Planning for Retirement: Pending CPF Special Account (SA) Closure

CPF SA Closure Retirement Planning
Written by
BigFundr Team
Published on
June 3, 2024
April 9, 2024

Singapore's retirement scene is changing. Major changes to CPF policies for retirement are in the works, as announced by DPM Lawrence Wong in Parliament.

Here’s the big news: starting in 2025, the Central Provident Fund (CPF) Special Account (SA) for folks 55 and older is closing. What does this mean for you? We are here to break it down, offering insights on CPF accounts, what the SA closure means, and how to look beyond CPF to beef up your retirement plans.

Let’s navigate these changes together and keep your financial future bright.

Types of CPF Accounts with Interest

Before diving into the implications of closing the CPF Special Account, let's take a quick tour of the different CPF accounts that earn interest and what makes them unique.

#1 CPF Special Account (SA)

The CPF Special Account is tailored for retirement savings, offering a high interest rate of 4.05% to maximise the growth of these funds. This account supports investments in various financial products under the CPF Investment Scheme (CPFIS), helping members to grow their retirement savings further.

#2 CPF Ordinary Account (OA)

The CPF Ordinary Account has a broader scope, encompassing housing, insurance, investment, and education needs. With an interest rate of 2.5% as of March2024, the OA allows members to use their savings for home purchases, CPF insurance, investments under CPFIS, and approved educational loans, offering considerable flexibility in managing CPF funds.

#3 CPF Retirement Account (RA)

What about the CPF Retirement Account (RA)? The RA is established when a member turns 55, merging funds from the SA and OA to support retirement. It is designed to provide a stable income in retirement, with funds becoming accessible once the member reaches the payout eligibility age of 65.

The RA features three tiers of minimum sums to cater to different retirement needs: The Basic Retirement Sum (BRS), Full Retirement Sum (FRS), and Enhanced Retirement Sum (ERS). These tiers offer varying levels of monthly payouts during retirement, reflecting the different amounts members choose to set aside.

Learn more about CPF accounts and retirement schemes in this guide by the Central Provident Fund (CPF).

Impact of CPF Special Accounts Closure

The news about the CPF Special Account closing down has got many Singaporeans talking, especially those close to or already in retirement. If you are a CPF member, it is a big moment to think over how you plan for retirement. Here’s what you need to consider because of this change:

#1 Reduced Access to SA’s Higher Interest Rates

The phasing out of the SA (from age 55) removes access to its attractive interest rates, prompting members to seek alternative high-yield investment options. Moving funds into the CPF OA would result in diminished returns, given its lower annual interest rate of 2.5%.

#2 Lock-in of Funds (CPF RA)

While the Retirement Account offers a better-than-fixed-deposit interest rate of 4.05% per annum, shifting your funds from the Special Account to Retirement Account at 55 years of age may not fit everyone's financial strategy. This change means that funds will be accessible only at the designated withdrawal age of 65, affecting individuals who need to access their funds sooner than the 10-yearwindow.

#3 Minimum Sum Requirements

The RA sets different minimum retirement amounts (basic, full and enhanced), based on how much you have in your CPF. This adds complexity to how you plan for retirement. You now need to be more proactive in planning for your retirement, considering factors like property ownership, investment returns, and expected standard of living.

#4 No More CPF “Shielding” Loophole

CPF SA Shielding was a move previously used by savvy CPF members to get the most interest out of CPF accounts when someone turns 55. Here’s how it worked:

  • At 55, CPF starts a Retirement Account (RA) in addition to your Ordinary Account (OA) and Special Account(SA).
  • Money from your OA and SA will automatically be moved into this new RA, up to a certain limit set for the year. The SA money would move first, followed by OA money.
  • Before turning 55, some clever folks would move their SA money into certain approved investments (e.g. unit trusts, investment linked insurance products, annuities, endowment policies, exchange traded funds or Singapore treasury bills). This way, that money would not go into the RA right away.
  • After the RA was set up, they would move their investment back into the SA. This trick lets them use OA money to fill up the RA, keeping more money in their SA to earn a higher interest rate.

With the SA “loophole” closing down, this strategy will not work anymore. For those over 55, this change means their SA money will be moved to their OA starting from 2025.

With these changes happening, now is a goodtime to look at other ways to grow your retirement savings once you are 55.Consider how it will impact your savings interest, when you can get to your funds, and your overall strategy for managing your money.

Alternative Retirement Investment Options

Let us look at some alternative investment options for your retirement funds. These alternatives offer varied levels of flexibility and returns:

#1 Treasury Bills

Treasury bills are an option for those aiming for relatively higher returns, though these are generally lower than what you might expect from the CPF's Retirement Account. They represent a safer investment avenue, backed by the government's creditworthiness.

#2 Fixed Deposits

Fixed deposits provide a secure way to earn a stable return over a predetermined period. While safe, the yields on fixed deposits are typically lower compared to other investment options. This investment option is a conservative choice, appealing to investors with a low-risk tolerance.

#3 Dividend-Paying Stocks

Investing in dividend-paying stocks can offer a blend of income through regular dividends and the potential for capital growth. Bear in mind that this comes with inherent market risks as the value of the stock can fluctuate significantly. Choosing reputable blue-chip companies with a solid track record can mitigate some of these risks and prove rewarding overtime.

#4 Real Estate Investment Trusts (REITs)

REITs offer investors an opportunity to earn regular dividend income along with the potential for capital appreciation. However, the investment is directly tied to the real estate market, making it susceptible to fluctuations in this sector. Perform due diligence and strategically select REITs to effectively manage risks when investing.

#5 Robo-advisors

Robo-advisors are automated investment platforms that create tailored portfolios based on your risk tolerance. While convenient and personalised, the fees associated with these services can impact the net returns on your investments. Your portfolios may also be exposed to the vagaries of the financial markets.

Real Estate Debt Investing with BigFundr

As you navigate the evolving landscape of retirement planning, BigFundr offers a compelling solution with its focus on real estate debt investment. Here’s why it stands out

  • Fixed Income: Enjoy the stability and predictability of fixed income in your investment portfolio, shielded from the uncertainties of financial markets.
  • Protected Capital and Interest: Your investment's principal and interest are guaranteed by Maxi-Cash[1], a public listed entity, offering peace of mind.
  • 4 Layers of Guarantee: Benefit from a four-tiered structure that legally secures your investment, ensuring a safer path to earning interest.
  • Attractive Interest Rates: With rates going up to 6.38%, your retirement funds can enjoy a better-than-CPF rate for growth.
  • Short Investment Tenure: Choose from flexible periods ranging from 6 to 18 months, allowing you quick access to your funds for greater financial agility.
  • Monthly Interest: A steady stream of monthly interest payments ensures a consistent cash flow, perfect for supplementing your retirement income or reinvesting.

Planning for Retirement Confidently

As the CPF system undergoes changes, it is crucial to understand and adjust to these developments to ensure a stable and prosperous retirement. While the closing of the CPF Special Account is significant, it also presents fresh possibilities for you to grow your retirement funds.

For those navigating the changes in CPF policies and seeking robust investment alternatives, BigFundr presents an attractive option.

To explore how BigFundr can fit into your retirement planning, visit our sign up page or get in touch with us to learn more.

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