Who’s affected, and how?
One group to be impacted is CPF members who have already saved the Full Retirement Sum. Their Special Account funds and any new contributions will be channelled to their Ordinary Accounts, where they can withdraw any amount on demand. But as pointed out, they will earn lower interest rates than if their Special Accounts remained open.
One alternative is to use savings from the Ordinary Account to top up their Retirement Accounts to the Enhanced Retirement Sum – the maximum amount allowed – to earn higher interest rates, though withdrawals will be limited.
CPF Board said on Saturday that more than 99 per cent of members aged 55 and older will be able to transfer all their Special Account savings to their Retirement Accounts when the Enhanced Retirement Sum is raised to four times the Basic Sum next year.
Mr Alfred Chia, chief executive officer of the SingCapital financial advisory, noted that such a transfer is “irreversible”.
Transfers to the Retirement Account will increase monthly payouts in future, but members can only withdraw up to 20 per cent of their Retirement Account savings after they turn 65. This amount includes S$5,000 that anyone can withdraw from the age of 55.
“For members who had enjoyed higher interest in (Special Accounts) with the flexibility of ‘on-demand withdrawal’, they will have to recalibrate their saving strategies,” said Mr Chia.
Another group of people affected would be those who invest their Special Account savings. After these accounts are closed, any proceeds will be paid to the Retirement Account, or Ordinary Account if the Full Retirement Sum has been reached.
And a small group who invest to prevent their Special Account savings from being transferred to the Retirement Account – a practice known as Special Account “shielding” – will also be affected.
These people typically liquidate their investments shortly after turning 55, to retain funds in their Special Accounts to enjoy the flexibility and higher interest rates.
“It only benefitted a very small segment of the population; very high-income individuals. It wasn’t really a policy intent,” said Associate Professor Walter Theseira of the Singapore University of Social Sciences.
“Removing this loophole is probably a good thing.”