CPF Special Accounts for those 55 and above to be closed from January after Bill passes

SINGAPORE: The Central Provident Fund (CPF) Special Accounts (SA) for those aged 55 and older will be closed from January next year after a law was passed on Monday (Oct 14).

The planned special account closure, along with other changes, came into effect with the Central Provident Fund (Amendment) Bill being passed in parliament.

The announcement of the planned SA closure was first announced in Budget 2024 in February, and had drawn some strong reactions online.

WHAT ARE THE CHANGES? 

Members will be notified when their SA is closed, through a hard copy notification as well as an email or SMS where applicable, said Manpower Minister Tan See Leng. 

If there’s still money in a SA at this point, it will be transferred to the Retirement Account (RA).

Both the SA and RA currently earn 4.14 per cent interest per annum. The CPF Ordinary Account (OA) earns 2.5 per cent per annum.

There will also be changes to the Home Protection Scheme (HPS), an insurance scheme that protects CPF members and their loved ones from losing their HDB flats in the event of the member’s death, terminal illness or total permanent disability.

Currently, members are covered at a standard premium rate if they are assessed to be generally in good health, even if they have pre-existing health conditions.

However, around 1.3 per cent or 1,400 HPS applicants are rejected annually due to pre-existing health conditions based on factors such as overall severity, prognosis, control of the health condition, and the member’s health risk profile.

From mid-2025, the HPS will be expanded to cover those with certain pre-existing conditions that are not so severe, such as certain types of strokes and heart disorder, said Dr Tan. 

There will also be more clarity in the processes and streamlining of administration of several CPF schemes, such as in areas of public housing, job records, and CPF Board leadership.

WHY IT MATTERS 

For those aged 55 and above, the savings in the SA will be transferred to the RA, up to the Full Retirement Sum, so that members can still receive higher interest rates of over 4 per cent.

However, any remaining SA savings will be transferred to the OA, which earns the short-term 2.5 per cent interest rate and can be withdrawn when needed.

This means that this remaining sum in the OA will not be under the 4 per cent interest rate of the SA. 

Minister for Manpower Tan See Leng said that the move is to “right-site” CPF money. 

“Only CPF savings committed towards long-term retirement needs should earn the higher long-term interest rate,” he said.

Moreover, from 2025, the members can opt to transfer their OA savings to their RA up to an Enhanced Retirement Sum (ERS), which has been raised to four times the Basic Retirement Sum from Jan 1 next year.

Dr Tan said that currently, more than 99 per cent of CPF members aged 55 and above would be able to transfer all their SA savings to their RA, if they wish to do so.

“In gist, the SA closure will not prevent members from earning the higher long-term interest rate,” said Dr Tan. 

“They can do so by voluntarily transferring their savings to the RA, up to the prevailing ERS.” 

However, if members want to retain the flexibility to withdraw these savings at any time, then the savings can remain in the OA and earn the OA interest rate, he added. 

As for the changes to the HPS, it is expected to benefit about 100 members a year with pre-existing conditions that are not so severe. 

However, such members will pay higher premiums that are commensurate with their higher likelihood of claims, which is aligned with industry practice, said Dr Tan.

To ensure that the HPS remains sustainable and affordable, a small minority of members with more severe health conditions, such as those currently receiving treatment for cancer, would not be able to participate in the HPS, in line with industry practice. 

QUESTIONS FROM MEMBERS OF PARLIAMENT

Members of Parliament (MPs) had questions about whether those 55 and over could be negatively affected by the closure of the SA, and also whether the higher premiums paid for the HPS by those with certain pre-existing conditions could be unfair. 

MP Jamus Lim (WP-Sengkang) said that there are “at least some who would have been hurt by this change in policy” as they are unable to transfer cash above the enhanced retirement sum from the RA into the SA, and so have to settle with lower interest rates of the OA. 

Dr Tan said that with over 99 per cent of CPF members being able to transfer all their SA savings into the RA, only less than one per cent, or 8,400 members, are unable to do so, and they are the relatively high income earners. 

He added that the Enhanced retirement sum will be raised from three times the basic retirement sum to four times starting 2025.

He added that there are other options to grow one’s financial assets outside the CPF system. 

Some people who are investment savvy may prefer to consider relevant commercial investment products, he said.

Otherwise, people can leave funds in their retirement account to continue earning the higher long-term interest rate and receive higher retirement payouts.

MP Yip Hong Weng (PAP-Yio Chu Kang) expressed his concern about higher premiums for those with health risks under the HPS. 

“Premium loading based solely on health risks could be seen as penalising residents for becoming ill,” he said. “Is that truly fair?”

Dr Tan said that it is necessary to keep the HPS scheme sustainable, and that without premium loading, premiums may need to rise across the board for all members, including for those in the lower income groups.

This would be to cross-subsidise the higher claim rates by members with more serious conditions, and this would not be equitable.

“Even with premium loading, HPS would provide coverage at one of the lowest premiums in the current market for all members,” said Dr Tan.