CPF Special Account Closure Targets “Shielding” Loophole Used by Wealthier Members: Explained

In the recent Budget 2024 announcement, Finance Minister Lawrence Wong revealed a significant update: CPF Special Accounts (SAs) will close when members turn 55, a move designed to “rationalise the CPF system” and address a policy anomaly. The new rule, taking effect in 2025, has generated conversation online, especially among financially savvy CPF members.

Understanding the Rationale
The SA traditionally yields a higher 4% interest, even after 55 when members can withdraw funds if their Full Retirement Sum is met. According to the Ministry of Finance, “Only savings that cannot be withdrawn on demand should earn the long-term interest rate, while savings available on demand should earn a short-term rate.” This policy shift also aligns with the CPF Ordinary Account, which offers a lower 2.5% interest rate for accessible funds.

Typically, on reaching 55, funds from the SA are moved to the Retirement Account, which also accrues 4% interest. But with this change, CPF members will no longer have redundant SA funds post-55, consolidating savings into a singular Retirement Account with a raised cap, allowing most members to transfer their full SA savings into it.

Impact on “Shielding” Practices
This move also tackles “Special Account shielding,” a strategy often used by wealthier CPF members. Shielding involves moving SA funds into temporary low-risk investments before 55 to keep them from transferring to the Retirement Account, later reinvesting the funds to benefit from the SA’s higher interest.

While entirely legal, the Ministry cautions against this practice due to potential investment risks and costs, despite its use by a minority of CPF members. In a 2022 statement, Minister Tan See Leng noted that only 2% of members approaching 55 practiced shielding, urging caution against those who might promote the approach without clarifying the risks.