CPF changes in Budget 2023 — all you need to know

CPF monthly salary ceiling: What are the changes?

The Central Provident Fund (CPF) monthly salary ceiling — which affects the maximum amount of CPF contributions you need to pay — will go up in stages to $8,000 by 2026.

This staggered increase was announced in the Budget 2023 statement by Singapore Deputy Prime Minister (DPM) and Finance Minister Lawrence Wong on 14 Feb 2023.

The ceiling is currently at $6,000. Its increases will be staggered over four phases, starting from September 2023, so that employers and employees can adjust to them.

It will go up to $6,300 on 1 Sep 2023, then to $6,800 on 1 Jan 2024, reach $7,400 on 1 Jan 2025, and finally hit $8,000 on 1 Jan 2026.

How the CPF monthly salary ceiling will change

The monthly ceiling caps the quantum of ordinary wages that attracts CPF contributions. 

If you are an employee aged 55 or below, you will continue to contribute 20% of your wages to your CPF, while your employer contributes 17%. This stays unchanged. Currently, these contributions must be made on monthly wages of up to $6,000.

With the higher CPF monthly salary ceiling, the contributions (20% by the employee and 17% by the employer) must be made on monthly wages of up to $8,000 by 2026.

The monthly salary ceiling was last raised in 2016, from $5,000 previously. DPM Wong said in the Budget 2023 statement that the latest adjustments are meant to keep pace with rising salaries and help middle-income Singaporeans save more for retirement.

There is also an CPF annual salary ceiling, which remains unchanged at this juncture. This annual salary ceiling determines the maximum amount of CPF contributions you need to pay for all wages received in a year, including both ordinary wages and additional wages, such as bonuses and commissions. 

The annual ceiling remains at $102,000, or 17 times the monthly salary ceiling (to account for bonuses equivalent to five months’ salary). The Ministry of Finance said the CPF annual ceiling will be reviewed periodically to ensure it continues to cover most CPF members.

How will the higher CPF monthly salary ceiling affect you?

If you are earning more than $6,000 a month, your take-home pay will become lower as a result of the increases in the CPF monthly salary ceiling. This is because of the additional employee CPF contribution you must make each month.

At the same time, your employer must also make more CPF contributions if your salary exceeds $6,000 a month, capped by the prevailing ceiling.

To illustrate this, let’s say you are below 55 years old and your salary is $8,000 a month. You continue to earn this same amount till 2026. 

Currently, your 20% employee CPF contribution is calculated based on the $6,000 ceiling, even though you earn more than the cap. Therefore, you are contributing $1,200 to your CPF every month — that’s 20% of the $6,000 ceiling. By 2026, you will be contributing $1,600 every month — or 20% of the $8,000 ceiling. 

Essentially, you will contribute $400 more to your CPF from January 2026 onwards, as compared to what you’re contributing today. That also means a $400 reduction in your take-home pay.

Example: A worker earning $8,000 a month

If you’re an employee aged 55 years or below, earning the same salary of $8,000 per month from now till January 2026, this table shows a quick illustration of how your CPF monthly contributions will change.

How does this CPF change benefit you?

In the short term, the decrease in your monthly take-home pay (assuming no increase in wages) can feel painful, especially if you’re the sole income earner of your household. You might need to review your personal or family finances and budgeting.

However, in the long run, your retirement savings will grow more quickly than before. This helps to ensure retirement adequacy — so that you are less likely to run out of money in your golden years.

A younger worker earning $8,000 a month is making an additional $400 in employee contributions by 2026, while their employer is contributing $340 more. In total, $740 more is going into their CPF account every month, compared to today. These sums build up to a sizeable amount over time, especially when compounded at the 2.5% per annum (p.a.) interest rate in the Ordinary Account (OA).

To add, if you’re buying a home, these increased CPF contributions can also help you finance your property purchase and the monthly mortgage repayments.

Moreover, when stretched over a longer term — of, say, 30 years — the growth of your OA savings will be substantial, even before the compounding effect of the 2.5% accrued interest. The table below illustrates this.

Let's say a 25-year-old in 2022 was earning a monthly salary of $6,000. This salary then goes up on a staggered basis over four phases, starting from September 2023, to $8,000 by January 2026 — exactly mirroring how the increases in the CPF monthly salary ceiling will be staggered through to 2026. 

By the time this person turns 55, nearly $250,000 more in contributions would have gone into his or her CPF OA account than if the ceiling had stayed at $6,000.

Your CPF OA savings will grow more quickly

Over 30 years, the higher monthly salary ceilings will lead to substantial growth in your OA savings.

CPF investing for peace of mind

Those who are earning more than $6,000 in monthly wages will soon see more savings accumulating in your CPF Ordinary Account (OA) over time, thanks to the increases in the monthly salary ceiling.

While this is a boon for your retirement planning and home financing, keep in mind that OA savings are still earning only 2.5% p.a. when they are sitting idle in the account (unless the OA interest rate is revised subsequently).

With record-high inflation eroding the value of retirement funds, investing your savings is important. You have to hedge against inflation meaningfully to ensure that you will be able to afford the higher cost of living even when you have stopped drawing a monthly salary in your golden years. More Singaporeans are now concerned about retirement adequacy amid high inflation, according to the Endowus Retirement Report 2022.

Singapore’s consumer prices climbed by 6.1% in 2022, much more quickly than the 2.3% rise in 2021, due to an increase in daily expenses for items such as food and electricity. Note that it is also higher than the CPF OA rate.

CPF forms a huge part of our wealth and should be managed prudently. For your long-term financial goals such as building a retirement nest egg, consider investing your OA savings so the money can be worked harder and tackle inflation. By taking on some risk with CPF investments, you can potentially beat the 2.5% p.a. Interest rate.

With Endowus, you can invest your CPF money in best-in-class funds at low, fair fees. To get started, click here.

Other CPF changes announced in Budget 2023

Besides the higher CPF monthly salary ceiling, other measures announced by DPM Wong to help Singaporeans with our retirement needs include higher CPF contribution rates for senior workers, and CPF Transition Support for lower-income platform workers.

Older workers

The next hike in CPF contribution rates for older workers will take place in 2024. This comes after the first two increases on 1 Jan 2022 and 1 Jan 2023.

On 1 Jan 2024, the contribution rates for employees aged 55 to 60 will increase by 1.5 percentage points to 31%. Those aged 60 to 65 will see a 1.5 percentage point increase to 22%, while rates for those aged 65 to 70 will go up by 1 percentage point to 16.5%.

Also, for seniors on the Retirement Sum Scheme, their minimum CPF monthly payout will rise to $350 a month, from the current $250 a month. This will take effect in June 2023.

Gig workers

Platform or gig workers — such as food delivery riders and private-hire car drivers with ride-hailing firms — who are below 30 years old will soon be required to make CPF contributions. An opt-in system will be available for older workers.

Their CPF contributions will be increased progressively over five years. Given that this will affect their take-home pay in the short term, platform workers aged under 30 and on lower incomes — earning less than $2,500 a month — will get transitional support in the first four years, DPM Wong announced in his Budget 2023 statement. 

Read more:

• Five things to note before investing your CPF
• How Endowus improved CPF investing in Singapore
• Why homeowners should invest their CPF savings
• CPF changes from 2022: What are they and how will they affect you?

Next on the Endowus Fin.Lit Academy

Read the next article in the curriculum: What is SRS?

<divider><divider>

Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus Singapore Pte. Ltd. (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.