CPF changes – What you need to know

By Shawn Lee

If you’ve only got a minute:

• The CPF Enhanced Retirement Sum (ERS) will be increased from 3 times the Basic Retirement Sum (BRS) to 4 times from 2025.
• In early 2025, the CPF Special Account (SA) will be closed for those 55 and above.
• For members who are 55 and above, from 1 January 2025, CPF contributions that used to go into the SA will go to their RA, up to the Full Retirement Sum (FRS) to boost retirement payouts. Once the FRS is met, the CPF contributions will go into the OA.

A slew of changes will be made to the CPF scheme, come 2025. Of these, 2 changes have generated significant interest - the increase in the Enhanced Retirement Sum (ERS) and the closure of the CPF Special Account (SA) for those aged 55 and above.

Here are some things you need to know.

Q What happens at age 55?

When you turn 55, a Retirement Account (RA) will be created for you. The savings in your RA is meant to provide you with regular monthly lifetime payouts in retirement. 

Your SA savings will be transferred first to make up the Full Retirement Sum (FRS) in your RA. If your SA is insufficient, your Ordinary Account (OA) savings will then be transferred to make up the FRS. To enjoy higher monthly payouts in retirement. you can choose to top up your RA up to the prevailing ERS. The first S$30,000 in your RA enjoys 6% interest, the next S$30,000 attracts 5%, while the balance earns at least 4% which is the same as the SA

Q What is the impact of the increased ERS?

From 2025, the ERS will be increased from 3 times the Basic Retirement Sum (BRS) to 4 times. This means the ERS next year will be S$426,000 (4x BRS) instead of S$319,500 (3x BRS). The FRS will remain at 2 times the BRS. 

The increased ERS offers an opportunity for members to set aside a higher amount in the RA which translates to higher CPF LIFE payouts in retirement.

Those turning 55 in 2025 can receive about S$3,300 per month of CPF LIFE payouts – up from about S$2,400 today - at age 65, if they choose to top up to the revised higher ERS.

If you choose to delay and start your CPF LIFE payouts at age 70 – thereby allowing your RA savings to grow - you could attain a CPF LIFE monthly payout of up to S$4,420. For each year that you defer, your payouts can increase by up to 7% pa.

If a couple can attain the ERS amount each, they could receive up about S$8,500 in monthly payouts for life which would make a comfortable retirement for most people.

 

Note: Estimated CPF LIFE monthly payouts based on CPF LIFE Standard Plan, using the CPF LIFE Estimator.

When deciding to enhance your RA via CPF transfer or cash top-up, consider the following:

• The amount of CPF LIFE payout you wish to have.
• The amount of liquidity (eg. cash) you need as part of your assets as topping up your RA is not reversible. Your RA will be streamed out to you in monthly payouts. The amount transferred cannot be withdrawn for other purposes such as housing, investment, or immediate needs after age 55.

Q What is the impact of closing the CPF SA for members aged 55 and above?

CPF had stated that as a principle, only savings that cannot be withdrawn on demand should earn the long-term interest rate, and savings that can be withdrawn on demand should earn the short-term interest rate. As such, to better align CPF interest rates to the nature of CPF savings in each CPF account, the Government will close the SA for members aged 55 and above in early 2025.

SA savings will be transferred to the RA, up to the FRS. These RA savings will continue to earn a long-term interest rate of at least 4%. Any remaining SA savings will be transferred to the OA which will earn the short-term interest rate of 2.5% and allow you to withdraw on demand or use for your housing loan/education loan.

If you are already receiving monthly payouts, your payouts will increase if some or all your SA savings are transferred to your RA when your SA is closed. You will be notified to check your monthly payouts after the transfer and closure of your SA in early 2025.

Q How can I get higher returns on my OA?

Upon meeting your FRS in your RA, your SA savings will be transferred to the OA which pays lower interest. If you wish to earn higher interest and receive higher retirement payouts, you may transfer your SA savings that were channelled to the OA due to the closure of SA, to your RA up to the prevailing ERS at any time.

You can also invest your OA savings in low-risk investments, such as T-bills and fixed deposits, under the CPF Investment Scheme (CPFIS). Other low-risk investment options that can potentially generate higher returns include short-term endowment plans and investment-grade bonds.

Before you invest your OA, consider the following:

• Your need for liquidity as some investment options have lock-in periods
• Risk of the investment product
• Your risk profile
• Time horizon

Take your time to evaluate your investment options as the SA closure only happens in early 2025. Even if you choose to do nothing, they yield a stable 2.5% return and can be withdrawn on demand. If there is no need for you to take additional risk, leaving your funds untouched could be a suitable option for you as well.

Q For members aged 55 & above who have invested their SA savings, what happens after they are sold?

You can still hold your existing CPFIS-SA investments until you decide to sell them or until they mature. Upon the sale or maturity of these investments after the SA is closed, the proceeds will go to the RA up to your FRS, and the remaining balance to the OA.

Q What about my work CPF contributions?

For members who are 55 and above, from 1 January 2025, CPF contributions that used to go into the SA will go to their RA, up to the FRS to boost retirement payouts. Once the FRS is met, the CPF contributions will go into the OA and can be withdrawn anytime.

Q Should CPF members below 55 maximise their SA savings?

For CPF members below 55, they will continue to have their SA which still earn an interest of at least 4%. There are 2 ways for you to maximise your SA to benefit from compounding interest and receive higher monthly payouts in retirement.

You can make cash top-ups directly to your SA up to the current FRS. You can also receive up to S$8,000 tax relief when you make a cash top-up to yourself and up to another S$8,000 when you make a cash top-up to your loved ones (parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings) in each calendar year.

Alternatively, you can transfer your savings from your OA to your SA up to the prevailing FRS to earn higher interest.  However, CPF transfers are not eligible for tax relief.

Q Can I withdraw from my CPF accounts?

After the closure of your SA, you can continue to withdraw any amount from your OA, after setting aside your FRS in your RA.

You can also apply to withdraw your RA savings down to your BRS if you own a property in Singapore with a remaining lease that lasts you until you are 95 or older. However, any voluntary top-ups and government grants to your RA cannot be withdrawn.

Here’s another avenue. Generally, when you turn 55, you can withdraw at least S$5,000 or any amount in excess after setting aside your Full Retirement Sum (FRS).

If you are born in 1958 and after, when you turn 65, you can withdraw an additional amount of up to 20% of your retirement savings. The additional withdrawable savings is computed based on 20% of your Retirement Account savings excluding any cash top-ups, CPF transfers and government grants, less the unconditional S$5,000 which you can withdraw from 55. This ensures that you do not deplete your retirement savings further, so that you will have a stream of monthly payouts for your living expenses in old age.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.