CPF new ruling 2024

JC Project Freedom purpose of CPF savings
updated 22nd February 2024

From 2025, the Enhanced Retirement Sum (ERS) will be raised from three times the Basic Retirement Sum (BRS) to four times. This amount is increased from $308,700 to $426,000. 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 remaining SA savings will go to the Ordinary Account (OA). OA savings can be withdrawn, but interest is accrued at the lower, short-term interest rate. It will be at the 2.5% per annum.

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

This new ruling will affect those with a high quantum in SA. It means you could no longer do CPF shielding at age 55 and the government has closed the loop for this.

1. This is a trade-off if you want a higher interest rate, you need to let everything transfer to a Retirement Account and lock it away till 65 years old. This is at the compromise of flexibility. The typical can see but cannot touch syndrome.

2. You cannot proactively top up your SA if you want flexibility. Just use your OA to invest in S&P or any other investment tool. Just need to leave the SA as it is.

3. Those who are below age 55 and made CPF top-ups for tax relief purposes were previously looking forward to the CPF Shielding strategy. Now, they need to relook at the entire strategy, considering the rate of return for their entire portfolio of assets and the amount of payout they want from the RA.

4. The group above age 55 with a substantial amount of CPF has enjoyed the CPF Shielding strategy and is now faced with an immediate dilemma. They have a large sum of money in RA and enough funds in the OA for lumpsum withdrawals. They need to adjust expectations of their interest income or invest in products under CPFIS.

The more funds you have in CPF, the more you will see interest income diminish for those with funds exceeding the ERS. It is time to find alternatives if they want higher returns. The government is not willing to do the heavy lifting work for you. We must spend time to learn how to invest.

For those who have achieved $426,000 at 55 years old, everything will be transferred to the Retirement Account and left the compounding for 10 years. Assuming a flat 4% per annum, you can reach $630,584. Imagine both you and your spouse have $1.2 million at age 65, I don’t think you will ever go poor. This will be your safety net. You can receive about $3,330 per month of CPF LIFE payouts at age 65. After setting aside your CPF fund, you can use any additional cash to make any crazy investment. If you are prudent, just put them in an index fund and sleep soundly.

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