Why does the CPF Special Account (CPF SA) matter to Singaporeans?

The benefits of the CPF SA can seem quite distant, as it only pays off in our later years. Because the CPF SA doesn’t make immediate contributions to housing, healthcare, or education, many Singaporeans wonder if it’s important.

In reality, our CPF SA is a vital safeguard for retirement. It provides a guaranteed return on our CPF savings, and ensures we have an income for retirement.

Whether we’re building our nest egg or looking to support our loved ones, our CPF SA is a relieving safety net, presenting a variety of options to for us to consider when thinking of our long-term financial goals. For instance, we may complement our CPF SA with other savings plans. Alternatively, should we feel like we could grow the amount faster than the guaranteed interest rate, we can also invest the money in our CPF SA (within limitation).

Regardless of how we choose to use our CPF SA, it will provide us significant payoffs in the long run. It is therefore important to know how much we have in our CPF SA and how to use it, should we wish to experience its benefits in the future.
 

The difference between CPF SA and other CPF accounts

Because our CPF SA is for retirement, it serves a very different purpose from other CPF accounts, such as our Ordinary Account (OA), and Medisave Account (MA)

Here’s how it differs from the other two:

¹An additional 1% applies on the first $60,000 of combined CPF balances (up to $20,000 on the CPF OA)

²Besides monthly home loan repayments, CPF OA can also be used for the initial down payment of the home, stamp duties, and in some cases legal fees
 

The CPF SA has a much higher interest rate than the CPF OA and like all CPF rates, it is guaranteed. This means that, regardless of market conditions, the Singapore government guarantees your SA will always grow at 4%. Additionally, you can earn 1% extra interest per annum on the first $60, 000 of your combined CPF balances, with the balance going to your SA and MA respectively.

This is one of the biggest differences between your SA and any other investment. For example, a unit trust fund delivers returns that vary, depending on how the investments are performing. Even fixed-income securities, such as bonds, may include risks as the bond-issuer defaulting. The fact that the 4% return on your SA is guaranteed means our CPF SA is as close to risk-free investing as we can get.

If, however, you’ve got a bit more appetite for risk, there are ways in which you can utilise your SA funds to grow your savings further.


 

Using your CPF SA for retirement planning

The main use for the SA is to build up retirement funds. This helps to meet our basic, full, or enhanced Retirement Sum, from which we derive monthly pay-outs after retirement. The Retirement Sum changes each year, but the current full Retirement Sum – as of 2021 – is $186, 000.

At the age of 55, monies in excess of your Retirement Sum can be drawn out in cash. After any withdrawals, the monies left in your OA and SA are combined to create your Retirement Account (RA). The amount in your RA determines how much your monthly payouts after retirement will be. The more you have saved in your RA, the higher your payouts.


 

Investing your CPF SA for (hopefully) better returns

Under the CPF Investment Scheme (CPFIS), you can invest a part of your CPF SA funds, into approved retirement products.

As long as you have more than $40,000 accumulated in your SA, you can invest part of it in products such as Singapore Government Bonds, endowments, annuities, and selected Investment Linked Policies (ILPs) and unit trusts. The list of approved products can change over time, so do check with the CPF website for details.

However, there is no guarantee that your investment products will beat CPF’s guaranteed return.

Private sector financial products may not beat the guaranteed returns of the combined interest generated by CPF savings, be it the 4-5% offered by the CPF SA or the additional interest given for the first $60,000.

Note that CPF will not “top up” the difference for you if these products underperform. As such, you should be cautious about where and how you invest your CPF money.
 

Transferring from your CPF OA into your SA

You can transfer funds from your CPF OA to your SA, before the two are combined into your RA at the age of 55. This can be done to ensure a higher interest rate from your CPF (because the OA grows at 2.5%, whereas the SA grows at 4%).

For example, say you transfer $70,000 from your OA to your SA. Over a period of 10 years, the higher interest rate from your SA means you will earn $18,726 more in interest, than if you had left it in your OA.

You can use this CPF calculator, to work out the difference between leaving a sum in your OA versus your SA.

Note that you must be below the age of 55 to do this, and you cannot transfer if you have already reached the CPF retirement sum limit.

While a guaranteed rate of 4% is attractive, remember that transfers are permanent. Once you transfer from your OA to your SA, the money can no longer be used for housing or education. Do plan ahead, to ensure you can meet these financial needs, before transferring money to your SA. For example, if you intend to buy a new home in future, you may want to ensure there are sufficient OA funds for a down payment, stamp duties, etc., before transferring it to your SA.

You can visit the CPF site for details on how to make the transfer.
 

Topping up your CPF SA with cash

If you’re uncertain whether to transfer from your OA to SA, you can consider using cash instead.

You can make voluntary cash contributions to your CPF. This may be more prudent, if you’re uncertain about whether you’ll need your OA funds in future.

This way, you can top up your CPF SA as and when you have the spare cash for it. You can also use this to safeguard money from a windfall, such as a large one-time bonus.

However, bear in mind that money put into your CPF cannot be withdrawn, until you reach the payout eligibility age (PEA) of 55.


 

The main takeaway regarding your CPF SA

The CPF SA provides the most risk-free retirement tool available; it will always grow your retirement fund at 4-5% and the additional 1% on the first $60,000, so it’s a safe haven even in volatile economic climates.

It’s up to you to decide how much you want to put into it, and whether you’re content with the given rate, or want to try and grow it further.

The ultimate decision should be based on your personal financial situation, and your own retirement goals – what works for one person may not work for you. If you’re not sure what the best options for you might be, a conversation with a qualified financial expert might be helpful to help you see how your CPF SA might fit in your wider financial plans and goals.



Important Notes:
This article is meant purely for informational purposes and should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income products mentioned are specified in their respective policy contracts. For customised advice to suit your specific needs, consult an Income insurance advisor.

This advertisement has not been reviewed by the Monetary Authority of Singapore.