Higher long-term interest rate should only accrue to CPF savings committed for long-term retirement needs

We refer to Mr Yan’s letter “Re-evaluate the closure of CPF Special Account, 26 Feb” and thank him for his support of Government’s decision to raise the Enhanced Retirement Sum (ERS). The raised ERS will allow more than 99% of members aged 55 and above to transfer all their Special Account savings to the Retirement Account to earn the higher long-term interest rate and receive higher retirement payouts. Setting aside the ERS would allow a member turning 55 in 2025 to receive $3,300 per month for life when his payouts start.

Mr Yan asked whether with the closure of the Special Account, members would only set aside the Full Retirement Sum (FRS) or ERS and withdraw the remaining CPF monies, and therefore be left with insufficient funds for retirement. Given this, Mr Yan suggested increasing the amount of Ordinary Account (OA) savings that can earn extra interest to encourage members to save more in the CPF system.

The CPF system provides members age 55 and above with the flexibility to either set aside their Basic Retirement Sum (BRS) if they own a property with sufficient lease to last until age 95 or older, FRS or up to ERS in their Retirement Account. The BRS is the amount that members are required to set aside at age 55 to provide a basic payout for life. It is adjusted regularly by taking reference from the lower-middle retiree household expenditure and other factors, and is a relevant indicator for basic retirement adequacy. The BRS for a member turning 55 in 2024 is $102,900.

Since OA savings can be withdrawn on demand, there is a cap of $20,000 on the amount of OA savings that earn extra interest of up to 2%. This is in line with the principle underpinning the Special Account closure, where the higher long-term interest rate should only accrue to CPF savings committed for long-term retirement needs.

As the CPF system is meant to cater to the broad majority, those who wish to save more for their retirement needs can choose to do so outside the CPF system through personal savings. We encourage members to plan early to build up sufficient savings for their desired retirement lifestyle.

Lum Pooi-Fun (Ms)

Director (Retirement Systems), Income Security Policy Division

Ministry of Manpower