CHANGES to the Central Provident Fund (CPF) Act were passed in Parliament on October 14th, 2024, signalling the closure of the CPF Special Account (SA) for members aged 55 and above from the second half of January 2025. Prime Minister Lawrence Wong had previously announced this during this year’s Budget.
In the latest episode of Money Hacks, a podcast from The Business Times, correspondent Howie Lim speaks with Christopher Tan, CEO of Providend, to garner his insights on the main changes to CPF provisions.
Key changes in CPF provisions
From 2025 onwards, CPF members above age 55 will no longer keep funds in their SA. Balances in the SA will be transferred to the Ordinary Account (OA), reducing the interest rate from at least 4 per cent in SA to 2.5 per cent in OA.
CPF members aged 55 and above can top-up their CPF Retirement Account (RA) up to four times the Basic Retirement Sum (BRS), which translates to $426,000. For this year, the top-up limit is three times the BRS or $308,700.
Understanding the impact
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While some CPF members may be disheartened by these changes, Tan explains that these adjustments primarily affect the affluent or CPF-rich individuals. These are members who have significant CPF balances beyond what is necessary for the full retirement sum. The CPF system aims to ensure financial security for less affluent members, aligning with basic investment principles of higher returns requiring lower liquidity.
One major reason for this change is to eliminate CPF Shielding, a practice where individuals invest their OA and SA funds in low-risk instruments just before turning 55 to retain higher interest rates and liquidity. With the elimination of CPF Shielding, post-55 SA balances will be shifted to the OA, ensuring a fairer system.
Closing the loophole
From the government’s perspective, closing the SA at age 55 serves two purposes. First, it aligns with the CPF’s primary objective of retirement savings. Allowing post-55 SA balances with full liquidity contradicts this objective. Second, it adheres to investment principles: higher returns come with lower liquidity and vice versa.
CPF remains a robust financial product with a guaranteed return. For younger members, topping up the SA to the full retirement sum ensures better retirement adequacy. The Housing Refund Scheme also provides opportunities for OA top-ups, a viable option for those with ready cash.
Looking ahead
While CPF changes may seem daunting, they reinforce the CPF’s primary objective of securing retirement savings based on fair and sound investment principles. Listen to the full episode for insights to navigate these changes effectively.
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Written and hosted by: Howie Lim (howielim@sph.com.sg)
With Christopher Tan, CEO, Providend
Edited by: Howie Lim & Claressa Monteiro
Produced by: Howie Lim
Engineered by: Chai Pei Chieh
A podcast by BT Podcasts, The Business Times, SPH Media
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