Budget 2024: CPF changes for senior workers include Special Account closure, higher Enhanced Retirement Sum

• Closure of Special Account for those aged 55 and above
• Higher Enhanced Retirement Sum to four times Basic Retirement Sum
• Rise in contribution rates of workers aged above 55 to 65

FROM 2025, the Central Provident Fund (CPF) Special Accounts (SAs) of those aged 55 and above will be closed, with the savings transferred to their Retirement Accounts (RAs), up to the Full Retirement Sum (FRS).

Any SA savings that remain will go to the Ordinary Account (OA). OA savings can be withdrawn, but interest is accrued at the lower, short-term interest rate.

CPF members can, at any time, transfer their OA savings to the RA – where savings can only be disbursed to members in retirement payouts – up to the Enhanced Retirement Sum (ERS).

This change was announced by Finance Minister Lawrence Wong in his Budget speech on Friday (Feb 16). 

Today, CPF members aged 55 and above have two accounts intended for retirement payouts: the SA and RA. Both earn the same long-term interest rate, though SA savings can be withdrawn at any time upon members turning 55 whereas RA savings cannot.

This defies the principle of rewarding savings that are locked in with a higher, long-term interest rate as compared to savings that can be withdrawn at any time which should earn a lower, short-term interest rate.

Wong said the move is to “rationalise the CPF system”, although this is widely seen as plugging a well-known loophole in the retirement savings scheme known as “SA shielding”.

The CPF Board said on its website that it is aware of some members investing their SA savings shortly before turning 55, and liquidating the investment upon turning 55 so as to retain more savings in the SA and enjoy its higher interest rates.

“A better option for members who want to enjoy the attractive CPF interest rates is to top up their RA up to the ERS through the Retirement Sum Topping-Up Scheme instead,” it said.

Currently, CPF members will have their SA savings transferred to their RAs up to the prevailing FRS when they reach 55. The CPF Board will transfer the shortfall from the OA if the SA is not enough to make up the FRS.

Some members withdrew funds in their SA just before turning 55 and parked them temporarily in an investment, leaving only the minimum sum of S$40,000. The CPF Board will take the sum left in SA and make up the shortfall from the member’s OA to fill the RA when the member turns 55.

The cash that has been “shielded” from the transfer goes back to the SA when the temporary investment is liquidated, earning the member the difference in the interest rates for OA and SA – about 1.5 per cent per annum.

The current interest rate for OA is 2.5 per cent, while those for SA and RA are 4.08 per cent.

Enhanced ERS

Wong announced that the ERS will be raised to four times the Basic Retirement Sum (BRS) from Jan 1, 2025, from three times currently.

There are three levels of retirement sums that members at least 55 years old can place in their RA to receive monthly payouts: BRS, FRS and ERS, with the BRS determined when the member turns 55.

BRS covers basic living needs, excluding rental expenses; FRS is double the BRS amount; and ERS is the maximum amount of savings that members can place in their RA.

BRS is adjusted annually for each cohort, with the FRS and the ERS adjusted in tandem.

“This means the ERS next year will be S$426,000. This will allow more members aged 55 and above to fully commit their accumulated CPF savings to receive higher CPF payouts, should they wish to do so,” said Wong.

Over 99 per cent of the 1.4 million members affected aged 55 and above will be able to transfer all their SA savings to RA when the ERS is lifted, according to the CPF Board.

Chuin Ting Weber, CEO of financial advisory firm MoneyOwl, said the ERS rise means that “there is a better retirement annuity as a safe retirement income floor for the middle class”.

Higher contribution rates

The contribution rates for members aged above 55 (See *amendment note) to 65 will be raised by a further 1.5 percentage points in 2025, with the employer and employee contribution rates rising by 0.5 percentage point and one percentage point respectively from Jan 1, 2025.

This will lift the contribution rate to 32.5 per cent for those aged above 55 (See *amendment note) to 60, and 23.5 per cent for those aged above 60 to 65. 

The government will provide the CPF Transition Offset to employers for another year, to cover half of the increase in employer contributions for 2025. 

Wong said this is part of the planned CPF contribution rate increases for senior workers to strengthen their retirement adequacy. 

The government has announced that CPF contribution rates will be raised gradually for CPF members aged above 55 to 70, with those aged above 55 to 60 having to have the same contribution rates as younger workers when the increases are fully effected by around 2030.

For more of BT’s Budget 2024 coverage, go to bt.sg/budget24

Amendment note: This article has been edited to reflect the correct age bands.