How the CPF salary ceiling changes affect you

By Shawn Lee

If you’ve only got a minute:

• CPF monthly salary ceiling will be raised to S$8,000 by 2026.
• CPF Transition Support will be provided to lower-income Platform Workers to cushion the impact of their increased CPF contributions.
• Minimum CPF monthly payouts for seniors on Retirement Sum Scheme will be increased to S$350.

Several key CPF changes were announced in Budget 2023 to boost retirement adequacy for all.

This is good news for all. After all, CPF is the bedrock of our retirement planning and we should consider other ways of topping up our CPF savings for higher lifetime pay-outs and build upon them with other streams of income to fund our golden years.

1. CPF monthly salary ceiling raised

To help middle-income Singaporeans save more for their retirement and keep pace with rising salaries, the CPF monthly salary ceiling will be raised from S$6,000 to S$8,000 by 2026. The increase will take place in 4 steps.

From 1^st January 2024, the CPF monthly salary ceiling has been raised to SS$6,800. It will go up to S$7,400 from 1^st January 2025 and S$8,000 from 1^st January 2026.

Apart from the CPF monthly salary ceiling, there is also the CPF annual salary ceiling which sets the maximum amount of wages that would attract CPF contributions.

Source: Ministry of Finance

Will it be enough to boost retirement adequacy?

Our desired retirement lifestyle differs from person to person. As such, the increase in CPF monthly salary ceiling will impact each member’s retirement adequacy differently. For most people, it is insufficient to depend solely on CPF payouts, which are meant to fund our basic expenses. Furthermore, the payouts from the CPF LIFE Standard Plan are level which means they are unable to keep up with inflation in the long-term.

To achieve a sustainable financial future, we need to build other streams of retirement income to supplement the CPF LIFE payouts. It is therefore prudent to start planning early to ensure sufficient protection to counter risks, identify money gaps and close them with suitable investments that are aligned with our risk profile.

For a 30-year-old member earning a monthly pay of S$8,000 from 1 Jan 2026, the additional mandatory contributions from employer and employee would amount to S$740 per month or S$222,000 over 25 years. This does not include the accumulated interest compounded over the years.

Does this change affect you?

CPF classifies total wages (TW) into Ordinary wages (OW) and Additional Wages (AW). The Ordinary Wage ceiling limits the amount of Ordinary Wages that attract CPF contributions in a calendar month.

Wages which are not classified as Ordinary Wages will be Additional Wages for the month. For example, your annual performance bonus. The AW ceiling limits the amount of AW that attract CPF contributions. The AW ceiling is applied on a per employer per calendar year basis.

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The Additional Wage ceiling is computed as follows:
S$102,000* - Total Ordinary Wage subject to CPF for the year

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The Government has said that there will be no change to the CPF annual salary ceiling of S$102,000. And to ensure that employees earning the same annual salary receive the same CPF contributions regardless of their salary structure, the CPF monthly salary ceiling will eventually be set at 1/12 of the CPF annual salary ceiling.

Does the change in CPF salary ceiling affect you?

In the example below, if you are earning more than S$6,000/month and if your bonuses are S$30,000 and more, the recent CPF change does not affect you as the CPF annual salary ceiling remains at S$102,000.

Even though you will see a drop in your disposable income each month, your annual disposable income (including bonus) remains the same. This is because your total CPF contributions in a year remain the same.

Example 1:

You are aged 55 and below, earning S$7,000 per month with 5 months of bonus (S$35,000).

In the example below, if you are earning more than S$6,000/month and if your bonus is less than S$30,000, your monthly disposable income will decrease but your total CPF contributions will increase by a larger amount.

Generally, a person will enjoy overall higher CPF contributions if he has a salary above the prevailing CPF monthly ceiling and total wages below the CPF annual wage ceiling of S$102,000.

Example 2:

You are aged 55 and below and earning S$7,000 per month with two months of bonus (S$14,000).

From the above examples, there will be a drop in disposable income of S$60 a month from September and S$160 a month from January, compared with August 2023. 

Generally, a person will enjoy overall higher CPF contributions if he has a salary above the prevailing CPF monthly ceiling and total wages below the CPF annual wage ceiling of S$102,000. There will be a reduction in disposable income for some CPF members.

For most people, it may be insufficient to depend solely on CPF payouts for retirement as they are meant to fund a basic lifestyle.

To achieve sustainable financial wellness, you need to build multiple income flows to supplement the CPF LIFE payouts. For instance, the more guaranteed income flows like monthly payouts from CPF LIFE scheme and annuity insurance can be used to fund your needs while the variable income flows from riskier products like equities, can fund your wants.

It is therefore prudent to have a holistic financial plan that includes adequate insurance, investments for income and growth, and estate planning.

2. Increase in CPF Contribution Rates for Senior Workers

In 2019, the Government announced that CPF contribution rates will be raised gradually for CPF members aged above 55 to 70. This will allow those aged between 55-60 to have the same contribution rates as younger workers by 2030.

Current and Target CPF Contribution Rates (Employer + Employee) by Age Band

The next increase in senior worker CPF contribution rates will take place on 1 January 2025. With the closure of Special Account, the increase in the CPF contributions for employees aged above 55 to 65 will be fully allocated to the Retirement Account (RA), up to the Full Retirement Sum (FRS), to help senior workers save more for retirement. If employees have set aside the FRS in their RA, these contributions will be channelled to their Ordinary Account.

CPF Contribution Rates for Senior Workers from 1 January 2025

Source: CPF Board

3. Alignment of CPF contribution rates of Platform Workers and Companies with those of employees and employers

Platform workers - private-hire car drivers and freelance delivery workers - who earn a monthly wage of less than S$2,500 will need to contribute at higher CPF rates starting from 2H2024. They include those who use online platforms to match them with demand for their delivery and point-to-point services,but are not employees of the companies operating these platforms.

The good news is that for the first 4 years after the higher CPF rates are implemented, this group of lower-income gig workers will get additional support in the form of Platform Worker CPF Transition Support. It will offset a portion of the additional CPF contributions for these workers and cushion the impact on their reduced take home pay.

Currently, self-employed individuals are required to contribute up to 10.5% of their net trade income to their CPF MediSave account.

The Ministry of Manpower has said changes to the CPF contribution rate for platform workers will take place over a 5-year period, with the contribution rate increasing from a lower base by 2.5 to 3.5 percentage points per year until it reaches parity with other sectors.

The higher CPF contributions will be compulsory only for those who are below 30 when the changes kick in. Everyone else will have an option to opt in.

4. Minimum CPF Monthly payout raised for seniors on CPF Retirement Sum Scheme (RSS)

The minimum CPF Monthly payout has been raised to S$350 from S$250 on 1 June 2023. This will provide higher payouts for seniors who are currently receiving less than S$350 per month.

Payouts will continue until their CPF savings are depleted. Seniors on the RSS can still opt to join CPF LIFE any time before turning age 80 to receive lifelong payouts.

There is no change if you are already receiving monthly payouts of S$350 or more. CPF withdrawal rules remain unchanged.

While the revision will enable these CPF members to keep up with inflation to a certain extent, it also means that their CPF balances will run out faster.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.