CPF SA closure: What can you do next?

The closure of the CPF Special Account (SA) for CPF members who turn 55 is a significant policy change that is set to take effect from mid-January 2025. Most prominent is the death of the “shielding hack”.

This change will not only be affecting older CPF members, but basically anyone whom retirement planning relates to. Understanding what this SA closure will mean for you is an important first step.

What was the SA loophole (“shielding hack”) about?

The shielding hack was a strategy that some CPF members employed to create liquidity and take advantage of the risk-free, high interest rate of SA accounts. They do so by investing SA monies before they turn 55, and then liquidating these investments after. 

How the shielding hack works:

1. As SA and OA are automatically transferred to RA (SA monies are transferred first), invested SA monies will be kept from being transferred into their RA at age 55
2. Instead, OA monies, which earn a lower interest rate of 2.5% p.a., will be used to fund the RA up to the Full Retirement Sum (FRS).
3. After liquidating SA investments, these monies will continue earning the roughly 4% interest rate within SA and can be withdrawn any time 

Essentially, this hack works for members who have more CPF savings than the FRS, which they can benefit from the SA’s high interest rate while enjoying full liquidity.

The SA was originally designed for Singaporeans and PRs’ retirement savings, hence the higher interest rate. The government eventually saw the need to close this loophole, and therefore announced the closure of SA for CPF members aged 55 and above from January 2025.

The SA closure concerns everyone, including you

By 2030, one in four in Singapore will be aged 65 and above. Evident in the key announcements made during Budget 2024, ensuring that Singaporeans and residents are well-prepared for retirement is of high priority.

The eventual SA closure, and the death of the shielding hack, have the greatest impact on CPF members who have reached or exceeded the FRS. 

Excess monies beyond the FRS will be transferred to your OA after your SA closes. That also includes compulsory CPF contributions from your employer and yourself if you work past 55 years old.

As such, you will still be able to earn risk-free, guaranteed interests by CPF, but at a lower rate of 2.5% p.a. With inflation ranging about 2-3% and even reaching 4.8% in 2023, our OA savings may not be spared from inflation’s sharp teeth.

Why younger ones should care about the SA closure too

Even if you are not turning 55 anytime soon, or your CPF is nowhere near the FRS, the SA closure is a nudge for all Singaporeans to consider their retirement adequacy. Here are some thought starters for you:

• Have you estimated your liquidity needs at retirement?
• Do you know how to preserve liquidity at retirement, while ensuring that your savings will not be eroded by inflation?
• How much of your retirement needs can be met by your CPF?
• Do you need to build other wealth sources for your retirement?

What should you do to prepare yourself for the SA closure?

There is no telling how long we can live, and therefore it’s important to ensure that you have adequate savings to last throughout retirement. 

That means taking appropriate amount of risk to keep your savings growing, and to prevent inflation from eroding their value. Starting your planning early will give you a longer runway to take more risks now, rather than to feel compelled to do so in your later years.

Consider investing your CPF

For those who have a couple of decades before retirement, you may wish to take more risk by investing your OA (after setting aside $20,000). Before doing so, you should assess your liquidity, risk tolerance, short to long-term goals and other financial needs, which will be important to decide what the best options are.

Even if you are near retirement or have already retired, it is still worth considering low-risk, highly liquid investment options for the savings that you don’t have an immediate need for, to protect them from losing value due to inflation.

Read more: Planning your finances at different life stages

Explore SRS

Cash top-ups to your CPF grant you tax reliefs, and so do SRS contributions. SRS, which is the Supplementary Retirement Scheme, is a voluntary scheme aimed at encouraging saving for retirement. It is complementary to CPF, and is another place for you to park your retirement savings.

SRS offers a dual benefit of tax reduction and saving for your retirement, mainly:

1. Postpone your tax bill now: SRS contributions receive dollar-for-dollar tax savings, up to $15,300 and $35,700 for Singaporeans and foreigners respectively, annually.
2. Pay less tax later in your retirement years: You can withdraw your SRS savings penalty-free upon reaching the statutory retirement age. Only 50% of withdrawals will be subjected to taxes.

As SRS funds earn only 0.05% interest per annum, it will make sense to invest in them. There are a few investment options to explore, such as T-bills, shares, ETFs or unit trusts – you can find out more about SRS investing here.

At retirement age, you have the option to withdraw your SRS at a tax preferential rate in cash and top-up your RA, be it to meet the FRS or the Enhanced Retirement Sum (ERS), or anything in between. This allows you to enjoy the higher investment flexibility of SRS right now, and more retirement income stability through CPF LIFE later.

Should you still top-up your SA?

The CPF members who are most impacted – those en route to reach or exceed the FRS, will find it less rewarding to make voluntary top-ups to your CPF. The SA closure spells the end of enjoying liquidity and high interest after 55.

With the SA and shielding hack out of the picture, is it still worth making cash top-ups or transferring your OA savings to your SA?

While this will be highly dependent on your individual needs and goals, let’s return to the announced change to the ERS value. The increase in ERS – now four, instead of three, times the BRS, also means that the maximum amount allowed in your RA has increased. 

CPF interests are risk-free and guaranteed, ideal for those who prefer a more conservative approach towards managing one’s finances, especially near or during retirement. 

One should note that CPF top-ups are irreversible, so plan accordingly, making sure that you set money aside for emergencies, insurance, mortgage or any big-ticket spending that requires a lump-sum payment.

Strategise, not just save for retirement

CPF has long been a cornerstone of retirement planning in Singapore, providing a structured and reliable means for Singaporeans to save for their golden years. The discussion of the SA closure highlights the importance of a proactive approach towards retirement planning.

One can think of the CPF as a system that lays the foundation to protect your basic needs, and also offers plenty more room to meet your retirement aspirations – that is if you know how to plan it right.

Many of us know that saving alone will not help us to reach our financial goals, whether it is to retire early, plan for the next generation, or simply to have a dignified retirement. 

On top of your monthly CPF contributions, taking on a more proactive approach and maximising the potential of your CPF savings will reward you later in life.

How to maximise your CPF savings with Endowus

Endowus is a one-stop digital wealth management platform for CPF, SRS, and cash savings, empowering all individuals to invest holistically and seamlessly 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 and there is risk involved, we believe in the power of markets and long-term investing to deliver a better outcome than the CPF OA interest rate of 2.5% p.a.

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