In this beginner’s guide, we will break down what CPF shielding was, why it’s now a thing of the past, and how you can still make the most of your CPF to secure your future.
What Was CPF Shielding?
CPF shielding was a popular strategy that allowed CPF members to optimise the interest earned on their Special Account (SA) savings. By temporarily transferring their SA funds into approved investments before age 55, members could prevent these funds from being automatically moved to the Retirement Account (RA) when they reached this milestone. This technique enabled CPF members to retain a larger balance in their Special Account, where attractive CPF interest rates – generally higher than those in the Retirement Account—could continue to grow their savings.
This method relied on the rule that, upon turning 55, any funds remaining in the Ordinary Account (OA) would be prioritised for transfer to the RA first, leaving SA funds untouched if they had already been invested elsewhere. Once the RA was created and filled to the Full Retirement Sum (FRS), members could sell their SA investments, returning the funds to the SA to benefit from its higher interest rate. While it was an effective way to earn more interest on retirement savings, some saw CPF shielding as a “hack”, leading to the policy changes in Budget 2024 that phased out this strategy.
The removal of CPF shielding marks a shift in how CPF members can manage their CPF accounts as they approach retirement, pushing them to consider other retirement strategies.
How Did CPF Shielding Work?
The CPF SA shielding hack was executed as follows:
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CPF members nearing 55 would withdraw SA savings and place them in a low-risk investment, such as Treasury Bills (T-Bills) or unit trusts with a low expense ratio.
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At 55, the CPF system would transfer Ordinary Account (OA) funds to the Retirement Account (RA) before tapping into the Special Account SA.
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Once the transfer was complete, CPF members would redeem their investment vehicle and return CPF SA money, preserving the higher interest rate of 4-5%.
Although CPF shielding is no longer permitted following Budget 2024, this method was once a way for members to increase their retirement funds. Understanding CPF shielding’s mechanics can still provide insight into broader financial planning for those requiring financial assistance, such as an emergency loan. Even without shielding, exploring alternative strategies to build a stable retirement fund is essential.
How Budget 2024 Did Away With CPF Shielding
Budget 2024 introduced a pivotal reform to the CPF system by eliminating the CPF shielding strategy for members nearing retirement. This change, effective starting early 2025, mandates that funds in the CPF Special Account (SA) for members aged 55 and above will be directed toward the Retirement Account (RA), up to the Full Retirement Sum (FRS). This approach focuses on ensuring that funds are dedicated to securing monthly retirement payouts rather than allowing them to remain in the SA or be redirected elsewhere.
Why Are Special Accounts Being Closed?
The closure of the CPF Special Account for members aged 55 and above is intended to support CPF’s mission of safeguarding members’ long-term retirement needs. By streamlining funds directly into the RA, CPF aims to prioritise stable, long-term retirement income, helping members avoid potential investment risks that might reduce their retirement savings. The funds transferred to the RA will earn a long-term interest rate of around 4% or more, better aligned with CPF LIFE’s objective of securing stable retirement payouts.
CPF SA Funds Will Be Closed in 2025
Starting in January 2025, CPF SA funds for members aged 55 and above will be automatically transferred to the RA up to the FRS. Any remaining SA savings will then be channelled into the CPF Ordinary Account (OA), which accrues interest at the short-term rate of 2.5% and allows members to withdraw these funds if necessary. This transition reinforces CPF LIFE as the primary vehicle for retirement income, promoting higher interest earnings and ensuring savings are used for monthly payouts, thereby supporting a secure retirement.
How Can You Save More for Your Retirement Now That CPF Shielding Is Gone?
Although CPF shielding is no longer an option, several ways exist to increase retirement savings. Here are some alternatives to consider:
Invest Your CPF SA While You Still Can
While CPF shielding has ended, CPF members can still use the CPF Investment Scheme (CPFIS) to invest their SA balance. You can aim for higher interest while preserving funds by selecting low-cost unit trusts or T-Bills.
Invest in Stocks or ETFs
Stocks and Exchange Traded Funds (ETFs) are accessible under CPFIS. Although they come with higher risk, these options offer potentially higher returns than leaving funds in CPF accounts. CPF members should, however, weigh capital losses and other investment risks carefully.
Leverage Your Property
Property investments remain a powerful way to grow wealth. Consider using CPF OA to finance property, which allows you to build equity while benefiting from the CPF structure. You can also leverage mortgage payments to accumulate assets over time.
Keep Contributing Until Age 65
Even without CPF shielding, members should continue making CPF contributions up to age 65. This approach ensures that you accumulate as much funds as possible for the CPF LIFE premium and maximise your future monthly payouts.
How Much Will You Receive in CPF Retirement Sums When You Turn 55?
Upon turning 55, CPF members are allocated one of three retirement sum options based on their combined CPF balances: the Basic Retirement Sum (BRS), Full Retirement Sum (FRS), or Enhanced Retirement Sum (ERS). The table below outlines the retirement sums for 2024 and beyond:
|
Year |
Basic Retirement Sum (BRS) |
Full Retirement Sum (FRS) |
Enhanced Retirement Sum (ERS) |
|
2024 |
$102,900 |
$205,800 |
$308,700 |
|
2025 |
$106,500 |
$213,000 |
$426,000 |
|
2026 |
$110,200 |
$220,400 |
$440,800 |
|
2027 |
$114,100 |
$228,200 |
$456,400 |
What You Can Do After Turning 55
After turning 55, members have more flexibility in handling CPF accounts. Here are several options:
Move OA Savings to RA
After turning 55, CPF members can transfer funds from their Ordinary Account (OA) to their Retirement Account (RA). This transfer allows members to benefit from higher interest rates offered in the RA, which can be more advantageous than keeping funds in the OA. Moving funds to the RA can help maximise retirement savings by accruing more interest over time, thus increasing the potential for monthly payouts under CPF LIFE.
Use OA as a Flexible Savings Account
CPF members can treat their Ordinary Account (OA) as a low-risk savings alternative, with interest rates often higher than those offered by traditional bank savings accounts. By keeping funds in the OA, members earn a base interest rate of 2.5% per annum.
This makes the OA a viable option for those seeking a low-risk way to grow their savings without engaging in other investment risks. However, it’s important to remember that while the OA interest rate is stable, it is not the same as a fixed deposit account, as OA funds remain subject to CPF regulations and withdrawal conditions.
Liquidate Invested OA Funds
Upon reaching 55, CPF members who have invested their Ordinary Account (OA) funds through the CPF Investment Scheme (CPFIS) may choose to liquidate these investments. Selling off matured investments allows members to reinvest in other financial instruments or use the proceeds to cover retirement expenses. This strategy provides liquidity and flexibility, enabling members to manage their funds based on retirement needs or to redeploy funds for potentially higher returns.
Use Savings Beyond FRS
CPF members with savings that exceed the Full Retirement Sum (FRS) can explore low-risk investment options to generate additional income. By placing these excess funds in conservative investments like Treasury Bills (T-Bills) or other secure financial products, members can continue to grow their wealth while maintaining access to these funds. This approach allows members to earn a steady income from their surplus savings, supplementing their monthly CPF payouts and improving financial security during retirement.
Is There Another Way To Do CPF Shielding?
Some CPF members may consider alternatives that mimic CPF shielding:
Long-Term Government Securities
Government securities, such as Treasury Bills, are a low-risk investment option. However, unlike CPF shielding, they do not directly protect Special Account savings but can offer a reliable income stream for retirement planning. Treasury Bills can provide attractive interest rates while maintaining low risk, making them suitable for conservative investors seeking steady returns.
Shield Your Ordinary Account
While CPF SA shielding is no longer available, some members consider shielding OA funds through property loans or investments. However, it’s essential to carefully evaluate investment periods, interest rates, and potential capital losses. For instance, investing OA funds in Eastspring Investments Unit Trusts can provide flexibility but comes with risks.
What Is the CPF LIFE Plan?
For those who need a guaranteed retirement income, CPF LIFE provides monthly payouts for life once members reach their payout eligibility age. The CPF LIFE premium from the Retirement Account (RA) funds it and can be customised based on your retirement goals.
Conclusion
Although CPF Special Account (SA) shielding is no longer available, CPF members can still achieve a secure retirement by using the CPF Retirement Account (RA) alongside various investment vehicles and strategic options. By making the most of your CPF contributions and exploring options like CPF LIFE and Treasury Bills, you can enjoy higher interest rates and build a strong financial foundation for retirement.
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