RETAINING the Central Provident Fund (CPF) Special Account (SA) for members who are already aged 55 and above, while closing the accounts of younger members as planned, will create a generational divide, said Manpower Minister Tan See Leng in Parliament on Monday (Mar 4).

He was responding to West Coast Member of Parliament Foo Mee Har, who suggested grandfathering the scheme for members who have already reached 55, while allowing the change to take effect for younger cohorts.

During the Budget debate, she was one of several People’s Action Party and opposition MPs who raised concerns about the impending closure of the SA for CPF members aged 55 and above.

The move, which takes effect from 2025, was announced by Finance Minister Lawrence Wong in his Budget speech on Feb 16.

Upon closure, SA savings will be transferred to the Retirement Account (RA) up to the Full Retirement Sum, with remaining monies going to the Ordinary Account (OA).

Savings in the SA and RA earn an interest rate of at least 4 per cent, while OA savings earn 2.5 per cent. Upon the closure of the SA, CPF members who have maxed out their RA savings will only be able to earn the lower OA savings rate on their excess monies.

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“Ms Foo’s suggestion will inadvertently create a generational divide, benefiting the current generation of older Singaporeans while disadvantaging younger Singaporeans,” said Dr Tan during the debate on his ministry’s budget for the new financial year.

Members affected by the move are also “generally the more well off”, he added. Only 8,400 of such “relatively high-income earners” are unable to fully transfer their SA savings into their RA. This represents less than 1 per cent of all members aged 55 and above.

“In other words, more than 99 per cent of CPF members aged 55 and above today will be able to transfer all their SA savings to their RA to continue to earn the higher long-term interest and receive higher retirement payouts, should they wish to do so,” he said.

The remaining 8,400 members with higher balances can choose to transfer their CPF savings to the RA of their family members, or grow them outside the CPF system, the minister added.

Nevertheless, Dr Tan recognised that some 720,000 members with withdrawable SA balances “may experience some loss in liquidity” with the move.

These members could choose to retain these balances in the OA for liquidity, but earn a lower interest amount. At the median, the loss would be less than S$3 per month, or about S$30 per year.

They could also invest in safe instruments such as Singapore Government Securities through the CPF Investment Scheme, or top up their RA up to the raised Enhanced Retirement Sum to receive higher retirement payouts.

They can also choose to withdraw the monies to invest outside the CPF system, said Dr Tan.

Fundamentally, the CPF system is designed to provide for members’ basic retirement needs, as well as support their housing and healthcare needs, said Dr Tan.

“Even as the CPF system evolves, the fundamental objective of addressing retirement, housing and healthcare needs remains for all Singaporeans,” he said.