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2024 CPF Changes to Your Retirement Plan Thumbnail

2024 CPF Changes to Your Retirement Plan

With the Budget 2024 announcements, it’s time to look at how the upcoming CPF changes affect your retirement plan. 

Increased CPF Contribution Rates for Senior Workers

Starting 1 January 2025, senior workers from 55 to 65 years will see a 1.5% rise in their total CPF contribution rates. This enhancement comprises a 0.5% increased contribution from the employer and a 1% increase from the employee. Contribution rates for those aged 65 and above will remain the same.

If you are between 55 and 65 years old, your take-home pay will be reduced by the increased 1% employee contribution, but with the increased overall contributions, this is an opportunity to boost your retirement savings if you continue to stay in the workforce.

Increased Enhanced Retirement Sum

When you reach 55 years old, the funds in your Special Account (SA) and Ordinary Account (OA) will be transferred to establish a Retirement Account (RA).

There are three levels of retirement sums:

  • Basic Retirement Sum (BRS)
  • Full Retirement Sum (FRS)
  • Enhanced Retirement Sum (ERS)

The retirement sum serves as a benchmark for the amount needed in your Retirement Account to achieve your desired monthly payouts in retirement. Your required retirement sum is determined based on the year at which you turn 55 and remains fixed for the rest of your life. The BRS and FRS are adjusted annually, taking into consideration long-term inflation, increased life expectancy, and improvements in the standard of living.

The Enhanced Retirement Sum (ERS) offers higher monthly payouts for individuals requiring additional retirement income. Currently, the ERS is three times the BRS. With the announced changes, the ERS will be raised to four times the BRS from 1 January 2025. This enhancement encourages individuals to voluntarily top up more into their RA to receive higher monthly payouts in retirement.

An example of how this change impacts your retirement income: For a male CPF member turning 55 and who has met the ERS (4X BRS) in 2025, he can expect to receive from the CPF LIFE standard plan about $3,330 each month at 65 compared to about $2,530 that he would have received at the current ERS (3X BRS).

If you are thinking of topping up your RA through CPF transfer and/or cash, there are factors to consider such as your need for liquidity should you top up via cash or the need for using your OA for housing. All top-ups are irreversible.

Closure of the Special Account for Members Aged 55 and Above

Currently, when a member turns 55 his savings in the SA will be transferred to the RA, followed by the OA, up to the FRS for that year. The savings remaining in the SA and new contributions earn a higher interest rate than the OA while allowing members flexibility to withdraw some money from the account.

From early 2025, the SA for members aged 55 and above will be closed. The savings remaining in the SA will be transferred to the OA, earning the short-term interest rate. New CPF contributions that would normally be allocated to the SA will instead go into the RA, up to the FRS. The change is to align the CPF interest rates to the purpose of the CPF savings; savings in the RA that cannot be withdrawn on demand should earn the long-term interest rate, and savings in OA that can be withdrawn on demand should earn the short-term interest rate.

If your RA has reached the FRS and your excess SA savings were transferred to the OA, you may consider transferring these savings into your RA up to the ERS to earn a higher interest rate and increase your retirement payouts. Again, transfers into your RA are irreversible, so do consider your future cash flow first before making the transfers.

If you want to understand how these changes affect your retirement plan, consider engaging a wealth planner to build your retirement planning strategies.

This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. SEC registration does not imply a level of skill or training. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/  and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com