remain in their SA.
This means even those who did not manage to meet their FRS at 55 may have been accumulating Special Account savings.
From 1 January 2025 onwards, after the SA is closed at age 55, the monthly CPF allocation to SA now directly goes into the RA up to the FRS.
Read Also: Where Will Monthly Special Account CPF Contributions Go For Employees Above 55 Once It Closes?
The result is that more funds enter CPF LIFE, which ensures higher payouts for each individual as well as greater pooling of interest rates to protect against longevity risks. Since CPF LIFE ensures lifelong payouts for all members using the interest accumulated by all CPF LIFE members, having more funds in CPF LIFE overall will mean more stable risk-pooling.
Read Also: What Happens To Your CPF Contributions After You Hit Full Retirement Sum (FRS)?
#4 Everyone Continues To Have 3 CPF Accounts
The 3 CPF accounts have distinct purposes. The OA can be used for some expenses such as housing or education, MediSave for healthcare, and SA to boost retirement funds. The Retirement Account became a fourth CPF account for those who turned 55. However, its purpose overlaps with the SA despite having different rules for operation.
Rather than having two separate accounts with different rules and treatments, it is more administratively straightforward to close the SA after 55 and have its funds channelled to the RA and OA respectively.
As an additional benefit, members’ SA contributions now flow directly into the RA rather than requiring a transfer.
Read Also: CPF LIFE VS Retirement Sum Scheme (RSS): What’s The Difference?
CPF Monies Can Still Be Separately Invested
According to Manpower Minister Dr Tan Lee Seng, some 720,000 CPF members had withdrawable SA balances previously, with about 8,400 of them unable to fully transfer their SA savings into their RA. Since the remainder is now transferred to OA after the closure of the SA, those affected are effectively losing 1.5% in interest every year on the balances that would have previously resided in the SA.
Rather than leaving the money in OA, this sum of money could be withdrawn and invested in other instruments such as T-bills or Robo Advisor Fixed Deposits. These instruments are relatively shielded from market fluctuations, while providing a higher interest rate than the OA. Robo Advisor Fixed Deposits such as StashAway and Syfe provide guaranteed returns of between 3.3-3.8% p.a., which is only slightly less than the interest rate of the SA.
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Read Also: 8 Things To Know About The CPF Enhanced Retirement Sum (ERS)
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