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CPF Monthly Salary Ceiling Increase

How does a higher CPF monthly salary ceiling affect you?

As part of Budget 2023 announcement, the Central Provident Fund (CPF) monthly salary ceiling will be increased to keep up with rising salaries and help middle-income Singaporeans save for their retirement.

Currently, the CPF monthly salary ceiling is capped at S$6,000, the basic wages on which employee and employer are liable to make CPF contributions on. The ceiling will be raised progressively over 4 steps to S$8,000 by 2026. This will allow employees and employers to adjust to the change.

Here is the timeline for the increase.

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Individuals previously earning above the ceiling will now have a lesser take-home pay as more of their salary is set aside for CPF. For employers, this would mean paying more CPF contributions for workers, which translate into a higher overall remuneration package.

Over time, these extra CPF savings will help with the servicing of mortgages and add to a bigger retirement nest.

If you are currently on Jusixty, there will be no changes to your payroll processes. The system will automatically reflect the changes in due time.

What is CPF and how does it help with retirement?

The monthly CPF contributions are allocated into three accounts – Ordinary, Special and MediSave Accounts. The allocation rate differs as one ages, with more going to the Special and MediSave accounts. The allocation table shown below illustrates this trend. 

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The interest rates differ for each account as well. Currently, interest rates are at 2.5 percent P.A. for Ordinary Account and 4 percent P.A. for Special and MediSave Accounts.

As you turn 55 years old, the funds in the Special and Ordinary Accounts will be transferred to a newly created Retirement Account that offers yearly interest of 4 percent.

Retirement Sums

The retirement sum is the amount of money that an individual needs to set aside in their CPF account for retirement. There are three tiers of retirement sum – Basic Retirement Sum, followed by the Full Retirement Sum and Enhanced Retirement Sum. Hitting these targets will allow you to receive guaranteed payouts of varying amounts 10 years later. 

The Basic Retirement Sum for those who are turning 55 years old in 2023 is S$99,400. That will translate into monthly payouts of about S$870 if payouts start at 65 years old.

The next tier of Full Retirement Sum is S$198,800. Hitting this target will yield you payouts of S$1,620 each month. The payouts go up to S$2,370 monthly if you meet the highest tier of Enhanced Retirement Sum of S$298,200. 

For those who do not meet the retirement sum, they can top up their account with cash, CPF savings from spouses, or proceeds from the sale of their property. 

You may withdraw any excess CPF savings above the retirement sum once it is met. Alternatively, you can choose to leave it in your CPF account to earn interest for a higher payout during retirement. Simply put, the more you have stashed away in your CPF, the more you will receive in future for retirement.

How much more money is channelled to your CPF?

Giving a simple example of a 35 years old individual making at least S$8,000 monthly wage this year. This individual will contribute about S$444 more to CPF in September when the first increase in monthly income ceiling kicks in. Subsequently, CPF contributions a year will increase by S$3,552 in 2024, S$6,216 in 2025 and S$8,880 in 2026. 

As illustrated in the following table, by the time this person turns 55 in 2043, these extra contributions will add up to about S$170,000, excluding accrued interest.

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These calculations exclude any CPF contributions before 2023 and assumes that the income ceiling for monthly CPF contributions remains at S$8,000 till 2043. However, this is highly unlikely due to periodic reviews to the factors contributing to the rising income levels and cost of living.

The additional CPF contributions mark a 30 percent increase from what would have been contributed during the same period if the ceiling remained at S$6,000.

Approximately S$78,000, or about 46 per cent, of the additional contributions came from the employer. This is a sum that the individual “would not have received” if not for the change. This increase in the ceiling allows for real wage growth to translate into increased retirement funds.

What does this mean in the long run for your retirement?

More people will be able to achieve the Basic Retirement Sum by the time they turn 55. Some may even qualify for the higher tier targets for the Full and Enhanced Retirement Sums. Retirement sums are updated regularly to keep up with economic conditions and demographic trends. They have historically gone up by 3.5 percent annually on average, the increase in CPF monthly ceilings with compounding effect should allow Singaporeans to “meet or exceed” the Basic Retirement Sum by the time he/she turns 55 in 2043. Based on this calculation, the Basic Retirement Sum is estimated to be S$198,000 by 2043.

For most people, depending solely on CPF payouts is insufficient. This is especially so if individuals prefer a cosier lifestyle in retirement, such as going on frequent vacations. There are several ways to take advantage of CPF to grow your retirement fund even more.

  1. Contribute regularly: The CPF provides attractive interest rates on the funds that you contribute, so it’s important to make regular contributions to your CPF account to take advantage of the compound interest. It is recommended that top-ups are done to the Special Account to take advantage of the high and “risk-free” interest rate. Top-ups should be done earlier in the year to earn more interest.
  1. Make voluntary contributions: You can also make voluntary contributions to your CPF account, which can help to boost your retirement savings. These voluntary contributions are eligible for tax relief, so you can reduce your taxable income while growing your retirement fund.
  1. Invest your CPF savings: You can choose to invest your CPF savings in various investment options such as CPFIS-OA and CPFIS-SA to potentially earn higher returns on your savings.
  1. Delay your CPF withdrawals: You can choose to delay your CPF withdrawals until a later age to enjoy a higher payout during retirement. The CPF retirement payout increases with the amount of time you delay your withdrawals, up to a maximum of age 70.
  2. Use CPF schemes and initiatives: The CPF offers various schemes and initiatives, such as the Retirement Sum Topping-Up Scheme and the CPF LIFE scheme, to help you grow and manage your retirement fund.

By taking advantage of these strategies, you can effectively grow your CPF retirement fund and secure your financial future.

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