One popular CPF strategy for those who are just about to turn 55 is the CPF Shielding Hack. Using this hack, pre-retirees can earn more interest returns, while retaining greater flexibility in using their CPF balances in their older years.
However, all this is set to change from 2025. Apart from having a new Retirement Account opened at 55, pre-retirees will also see their Special Account closed – announced during Singapore Budget 2024.
Effectively, this will undo the CPF Shielding Hack.
Read Also: Why Removing The CPF Special Account For Members Aged 55 & Above Is The Right Move
What Is The CPF Shielding Hack?
When we turn 55, a new Retirement Account (RA) is created for us. This means pre-retirees have two retirement accounts in their CPF which they can make withdrawals from. Their RA balances will eventually be contributed to the CPF LIFE scheme – and they will be able to receive lifelong monthly income. Their Special Account balances continue to earn the long-term interest rate (i.e. 4.08% currently), and for those who have more than the FRS, they can make on-demand withdrawals.
When our Retirement Account is created, up to our Full Retirement Sum will be transferred from our Special Account and Ordinary Account into it. For example, the Full Retirement Sum (FRS) in 2024 is $205,800.
The first pool of monies that will be transferred into our Retirement Account will come from our Special Account. This is because the balances in our Special Account have always been set aside for our retirement purposes. If we are unable to hit the FRS with just our Special Account funds, then our Ordinary Account balances will flow in to plug the gap.
From 2025, the Special Account will also be closed for those who turn 55. In the first round of closures, every above 55 will also be impacted – seeing their Special Account closed as well.
We can use the CPF Shielding Hack to “shield” our Special Account balances, and even Orindary Account balances, from being transferred into our Retirement Account. In the first step, we can use the Special Account Shielding Hack to “shield” our Special Account balances. Again, this will no longer be relevant from 2025, when our Special Account will be closed at the same time that our Retirement Account is opened.
If we wish, we can also utilise the Ordinary Account Shielding Hack to further “shield” our Ordinary Account balances. This may still be applicable after 2025.
Read Also: 12 Little-Known Things About The CPF That Most Singaporeans Are Still Unaware About
The Special Account Shielding Hack
The problem some people have with the way our Retirement Account is funded up to the FRS is that our Special Account balances, which earn 4.0% per annum, flow into it first. Meanwhile, our Ordinary Account (OA) balances, earning a lower 2.5% per annum, is only transferred in if we have a shortfall thereafter. Due to this, some people may prefer our OA funds to flow into our Retirement Account first. As this is not an option, the only way to achieve this is to use the Special Account CPF shielding hack just before we turn 55 – which will automatically mean our Ordinary Account balances is used to fund our Retirement Account. This way, we optimise the amount of interest we earn on our combined CPF balances.
Unfortunately, this hack has been conjured up because we do not have an option to transfer our Ordinary Account balances to our Special Account after the age of 55 – we can only do this before we turn 55, and up to the Full Retirement Sum (FRS). This is the primary reason why the Special Account CPF Shielding hack exists.
To shield our Special Account balances, we typically have to correctly time an investment into a low-cost and liquid fund offered on the CPF Investment Scheme (CPFIS) before we turn 55. We’re only trying to shield the amount, and not trying to actually earn more than the prevaling interest rate (currently 4.04% p.a.) on our Special Account funds. This will effectively “shield” our Special Account balances, requiring our Ordinary Account balances to flow into our Retirement Account (RA) to hit the Full Retirement Sum on our 55th birthday. After we turn 55, we are going to divest the entire amount invested and see it flow back into our Special Account – and continue to earn the interest rate paid on Special Account balances (again, this is currently 4.04% p.a.).
One other thing to remember is that we can only invest anything beyond the first $40,000 in our Special Account – which means at least $40,000 of our Special Account balances will be transferred into our Retirement Account.
From 2025, our Special Account will be closed when our Retirement Account is created. This means we can no longer “shield” Special Account balances from the transfer (i.e. invest it for a short period), only to return the funds into our Special Account slightly later.
The main intention behind this is simply to ensure the bulk of our CPF funds do not enter the CPF LIFE scheme at a later date. It is still held in our name within our CPF accounts.
While we need more clarity to understand how the Special Account closure will be handled, there may be a possibility that we can continue to “Shield” our Special Account balances by investing in safe long-term government securities, such as the 10-year Government bonds. However, the latest 30-year government bond which closed in September 2023, had a cut-off yield of only 3.11%.
It remains to be seen if proceeds from our Special Account investments will go into our Ordinary Account or straight into our Retirement Account.
Read Also: Beginner’s Guide To Start Investing Using The CPF Investment Scheme
The Ordinary Account Shielding Hack
If we choose, we can also shield our Ordinary Account balances. This will continue to remain relevant beyond 2025.
This way, we get to keep our Ordinary Account balances outside of the CPF LIFE scheme. We retain greater flexibility with our Ordinary Account balances, being able to pay for a property purchase or to invest. Or, simply to keep to under our own names rather than see it eventually flow into the CPF LIFE scheme.
In addition, we also get to make additional top-ups to our Retirement Account to earn yearly tax relief. This is something else we can take into account as we no longer gain tax benefits for top-ups made to our Retirement Account beyond the FRS – even though we can top-up our RA to the Enhanced Retirement Sum (ERS).
At this point, we should also note that the ERS was enhanced during the Singapore Budget 2024 speech, from 3 times the Basic Retirement Sum to 4x the BRS in 2025. This means the ERS in 2025 will be $426,000, instead of $319,500.
| Retirement Sums | Basic Retirement Sum (BRS) | Full Retirement Sum (FRS) | Enhanced Retirement Sum (OLD) | Enhanced Retirement Sum (NEW) |
| 2024 | $102,900 | $205,800 | $308,700 | $308,700 |
| 2025 | $106,500 | $213,000 | $319,500 | $426,000 |
To shield our Ordinary Account balances, we also have to correctly time an investment into a low-cost and liquid fund offered on the CPF Investment Scheme (CPFIS) before we turn 55. Unlike our Special Account, we can only invest anything above the first $20,000 of our Ordinary Account balances.
If we employ both the Special Account and Ordinary Account shielding hacks just before we turn 55, a total of $60,000 ($40,000 from our Special Account and $20,000 from our Ordinary Account) will still be transferred into our Retirement Account.
Read Also: BRS, FRS, ERS: Why There Are 3 CPF Retirement Sums & Why They Increase Every Year
Stop Ordinary Account Balances From Going Into Retirement Account
If we still have a home loan to service, we may need to start paying for it in cash if our entire Ordinary Account is transferred into our Retirement Account. This is especially important if we are not working after 55. Even if we are working, only 12% of our salary flows into our Ordinary Account at age 55, compared to 15% before we turn 55, and up to 23% for those below 35. Similarly, if we intend to make use of our Ordinary Account balances to buy a home, we lose this flexibility after the funds a poured into our RA.
This is not a shielding hack. We can simply apply directly to CPF to stop our Ordinary Account balances from being transferred into our Retirement Account if we still need it to service a home loan. We just need to log in to the CPF website to apply to reserve our Ordinary Account balances before our 55th birthday.
Shielding Hack To Keep More Than $20,000 In Ordinary Account When Purchasing A Home AND Using HDB Home Loan
If we take an HDB housing loan, we have to use our entire CPF Ordinary Account balances, except up to $20,000, to pay for the home. This is despite the fact that we are allowed to take up to 80% home loan. If we want to keep more than $20,000 in our Ordinary Account, we can employ another CPF Shielding Hack.
We need to invest the amount of Ordinary Account balances we intend to keep in our OA prior to paying for our home. Again, we need to time the investment neatly, so it flows out of our OA before we need to pay for our home and flows back in after we have paid for our home.
By doing this, we get to maximise the concessionary HDB Housing Loan we are entitled to – borrowing up to 80% of our home price. Moreover, we also get to build up a bigger Ordinary Account balance that can be used as an emergency fund to continue paying for our monthly mortgage should we leave the workforce by choice or because of poor health.
If we do not have a big amount of CPF savings, we could also earn more in interest returns than what we pay on the HDB Housing Loan. Right now, the interest rate on the HDB Housing Loan is still 2.6% – or 0.1% higher than the Ordinary Account interest rate. If we have less than a combined $60,000 in our CPF accounts, we can earn an additional 1% on our CPF balances. If we are over 55, we can also earn an extra additional 1% on the first $30,000 on our CPF balances. This combination allows us to potentially earn up to 4.5% on our Ordinary Account balances, while paying only 2.6% in the HDB Housing Loan. We can also simply invest our OA balances in government securities, such as the T-bills to earn a higher interest rate (e.g. the latest February 2024 T-bills interest rate was 3.66% p.a.).
Read Also: Taking A HDB Housing Loan: Should You Keep More Than $20,000 Or Let Your CPF OA Be Wiped Out
Does It Make Sense To Do The CPF Special Account Shielding Hack?
Since the Special Account and Retirement Account pay the same base interest rate, but the Ordinary Account pays less, it can make sense to see our Ordinary Account balances get transferred into our Retirement Account instead.
Due to this reason, this hack makes most sense only if we have a large Ordinary Account balance we rather see flow into the Retirement Account compared to our Special Account balances. In addition, we must also like the CPF scheme such that we want to keep our excess funds in it rather than being able to withdraw anything above the FRS in cash.
For example, anyone turning 55 in 2024 has to set aside the Full Retirement Sum $205,800. If the person has $200,000 in their Ordinary Account and $100,000 in their Special Account, by employing the Special Account shielding hack, he or she allows their Ordinary Account balances to fund the entire Full Retirement Sum (FRS), apart from the first $40,000 that will come from their Special Account. This way, they would have $34,200 remaining in their Ordinary Account and $60,000 in their Special Account, and $205,800 in their Retirement Account.
Without the Special Account shielding hack, they would have $94,200 in their Ordinary Account, $0 in their Special Account, and $205,800 in their Retirement Account. This earns much lower interest returns compared to using the Special Account shielding hack. Nevertheless, in both situations, the individual can withdraw $94,200, because they have met the FRS of $205,800 at 55.
In the example, if the individual does not use the Special Account Shielding Hack, the entire $94,200 withdrawal will come from your OA balances. If they do use the Special Account Shielding Hack, then the $94,200 will come from a combination of $34,200 from their OA balances and $60,000 from their SA balances.
Another solution we can consider is to transfer our Ordinary Account balances (up to the Full Retirement Sum) to our Special Account before we turn 55. Doing so may even lead to a more optimal Special Account Shielding Hack, enabling us to keep more in our Special Account.
We can no longer use the CPF Special Account Shielding Hack in the way we used to. There may be a possibility for other hacks in the future, but we need to understand how fund flows work, especially if we sell an investment made using our Special Account funds after we turn 55.
Read Also: How Older Singaporeans Can Continue Using CPF To Enjoy Higher Risk-Free Returns After Age 55
Does It Make Sense To Do Ordinary Account Shielding Hack?
If we want to shield our Ordinary Account, we first have to already be willing to do the Special Account shielding hack. By employing both shielding hacks, we will still see a minimum of $60,000 flow into our Retirement Account – $40,000 from our Special Account and $20,000 from our Ordinary Account as we cannot invest these minimum amounts.
Unlike shielding our Special Account balances, by shielding our Ordinary Account balances, we are earning lower interest returns compared to the Retirement Account. This means we must prefer the flexibility of using our Ordinary Account or dislike being on the CPF LIFE scheme. Nevertheless, in the current elevated interest rate environment, we can also choose to invest a portion of our OA savings into very investment instruments such as the Government T-bills to earn close to 4.0% interest p.a.
Since we do not meet the Full Retirement Sum (or Basic Retirement Sum with property pledge), we cannot withdraw our excess CPF monies even if we technically have more than the $192,000 across our Retirement Account, Special Account and Ordinary Account.
In terms of flexibility, we are able to use our Ordinary Account balances to purchase a property, pay for mortgage loans, and if we want to invest to potentially earn a higher return.
Read Also: Here’s What You Need To Know About Pledging Your Property To Meet The CPF Full Retirement Sum (FRS)
Timing Is Important When Doing CPF Shielding Hack
If we are trying to shield our CPF Special Account or Ordinary Account, timing is going to be crucial. We need to invest these funds right before we turn 55, and we should try to time it such as it is divested right after we turn 55, and see it flow back into our CPF accounts.
This is because we may not be earning an attractive interest for the duration that our money is outside the CPF system. It can be a very substantial amount that we lose out if we don’t time it properly. It can also be a very costly mistake if we invest in the wrong investment – it needs to be very safe, very liquid and have very low costs involved.
Fortunately, the elevated interest rate environment allows us to invest in very safe instruments, such as the Government T-bills – where we do not lose out much in terms of interest returns and incur a negligible costs to invest.
If we try to do this a few days before we turn 55, we may also end up being too late and see our CPF Special Account, or Ordinary Account balances not invested in time.
This article was originally published on 7 December 2020 and has been updated.
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