No SA, no worries: Key takeaways of Singapore Budget 2024 for retirement success

Singapore’s Deputy Prime Minister (DPM) and Finance Minister Lawrence Wong delivered the 2024 Budget statement in Parliament on Friday, covering a wide range of topics from tackling challenges such as the rising cost of living to supporting families to building a united nation.

Retirement adequacy was a key focus and the headline announcement stirred fervent discussions online. Significant changes were announced around the Central Provident Fund (CPF) and here is a summary of how they affect you.

In this article, we will discuss the key changes and their impact on retirement planning for Singaporeans through long-term investing. 

Budget 2024: Adjustments to CPF

Increase in CPF contribution rates for senior workers

In 2025, the CPF contribution rates for those aged 55 to 65 will increase by 1.5 percentage points in total. The goal of a higher contribution – from both employers and senior employees – is to help senior workers save more for retirement.

Upon implementation, workers aged between 55 and 60 will have the same CPF contribution rates as their younger counterparts. 

The increase is in line with the recommendation from the Tripartite Workgroup on Older Workers in 2019 where the government said that CPF contribution rates for members above 55 to 70 will be raised gradually over the next 10 years or so. 

Increase in Enhanced Retirement Sum‍

When CPF members turn 55, a Retirement Account (RA) is created to consolidate all the accumulated CPF assets, transferred from their Ordinary Account (OA) and Special Account (SA). 

In the RA, there are three levels of retirement sums to meet one’s retirement needs and designate monthly payouts. 

1. The Basic Retirement Sum (BRS);

2. The Full Retirement Sum (FRS), and;

3. The Enhanced Retirement Sum (ERS). 

The ERS is the maximum amount of savings that members aged 55 and above can place in their RA. It provides a higher monthly payout, making it suitable for those who might require more retirement income.

Currently, the ERS is set at three times the BRS. Starting from 1 January 2025, the government will quadruple the BRS. 

The change allows CPF members to voluntarily top up more to their RA – by transferring their OA savings or by making cash top-ups – to receive higher CPF monthly payouts during their golden years. 

Closure of the CPF Special Account (SA) for members aged 55 and above‍

This news probably came as the biggest surprise for many. Currently, CPF members aged 55 and above have an SA and an RA to meet their retirement needs. Starting next year, the SA for those aged 55 and above will be closed.

The SA and OA savings will be transferred to the RA, up to the maximum FRS, where they will continue to earn the long-term interest rate (currently at 4.08% per annum, but this will change to 4.05% in the second quarter of this year).

For those with a large CPF SA balance, any remaining SA funds will be transferred to the OA, which remains withdrawable and continues to earn the prevailing CPF OA interest rate of 2.5% per annum. The OA balance can continue to be invested into financial markets as well as the newly transferred savings from SA. 

Members can transfer their OA savings to the RA before they receive their first CPF LIFE payout, up to the revised ERS (see the table above), to attract a higher interest rate and receive higher retirement payouts. 

After the closure of the SA, CPF members aged 55 and above will still have the following accounts: the OA, RA, and MediSave Account (MA). If you are still working, your CPF contributions will go into your RA to help meet your FRS. Once you have met your FRS, your CPF contributions will go into your OA, which can be invested or withdrawn thereafter. You can also voluntarily transfer your OA monies to your RA, up to the revised ERS. 

Depending on when you meet your FRS, the OA interest rate of 2.5% per annum, while attractive, may fall below current day inflation rates. With a runway of 10 to 20 years or beyond from retirement age, it may be worth considering investing OA monies which can do better than the prevailing interest rates to bolster retirement savings, while still maintaining the flexibility to withdraw the investments whenever needed. Investments in fixed income or lower risk options can yield meaningfully higher yield than the 2.5% per annum. Long term returns for equities have also been significantly higher over time than the guaranteed yield or the rate of inflation. 

The remaining members will continue to have the OA, SA, and MA. Head here to learn more about the current interest rates of OA, SA, MA, and RA.  

Other measures to strengthen retirement support

Enhancements to the Silver Support Scheme

The Silver Support Scheme provides seniors who had low incomes during their working years and have less family support with quarterly payments. From 2025, the qualifying per capita household income threshold will be raised from $1,800 to $2,300, and the quarterly payments will be lifted by 20%. 

Enhancements to the Matched Retirement Savings Scheme

The Matched Retirement Savings Scheme (MRSS) helps those aged 55 to 70 with less CPF savings to save more by providing dollar-for-dollar matching for cash top-ups to their CPF accounts.  

From 2025, the MRSS will be extended to those above 70. There will also be an increase in the yearly matching cap to $2,000 from $600, and a lifetime matching cap of $20,000 will be implemented. The tax relief for the cash top-ups that attract the matching grant will be removed.

These adjustments are relevant to all of us and remind us of why we should proactively grow our CPF

The CPF scheme, rules and structure may continue to evolve to help individuals secure their retirement and financial future. We must take proactive steps to protect and grow our retirement nest egg, including the CPF funds, to sufficiently support us during retirement.

Given the latest adjustments, here are the key takeaways and how you should look at your retirement planning.

With the prevailing yields on the SA, it’s unavoidably the case that CPF members would top up their SA for a deposit that is withdrawable while earning a long-term interest of around 4%. Especially for CPF members who could comfortably accumulate a pot that reaches the maximum of FRS through employment, an OA-to-SA transfer had allowed them to:

1. secure a nest egg large enough to enjoy a highest possible monthly payouts in future retirement, and
2. have a higher-yielding account that can be withdrawn on demand after 55.

‍Following the closure of SA from 2025, the second objective is no longer possible. What should CPF members at different life stages do with their existing CPF accounts?

Those who are younger and have a longer runway to go before hitting their retirement years will benefit the most by taking advantage of the power of compounding through investing their CPF savings. But even people in their 40s and 50s have many decades to live and need to continue to manage their investments well and will benefit from investing in a balanced portfolio that gives exposure to the markets and will compound over time to higher returns on average. 

With the ability to achieve higher guaranteed rates with an OA-to-SA transfer disappearing, one should consider one of the following approaches to achieve higher returns over time. 

1. Invest in low-cost, globally diversified, and risk-appropriate portfolios. This allows compounding and growth in your wealth while outpacing inflation. Investors will be compensated with higher expected returns for taking on more risk. This gives you a greater chance to beat inflation, which erodes your purchasing power.

2. Following the cessation of SA, CPF members can also consider topping up into the Supplementary Retirement Scheme (SRS) instead, achieving some tax benefits immediately and investing in an equity-focused portfolio that can give higher returns over a longer term or a balanced portfolio to manage volatility and risk. 

That said, the choice is not binary between a lower risk plan (transfers and SA top-ups) and a higher risk plan (investing OA and SRS). These should be done as a holistic plan. 

In deciding the allocation, you should first consider your specific wealth objectives as well as current and future financial conditions. This includes, but not limited to knowing your pre- and post-retirement needs and risk appetite. 

Also, the effort to ensure our nest egg can beat inflation is not isolated to younger workers. 

A​​​mid elevated interest rates and soaring costs of living, young and senior workers, as well as retirees alike, should understand how the future value of money may change and how the result of it could impact the quality of life and, importantly, financial security during the well-deserved retirement times.

For those who are in their 40s and 50s or even as you approach retirement, it is never too late to invest. With the average life expectancy still rising in Singapore, you might still have 30 to 50 years to live and need to think about the implications for your investment and nest egg in that scenario. The truth is there are ample investment options that can align with your goals. 

For all, to satisfy your retirement needs, the goal is to maximise the potential of our CPF savings, ensuring they work harder for us in the long run. That’s why you should take a proactive and deliberate approach.

How you can invest your CPF savings for the long term through Endowus 

As with all investing, there are no guarantees and you must be comfortable taking some risks. Risk is not a bad thing. Risk is what gives you higher returns. A lot of people take unnecessary risks and do not get compensated for taking that risk. Oftentimes, the outcome is worse than that - you take too much risk and actually lose money instead. However, Endowus advocates investors to take only the appropriate and necessary risk and to always be compensated with the appropriate returns for taking on that risk and the only way to achieve that is in an evidence-based systematic investment plan that is built for your personal and investing needs for the goal you want to achieve.  

This is in contrast with the interest guarantee provided by the Singapore Government for money left in your CPF accounts. If capital preservation is your primary concern, you may wish to consider leaving your CPF monies uninvested. However, you must understand the consequences of leaving your CPF monies uninvested: what you save will only achieve a rate of growth that may not beat the pace of inflation and the rising cost of living. Therefore, what you save may not be enough. The way to grow your wealth and beat inflation is to invest and compound it. It just takes time. 

Endowus is the first digital advisor for CPF, SRS, and Cash savings, helping everyone invest holistically, conveniently, and with expert advice at the lowest cost possible. 

Endowus aims to help you invest with the highest probability of success. Historical data shows that over the long term, investing in a broad market exposure portfolio is more likely to show positive returns. While there are no guarantees in investing, we believe in the power of markets and long-term investing to deliver a better outcome than the 2.5% p.a. CPF-OA interest.

The Endowus CPF Flagship Portfolio is catered for investors who are seeking higher returns with an appropriate amount of risk by accessing low-cost and highly-diversified passive index funds from top-tier fund managers such as Amundi and Schroder. 

By investing consistently, your CPF savings can compound over time. With meaningful growth in your investments, up to the increased CPF ERS limit (the maximum amount that members can put into their RA for retirement payouts), you can enjoy higher monthly income through CPF Life, an annuity scheme that provides a monthly payout starting from the age of 65. 

Find out more on how you can get started with Endowus.