Around 720,000 CPF members have money in their Special Accounts that can be withdrawn: Tan See Leng

The move, announced by Deputy Prime Minister and Finance Minister Lawrence Wong at Budget 2024, drew strong reactions online, with many questioning its timing.

Some lamented the lower interest rates of the Ordinary Account, or the limited liquidity of the Retirement Account.

On Monday, Dr Tan reiterated that savings with higher liquidity should not earn high interest rates.

“The core principle behind closing the (Special Account) is to ‘right-site’ CPF monies, such that only CPF savings committed for long-term retirement earn the higher long-term interest rate,” he said.

During an earlier media briefing, the Manpower Ministry also described earning high interest rates on liquid funds as a “free lunch”, and noted that this problem could grow if the government did not take action.

Responding to a suggestion by MP Foo Mee Har (PAP-West Coast) to allow existing members above the age of 55 to keep their Special Accounts open, Dr Tan said this would inadvertently create a generational divide.

Older Singaporeans would benefit, while younger generations would be disadvantaged, he said.

Those who will be affected by the closure of CPF Special Accounts are also relatively high-income earners.

Dr Tan said only 8,400 members – representing less than 1 per cent of all members 55 and older – will not be able to fully transfer their savings to their Retirement Accounts.

More than 99 per cent of members will still be able to earn higher long-term interest rates.

CPF’S OBJECTIVE

The CPF system was meant to provide income in retirement, and support housing and healthcare needs along the way, Dr Tan said.

Those are the core priorities, but the evolution of the system was necessary because Singaporeans can now afford to set aside more in their accounts compared with when CPF was first introduced.

The number of members voluntarily topping up their accounts has more than doubled from 2020 to 2022, Dr Tan noted.

Many would like to save more than the Full Retirement Sum, he said. “Some hope for higher investment returns, others hope to leave a bequest.”

“The number and proportion of CPF members with withdrawable Special Account balances has also increased and will continue to do so,” he added.

Dr Tan also addressed a question from MP Louis Chua (WP-Sengkang) on why interest earned on CPF Life is pooled together and not paid to beneficiaries when a member dies.

The minister said risk-pooling is necessary because CPF Life provides members with lifelong monthly payouts even if they outlive their savings.

“Members need to be clear about what they are getting with their (Retirement Account) savings. CPF Life is a form of insurance, it is not an investment vehicle,” he said.

Dr Tan also noted that members are required to start drawing down their CPF savings at the age of 70, which he said shows that the government is not locking up members’ savings.

“Some members have written to me, requesting to defer their payout start age to beyond 70 years old. But it is not possible. We want members to enjoy their hard-earned monies by that age.”