You may have heard of the CPF SA shielding trick or SA shielding hack, something that a person nearing Age 55 may do. But what is this SA shielding that everyone is talking about?
Your CPF is generally a comprehensive social security savings plan whose main aim is to inculcate forced savings in working Singaporeans and set aside funds for their retirement years. Contributions by both employee and employer are allocated to his Ordinary Account (OA), Special Account (SA) and MediSave Account (MA).
Upon reaching Age 55, your Retirement Account (RA) is created with monies from your SA account, then OA account in that order of priority. The prevailing interest rate on your OA, SA, MA and RA are 2.5%, 4%, 4% and 4% respectively.
As SA and RA have the same interest rate at 4%, it is better for your RA to be made up of monies mostly from your OA (which is a lower interest bearing account), instead of SA (which earns 1.5% more). This is where the SA shield is put up or SA shielding trick comes into the picture, which is to block off use of the SA monies first to make up the new RA account.
The SA shielding trick involves the purchase of low-risk investment instrument prior to just age 55 (before RA account formed) and to liquidate it after turning age 55 or your 55th birthday (after RA account formed). You are therefore looking for one that is short tenor and capital guaranteed.
Under the CPF Investment Scheme (CPFIS), the first $20,000 and $40,000 from your OA and SA cannot be used for investment. This means that the first $40,000 of your SA monies cannot be shield with the SA shielding trick. Also, for any investment made with funds from your CPF OA or SA accounts, any gains, dividends or interests earned in your investments will be returned to your respective CPF OA or SA accounts. Monies from the investment after liquidation will flow back to the SA which continues to be a high interest bearing account of 4%.
What can you invest in using your CPF savings from SA?
|Unit Trusts (UTs)||Capital not guaranteed|
|Investment-linked insurance products (ILPs)||Capital not guaranteed|
|Annuities||Lump sum payment at the start for regular disbursements in the future|
|Endowment||10 to 25 years tenor|
|Singapore Government Securities (SGS) Bonds||2, 5, 10, 15, 20 or 30 years tenor|
|Treasury Bills (T-bills)||6 months or 1 year tenor|
From the above, the choice of using UTs, ILPs, annuities and endowment are out as they defeats the purpose of SA shielding. The main aim is to temporarily block off use of as much SA monies as possible in setting up the RA account, and for it to continue earning the higher interest-bearing of 4% (instead of 2.5% in OA) once liquidated. Capital therefore have to been protected and tenor as short as possible.
While SGS bonds also have a short tenor of 2 years, T-bills are more preferred due to the 6 months and 1 year shortest tenor.
It is important to reiterate here, the initiation of SA shielding must take place BEFORE your 55th birthday and bringing down or removal of SA shielding AFTER your 55th birthday. There is no point buying 6-months T-bills in your early 54th year if it matures before you turn 55. SA shield has failed!
SGS Bonds and T-bills are issued according to the MAS issuance calendar published around October the year before. My advice, look at the issuance calendar and do not wait till the last minute to put up your SA shield. Time does not turn back should you miss it. You have to see which dates are most appropriate for you depending on when is your 55th birthday.
How to purchase SGS Bonds and T-bills with CPFIS OA or SA monies? If you want to use funds from your CPFIS account to buy SGS or T-bills, you need to apply in person at your agent bank’s main branch.
In short, the following diagram shows what happens before and after SA shielding.
From 54th to exactly 55th birthdate
After 55th birthdate
This guide will be useful for those people who wish to carry out CPF SA shielding trick or SA shielding hack when they are nearing Age 55.