In February 2023 during his Budget Speech, Deputy Prime Minister and Finance Minister Lawrence Wong announced that the CPF contribution ceiling would be gradually raised from the current level of $6,000, to $8,000 by 1 January 2026.
This was, as we discussed in a previous article, a necessary step as the cost of living in Singapore has increased and this means Singaporeans, even those who are considered upper-middle income, need to do more to safeguard their retirement, as well as housing and medical needs.
By contributing a higher amount each month to their CPF, Singaporeans will have more savings in their CPF Ordinary, Special and MediSave accounts to fund their housing, retirement and medical expenses.
While setting aside more for the future is important, it also means there would be less money for today.
With the first planned increase of the CPF Contribution Ceiling taking place from 1 September 2023, both workers and their employers will start to feel the effect of lower take-home salary (for workers), and higher salary cost (for employers).
Timeline For The Increase In CPF Monthly Salary Ceiling
|CPF Monthly Contribution Ceiling|
|Before 1 September 2023||$6,000|
|1 September 2023||$6,300|
|1 January 2024||$6,800|
|1 January 2025||$7,400|
|1 January 2026||$8,000|
The CPF Contribution Ceiling caps the maximum amount that employers and employees have to contribute to their CPF accounts each month.
For example, before 1 September 2023, a worker who earns $8,000 a month would only need to make employee contributions on the first $6,000 of monthly wages. Assuming the worker is below the age of 55, this means the worker contributes 20% of his monthly salary to the CPF account. Monthly take-home salary would be $4,800 (0.8 X $6,000) + $2,000 = $6,800.
From 1 September 2023 onwards, the worker will need to make an employee contribution of 20% up to the first $6,300 of monthly salary. Assuming the same $8,000 a month salary, this means take take-home salary will reduce by $60 to $5,040 (0.8 X $6,300) + $1,700 = $6,740.
From 1 January 2026 onwards, the CPF monthly contribution ceiling would increase to $8,000. Assuming a salary of $8,000, this means the full salary of $8,000 is now subject to CPF contribution. Thus the worker’s take-home salary will be $6,400 (0.8 X $8,000), or $400 less than before.
Given the current high inflation, this could be a challenge for some workers.
Cost Of Hiring Will Also Increase For Employers
The other issue is that even with salaries remaining the same, employers will likewise need to contribute a higher amount each month as part of their employer’s contribution.
For example, assuming a $8,000 monthly salary for a worker below the age of 55, the monthly employers’ CPF contribution is currently $1,020 (17% of $6,000).
From 1 September 2023 onwards, the employers’ CPF contribution will increase to $1,071 (17% of $6,300). From 1 January 2026, the employer’s CPF contribution for a worker earning $8,000 will be $1,360 (17% of $8,000), $340 more than the current contribution.
Thus, the irony here is that while employers will be incurring a higher cost for their local employees in the coming years due to higher CPF contributions required, the take-home salaries of their workers will be lower.
How Many Singapore Workers Will Be Affected?
For workers earning less than $6,000 a month, the increase in the CPF Contribution Ceiling do not affect them or their employers since their full salary is already subject to CPF contributions.
According to the Labour Force in Singapore 2022 Report, about 800,000 workers (out of a total of 2.3 million workers in Singapore) earn a salary of $6,000 or higher. For these workers and their employers, 1 September 2023 will see their take-home salary reduced while their employers will be incurring higher salary costs.
Those most affected will be workers who are currently earning between $6,000 to $8,000 (235,000 workers) as the increase in CPF contributions will amount to a higher percentage of their gross salary, as compared to workers earning $8,000 or more.
Whether you are an affected worker reading this article, or an employer who has some employees with salaries that are higher than $6,000, it would be advisable to plan and budget in advance this increase in compulsory CPF contributions that will be taking place from 1 September 2023 till 1 January 2026.
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