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A major change is coming to the CPF system in a few short months. From 2025, the Retirement Account (RA) will no longer act as a fourth CPF account for those who turn 55 (including those who are already 55 and above).
Instead, their Special Account will be close at the same time – aligning all retirement savings into just the Retirement Account.
From a retirement planning perspective, this move may look like a logical step – all of your retirement savings will be consolidated into one designated CPF account: your Retirement Account. However, many of you may have made plans to use your Special Account beyond turning 55.
What Will Happen To Your Special Account Savings For Those 55 And Above?
For those turning 55, there is no change in that your Special Account savings will be first transferred into your Retirement Account, up to the Full Retirement Sum (FRS).
Any excess savings above the FRS will flow into your Ordinary Account rather than stay in your Special Account (remember the Special Account will no longer exist by then).
Instead of earning the Special Account interest rate (floor rate of 4.0%), these funds that flow into the OA will instead earn the 2.5% floor rate. This means you need to find another way to grow any savings if you want to achieve a potentially higher return.
Of course, you can always transfer these OA savings into your Retirement Account – up to the Enhanced Retirement Sum (ERS) to earn a higher return.
In fact, the government raised the Enhanced Retirement Sum (ERS) limit from 1.5x the FRS currently to 2x the FRS from 2025 allowing even more contributions into your Retirement Account.
If you prefer, you can also invest your OA savings rather than leave it to earn just 2.5% p.a. in your OA.
Investing Your CPF OA Savings
While you decide what to invest in, you can still leave the funds in your CPF Ordinary Account to continue earning the 2.5% p.a.
One way to invest your OA savings is via the CPF Investment Scheme (CPFIS-OA). You can invest anything above the first $20,000 in your OA.
Within the CPFIS-OA, there are over 100 funds that you can invest in, including equity and fixed income investments.
If you prefer capital preservation and more visible cash flows from your investments, you can invest in fixed income funds. For example, you can consider the LionGlobal Short Duration Bond Fund Class A (SGD) (Dist). Looking at its factsheet (as of August 2024), we can see that it has a Weighted Yield to Maturity of 4.48%.1
We can also see that the fund is holding investment grade quality fixed income, that has broad exposure in terms of geography and sector:
Source: Lion Global Investors as at August 2024
Another fixed income investment you can consider via the CPFIS-OA is the LionGlobal Singapore Fixed Income Investment Class A SGD. Its factsheet, also as of August 2024, has a Weighted Yield to Maturity of 3.03%.2
However, from its top holdings, we can see that this fund invests mainly into AA-rated Singapore Government securities (over 84%) and even has over 3% in cash equivalents – thus explaining the lower yield:
Source: Lion Global Investors as at August 2024
Alternatively, even within CPFIS-OA investments, you can choose to invest in equities to earn a potentially more attractive return. For example, you can consider the LionGlobal Japan Growth Fund (SGD) Hedged.
Japan has been an increasingly popular region, not just for tourists, but also for investors. Japan is a theme that even Warren Buffett is known to have gain exposure to, and we can easily gain diversified exposure to the Japan economy via the LionGlobal Japan Growth Fund (SGD) Hedged.
Looking at its factsheet, as of August 2024, it has broad sector exposure to Industrial, Consumer Discretionary, Consumer Non-Cyclical, Financial, Information Technology and more. The top 10 holdings in its portfolio only makes up slightly above 20% of its entire portfolio.
Source: Lion Global Investors as at August 2024
You can also gain broader Asian diversification by investing in the LionGlobal Asia Pacific Fund (SGD) – which is invested in equities markets in Asia Pacific (ex Japan).
Its top holdings would provide complementary exposure to the biggest companies in Asia Pacific, apart from Japan – as shown in the country allocation below.
Source: Lion Global Investors as at August 2024
Of course, if we wish, we can also diversify our CPF investment portfolio to the US market and even global equities markets.
You can consider the Infinity U.S. 500 Stock Index Fund SGD to gain exposure to the S&P 500 index – comprising 500 biggest and most liquid stocks in the US. Meanwhile, the Infinity Global Stock Index Fund (SGD) gives us exposure to the MSCI World Index – providing exposure to large and mid-cap representation across 23 Developed Markets with over 1,400 constituents.3
Left: Infinity Global Stock Index Fund; Right: LionGlobal Infinity U.S. 500 Stock Index Fund
Source: Lion Global Investors as at August 2024
Withdrawing Your Excess Retirement Savings From CPF To Invest
You can also choose to take out your excess retirement savings from the CPF ecosystem to gain global exposure, in a fund such as the the LionGlobal All Seasons Fund (Growth) or LionGlobal All Seasons Fund (Standard).
Both these funds hand-hold investors in gaining diversified global exposure to a mix of asset classes across the US, Asia Pacific and Europe. The difference is that the “Growth” fund targets an above average level of portfolio risk (holding close to 70% in equities), while the “Standard” fund targets a below average level of portfolio risk (holding close to 70% in fixed income).
Left: LionGlobal All Seasons Fund (Growth); Right: LionGlobal All Seasons Fund (Standard)
Source: Lion Global Investors as at August 2024
Based on your risk appetite and existing retirement income sources, you can consider either of the funds while being assured that you have broad global exposure to both equities and fixed income.
On Lion Global Investors’ Fund Centre, you can also easily search for other investment opportunities that cater to various retirement goals, including Capital Preservation; Income Generation, Wealth Accumulation; as well as Legacy.
Read Also: 5 Ways Singapore Investors Can Benefit From Investing In Sustainable ETFs
Create Multiple Sources Of Retirement Income For Yourself
You don’t need to lean into just one source of retirement income for yourself. While CPF LIFE payouts can be your foundational pillar to lifelong income, you can also look to boost your retirement pot with higher potential returns from both fixed income and globally diversified equity investments.
Moreover, diversifying your retirement nest egg outside the CPF Retirement Account can give you more control over the amount of risk you are willing to take, as well as provide more liquidity to tailor your investments towards specific financial goals. This can be to start receiving an income before the CPF LIFE payout age of 65 or making larger lump sum withdrawals.
By ensuring your retirement income sources come from both the CPF system and outside of it, you can enjoy the best of both worlds – the stability and lifelong payouts that CPF LIFE provides; and the flexibility and liquidity that self-directed investments provide.
If you are interested in the funds discussed above via platforms such as OCBC and FSMOne.
All data are sourced from CPF as of 18 October 2024 unless otherwise stated.
1 In local currency yield terms and on unhedged Foreign exchange basis. Weighted yield to maturity in SGD: 3.80%. Weighted yield to maturity in USD: 5.70%.
2 In local currency yield terms and on unhedged Foreign Exchange (FX) basis. Inclusive of cash & equivalents at a yield of 0.10%.
3 Source: MSCI World Index (USD) Index Factsheet as of 30 September 2024
Disclaimer – Lion Global Investors Limited
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation for the purchase or sale of any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or needs.
You should read the prospectus and Product Highlights Sheet of the relevant fund which are available and may be obtained from Lion Global Investors Limited (“LGI”) or any of its distributors, for further details including the risk factors and consider if a fund is suitable for you and seek such advice from a financial adviser if necessary, before deciding whether to invest in the fund. Applications for units in our funds must be made on forms accompanying the prospectus.
Investments in our funds are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. The performance of a fund is not guaranteed and the value of units in a fund and the income accruing to the units, if any, may rise or fall. Past performance, payout yields and payments as well as any predictions, projections, or forecasts are not necessarily indicative of the future or likely performance, payout yields and payments of a fund. Any extraordinary performance may be due to exceptional circumstances which may not be sustainable. Dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to LGI’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the fund. Any references to specific securities are for illustration purposes and are not to be considered as recommendations to buy or sell the securities. It should not be assumed that investment in such specific securities will be profitable. There can be no assurance that any of the allocations or holdings presented will remain in the fund at the time this information is presented. Any information (which includes opinions, estimates, graphs, charts, formulae or devices) is subject to change or correction at any time without notice and is not to be relied on as advice. You are advised to conduct your own independent assessment and investigation of the relevance, accuracy, adequacy and reliability of any information or contained herein and seek professional advice on them. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information. The fund may, where permitted by the prospectus, invest in financial derivative instruments for hedging purposes or for the purpose of efficient portfolio management. LGI, its related companies, their directors and/or employees may hold units of a fund and be engaged in purchasing or selling units of a fund for themselves or their clients.
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Disclaimer – LionGlobal Asia Pacific Fund / LionGlobal Japan Growth Fund
The Fund’s Net Asset Value may have higher volatility as a result of its narrower investment focus on a limited geographical market, when compared to funds investing in global or wider regional markets.
Disclaimer – Infinity U.S. 500 Stock Index Fund
The Vanguard Umbrella Sub-Fund (and correspondingly, the Sub-Fund) which invests in a particular geographical region and which concentrate its holdings in a single region typically have higher share-price volatility than broadly diversified international stock funds.
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