Connect with us


Why Increasing Our CPF Monthly Salary Ceiling To $8,000 In Singapore Budget 2023 Was A Necessary Step

A love letter to our CPF account.

CPF monthly salary ceiling raised to $8,000

In the Singapore Budget 2023, Deputy Prime Minister and Finance Minister Lawrence Wong announced several major changes to CPF contributions for local employees.

CPF plays a major role in the lives of Singapore employees – supporting our housing, retirement and medical needs. Despite this potential to impact a significant group of employees, these changes may be viewed as a necessary step, and some may argue that it is overdue.

Read Also: Singapore Budget 2023: 11 Things That Will Affect Singaporeans Financially

Raising CPF Monthly Salary Ceiling For Employees From $6,000 To $8,000 By 2026

The CPF monthly salary ceiling was raised to $6,000 in 2016. This means both employees and employers have to make CPF contributions for the first $6,000 of our salary. From 2023 till 2026, the monthly salary ceiling will be gradually increased to $8,000. There are two main impacts on local employees.

First, we earn a higher overall pay. An employee who earns $8,000 today actually gets $9,020 in compensation for the month. This comprises:

  1.  Employee CPF Contribution of $1,200 (which is 20% of the first $6,000 of salary);
  2.  Employer CPF Contribution of $1,020 (which is 17% of the first $6,000 of salary); and
  3.  Take home pay of $6,800 ($4,800 is the remaining 80% of monthly salary not contributed to CPF + $2,000 which do not attract CPF contributions)

When CPF contributions apply to the first $8,000 of our monthly salary by 2026, our actual compensation for the month rises to $9,360. In other words, we get $340 more from our employers. This comprises:

  1. Employee CPF Contribution of $1,600 (which is 20% of the first $8,000 of salary);
  2. Employer CPF Contribution of $1,360 (which is 17% of the first $8,000 of salary); and
  3. Take home pay of $6,400 (which is the remaining 80% of the first $8,000 of salary)

From the breakdown, you may also see that while our total compensation is higher, our take-home pay goes down. Instead of getting $6,800 in cash, we only get $6,400 as we have to contribute more to our CPF as well.

The CPF monthly contribution ceiling will increase in the following tandem:

CPF Monthly Salary Ceiling CPF Annual Salary Ceiling
Since 2016 $6,000 $102,000
1 Sep 2023 $6,300
1 Jan 2024 $6,800
1 Jan 2025 $7,400
1 Jan 2026 $8,000

In some ways, it is logical for the CPF monthly salary ceiling to increase. Our basic retirement adequacy hinges on how much we contribute to our CPF accounts, namely our Special Account (SA).

With inflation diminishing our purchasing power, the current level of contributions may not be able to support higher increases in the Full Retirement Sum (FRS). From the government’s perspective, not raising it by the rate that is required is something unwise as Singaporeans may be left with an insufficient nest egg in our most vulnerable years.

Nevertheless, the current Annual Salary Ceiling of $102,000 will not be raised. As such the CPF Annual Limit remains at $37,740.

Read Also: Complete Guide To Your CPF Contributions In Singapore: Salary Caps, Contribution Rates And Allocation Rates

Platform Workers Will Also Start Receiving CPF Contributions

Prior to Singapore Budget 2023, the government had also accepted recommendations from the Advisory Committee on Platform Workers to get Platform Companies to make mandatory CPF contributions for Platform Workers below 30 years old from the latter part of 2024. Platform Workers who are 30 and above can also opt in for CPF Contributions.

While Platform Workers are not viewed as employees, having CPF contributions enable them to save for their home downpayment and strengthen their retirement needs (as they would have already had to contribute to their MediSave Account).

Similarly, getting CPF contributions may result in a lower take-home pay for Platform Workers. During Budget 2023, DPM Wong announced the Platform Workers CPF Transition Support (PCTS) for lower-income Platform Workers for the first four years after implementation.

This will apply to Platform Workers earning $2,500 or less (including from platform work or other sources). This scheme will offset Platform Worker’s share of their year-on-year increase in CPF contributions to their Ordinary Account and Special Account from years 1 to 4.

Read Also: Pros And Cons Of Requiring Compulsory CPF Contributions For Platform Workers

CPF Contributions For Older Workers Will Also Increase 1% To 1.5% In 2024

The government had also committed to increasing CPF contributions for workers over 55 to 70 in Budget 2020, in line with recommendations from the Tripartite Workgroup on Older Workers.

The aim is to bring CPF contributions for older workers to a higher level by 2030. In 2022 and 2023, CPF contributions have already phased in part of the long-term increases. In Budget 2023, DPM Wong mentioned that the next phase of increase will go ahead as planned in 2024.

Age band 2016-2021 1 Jan 2022 1 Jan 2023 1 Jan 2024 By 2030
55 and below 37.0%
Above 55 to 60 26.0% 28.0% 29.5% 31.0% 37.0%
Above 60 to 65 16.5% 18.5% 20.5% 22.0% 26.0%
Above 65 to 70 12.5% 14.0% 15.5% 16.5% 16.5%
Above 70 12.5%

As with past increases, the additional CPF contributions will be fully channelled towards the Special Account, to improve retirement adequacy. The increase will also be shared between employees and employers. On top of that, employers can look forward to a 0.25%-pt CPF Transition Offset package in 2024.

Age band Total Employer Employee CPF Transition Offset for 2024
55 and below No change
Above 55 to 60 31.0%
Above 60 to 65 22.0%
Above 65 to 70 16.5%
Above 70 No change

It is no surprise that the government is continuing to increase CPF contribution rates for senior employees in 2024. We only have 7 years left to raise the CPF contributions by 7.5% for those over 55 to 60, and 5.5% for those over 60 to 64. In 2024, those over 65 to 70 will hit the targeted CPF contribution rate.

Read Also: Increase In Retirement Age (Along With CPF Contributions): What Employers Need To Know

Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.