CPF Shielding Strategy: Navigating the Impact of CPF SA Account Closure at 55 - Singapore

CPF SA Account Closure at 55: Impact and Options for Singaporeans

The Singapore government recently announced that the Central Provident Fund (CPF) Special Account (SA) will be closed for members who are 55 and above. This change is set to take place in 2025. The SA savings will be transferred to the Retirement Account (RA) or Ordinary Account (OA).

The Impact of CPF SA Account Closure

This move is expected to "tidy up" the system and also shut down a little-used "shielding" hack that allowed some CPF members to earn a higher interest. The "shielding" hack refers to a strategy where CPF members transfer their OA savings to their SA to earn a higher interest rate before they turn 55.

Options After CPF SA Account Closure

With the closure of the SA, CPF contributions that go to the SA currently, as well as any increase in CPF contributions allocated to SA from 1 January 2025, will be fully allocated to the member’s Retirement Account (RA) instead, up to the Full Retirement Sum (FRS), to boost retirement payouts. For members who have set aside the FRS in the RA, these contributions will be channeled to the Ordinary Account (OA).

Option 1: Leave funds in the OA

The funds in your OA will continue to earn an interest rate of 2.5% per annum. However, the interest rate in the OA is lower (2.5%) compared to the RA (4%).

Option 2: Transfer funds to RA up to the ERS amount

You can choose to transfer your OA savings to the RA at any time, up to the prevailing Enhanced Retirement Sum to earn long-term interest rates and receive higher retirement payouts. Once transferred, the RA savings can only be streamed out to you in retirement payouts. You lose the flexibility to use these funds for other purposes such as investment or emergency needs.

Option 3: Withdraw funds from the OA account

Any remaining SA savings will be transferred to your Ordinary Account (OA), where they remain withdrawable. You have immediate access to your funds. However, you would be forgoing the risk-free interest you would otherwise earn if you were to leave it in your CPF accounts.

Investing in T-Bills, Singapore Saving Bonds, or Bank Deposits

As for investing in T-Bills, Singapore Saving Bonds, or bank deposits, here are some points to consider:

T-Bills

Treasury bills, or T-bills, are short-term debt securities issued by the Singapore Government. They carry a AAA credit rating (the highest level possible) and are widely considered among the safest investments. The yield on T-bills is currently trending at around 4% p.a, which is higher than the 2.5% interest rate of the OA. However, the yield is not known beforehand and you will only know the yield upon redemption at maturity.

Singapore Saving Bonds (SSBs)

SSBs are fully backed by the Singapore Government and offer a step-up interest rate that increases over time. The current 10-year return on SSBs is 3.15%, which is higher than the 2.5% interest rate of the OA.

Bank Deposits

The best 1-year fixed deposit rate is currently around 3.60%, which is also higher than the 2.5% interest rate of the OA.

Remember, this is a simplified explanation and actual results may vary based on factors such as changes in the CPF rules and regulations, interest rates, and investment returns. It's always a good idea to consult with a financial advisor or tax professional when making retirement decisions. I hope this helps!