Deputy Prime Minister Lawrence Wong announced during Budget 2024 that the Special Accounts (SA) of CPF members aged 55 and above will be closed.
On 19 January 2025, the government officially announced the closure of this accounts.
An amount up to the members’ Full Retirement Sum (FRS) of S$213,000 will be transferred to members’ Retirement Account (RA).
Any remaining savings will be transferred to the Ordinary Account (OA), which attracts an interest rate of 2.5%.
Members can choose to transfer their OA balance to the RA to earn a higher interest rate of 4%, but the transfer is irreversible as the balances in the RA will be used to compute the payouts for CPF Life.
Also, there is a maximum limit for the RA which is the Enhanced Retirement Sum (ERS) of S$426,000 for 2025.
Hence, any excess funds flowing to the RA will, instead, be channelled to the OA.
Two options to choose from
This CPF change may seem minor, but it makes a difference in terms of how much interest you earn and also affects the flexibility of your CPF withdrawals.
Previously, with the SA, members could keep their monies in this account, earn 4%, and enjoy the flexibility of withdrawals even after topping up their RA to the ERS.
With the latest change, all excess money will go into the OA and you are left with two options.
The first is to leave the money in the OA which attracts an interest rate of 2.5%.
Members aged 55 and above also earn an additional 2% a year on the first S$30,000 and an extra 1% per year on the next S$30,000 of their combined CPF balances, but this is capped at S$20,000 for the OA.
The second option is to transfer the OA money into the RA to enjoy the higher interest rate of 4%.
The first option is not optimal as 2.5% can barely allow you to beat the long-term inflation rate of 2% to 3%.
Yet, the second option removes the flexibility of withdrawal and “locks up” your cash even though it enjoys a better interest rate of 4%.
But don’t fret.
There is a third option available, and that is to invest the money within your OA.
Invest for better yields
There are many options you can choose from when it comes to investing.
If you prefer stability and resilience, you can look at investing in dividend-paying blue-chip stocks with superior yields.
Examples include local banks DBS Group (SGX: D05) and OCBC Ltd (SGX: O39).
DBS offers a trailing dividend yield of 4.8% while OCBC’s trailing dividend yield stands at 5%.
You can also look at real estate stalwart Hongkong Land (SGX: H78) and Singapore’s largest telecommunication company Singtel (SGX: Z74).
Hongkong Land and Singtel’s trailing dividend yield stood at 5.2% and 5.4%, respectively.
REITs as dependable income instruments
Apart from the blue-chip companies, it’s also worth looking at the REIT sector.
REITs consist of portfolios of properties that earn consistent rental income.
They need to pay out at least 90% of their earnings as distributions to enjoy tax benefits, thus making them perfect for income-seeking investors.
Many REITs also boast superior yields and are supported by strong sponsors that can supply them with a pipeline of assets for future acquisitions.
A good example is Mapletree Industrial Trust (SGX: ME8U), or MIT.
MIT provides a trailing 12-month distribution yield of 6.1% and just concluded the acquisition of a freehold mixed-use facility.
CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, is a blue-chip REIT and the largest Singapore REIT listed on the exchange.
CICT has a strong sponsor in CapitaLand Investment Limited (SGX: 9CI) and paid out a trailing 12-month distribution per unit of S$0.1088.
Units of the retail and commercial REIT can provide you with an attractive distribution yield of 5.6%.
Get Smart: Don’t leave your money idle
The CPF system sees periodic changes as the government works to enhance the national retirement scheme.
With the latest changes, you can top up your RA up to the ERS, with the remaining balance flowing to your OA.
Remember not to let your OA funds stay idle.
With a plethora of investment options out in the stock market, it’s easy to beat the OA interest rate of 2.5%.
By the time your child grows up, inflation will have gobbled up their savings. If you not only want to protect their money but also grow it, there are 3 SGX stocks you can consider buying. One has already proven to give a 55.8% dividend pay rise. Get all the details in our latest special FREE report. Just click here.
Disclosure: Royston Yang owns shares of Mapletree Industrial Trust and DBS Group.
