A plea from a post-55 member: Keep our CPF Special Account open till the last possible day

CHANGES to the Central Provident Fund (CPF) Act were passed in Parliament last October to legislate the closure of the CPF Special Account (SA) for members aged 55 and above in the second half of January 2025.

We are already past the halfway mark into the month and the confirmed closure date has not been publicly announced yet. However, things are afoot following the publication of a notice in the government gazette on Thursday (Jan 16) that stated that “Part 1 of the Central Provident Fund (Amendment) Act 2024 comes into operation on 19 January 2025”.

For those who are affected (including myself), the exact timing is important due to how the interest is calculated.

Before I go further, let’s do a recap.

Upon turning 55, every CPF member gets a Retirement Account (RA), which will be funded by the monies from the SA and Ordinary Account (OA) in this order of priority. If, having emptied the SA, the amount remains insufficient to meet the Full Retirement Sum (FRS), the balance in the OA will then be tapped. Prior to the change in the law, the SA account for the post-55 member remained active even if the balance dropped to zero.

As SA savings typically earn an interest rate of 4 per cent, while OA savings earn 2.5 per cent, some individuals took to shielding their SA. This was done by investing their SA funds in low-risk instruments just before turning 55 and liquidating them only after the RA had been set up. The proceeds would then return to the SA.

By doing this, they were able to channel to the RA monies from the lower-interest-bearing OA, while keeping as much as possible their higher-yielding savings in the SA. The amount shielded can be quite substantial if one has had decades of CPF contributions. 

Changes made

But with the closure of the SA for post-55 members, this loophole is closed. At the same time, the government has raised the RA sum to up to four times the Basic Retirement Sum if a member opts for the Enhanced Retirement Sum (ERS).

This ceiling, which takes inflation into account, is raised every year. For 2025, the ERS is S$426,000.

Consequently, members who are affected by the SA closure can mitigate their loss by moving part or all of their SA funds to meet the ERS. (It pays to do so as the RA offers the same interest rate as the SA.) If they choose not to do so, their SA balance will be moved to the OA.  

The rationale for the change was deftly put by Manpower Minister Tan See Leng in Parliament last year.

It ensures that monies meant for the long term are put in a long-term account, he said. OA and SA savings can be withdrawn on demand by members aged 55 and above, whereas RA savings cannot.

“I don’t think that there’s any system in the world, any financial institution in the world, any bank in the world that will pay a long-term assured fixed-deposit interest rate and allow you the flexibility to withdraw like an ATM,” he explained.

Those aged 55 and above who want the flexibility of withdrawing their monies can always leave their funds in the OA, Dr Tan added. 

That’s a fair point, but, now that the day of reckoning is nigh, some post-55 members are worried if they will lose out interest-wise, depending on the exact closure date.

Timing is important

CPF interest is computed monthly and based on the lowest balance in the account for that month. Should their SA account be closed at any time before Jan 31, the interest that ought to have accrued since Jan 1 might be lost.   

At 4 per cent, the monthly interest that may have to be forgone for a balance of S$300,000 works out to S$1,000. Surely, post-55ers won’t lose all of it in January?

Interestingly, the frequently asked questions on the CPF Board’s website have provided an answer of sort. The following is an excerpt from there:

As CPF interest is computed monthly, your SA savings (excluding contributions and refunds received in the month) that are transferred to your RA, up to the FRS, will earn RA interest for that month. The RA interest rate is the same as the SA interest rate.

The remaining SA savings which are withdrawable and transferred to your OA will earn OA interest for that month. If you wish to earn the RA interest rate on these savings and receive higher retirement payouts, you may: 

• Transfer your SA savings to the RA, up to the current year’s ERS before your SA is closed, or,
• Transfer your SA savings that were channelled to your OA, to the RA, after your SA has been closed. The amount transferred to RA (excluding contributions and refunds received in the month) will earn the RA interest rate in the month of transfer. For example, if you transfer your OA to RA in January 2025, the amount will earn the RA interest from January 2025.

In short, the news is mixed. The good news is that members will still earn interest even if their SA funds were to shift to another account during the month, as movement within one’s CPF accounts is not a contribution or refund. 

The bad news is that they get the OA interest rate if the SA funds are moved to the OA, even if the monies had sat in the SA for most of January prior to the transfer.

To be equitable, I suggest that the closure of SA for post-55 members be done at the end of the business day on Jan 31 in order for them to earn the full 4 per cent interest in their SA for January.

The rationale for closing our SA may be necessary, but it’s no less painful.

CPF responds: After the closure of the SA, members with savings transferred to their OA can choose to top up to their RA, up to the current year’s Enhanced Retirement Sum (ERS), if they wish to earn the higher long-term interest rate of 4 per cent per annum.

With the raised ERS from 1 Jan 2025, more than 99 per cent of members aged 55 and above today can fully transfer their SA savings to their RA to continue earning the higher long-term interest rate.

This transfer is irreversible, and can be made anytime, but if members wish to earn the higher interest rate from January onwards, the transfer must be processed by January 2025.

Members will be notified via hardcopy letter, as well as an SMS or email, where applicable, after the closure of the SA.