Ultimate Budget 2024 Guide
Goodbye CPF Shielding
The CPF SA Shielding was a strategy to maximise the interest income in the CPF accounts when the CPF member turns 55 years old.
At the age of 55, CPF will create a RA, on top of the existing OA and SA.
Once the RA is created, current funds from both the OA and SA will automatically flow into it, up to the prevailing FRS for that year. In terms of priority, SA funds would be transferred into the RA first before OA funds.
Astute CPF members would transfer out the amounts in the SA just before they turn 55, until after the RA is formed. To transfer out the amounts, CPF members would have to invest their SA funds in permitted investment products included under the CPFIS, usually via unit trusts, investment linked insurance products, annuities, endowment policies, exchange traded funds or Singapore treasury bills.
After the RA is formed, the funds that was transferred out, would be returned to the SA. In essence, the whole purpose of SA shielding is to use the funds in the OA to fund the RA, thereby allowing CPF members to keep as much funds as possible in the SA rather than OA to earn the higher SA interest rate.
Now with the SA closed, this strategy is no longer available. All CPF members currently above the age of 55 will also see the benefit cease as their SA would be closed from 2025 and the monies will be transferred to the OA.
For CPF members who currently have their funds in other investments, once the investments are sold, the monies will be returned to the OA as the SA would no longer exist.
Investment strategy options?
At the end of the day, a 2.5% interest rate in the OA could be higher on a long term basis as compared to bank interest rates which has limits and hurdles such as salary crediting.
Additionally, there is a wide range of investments available that can potentially beat the 2.5% rate, for instance REPs.
