Noticed less take home pay with this month’s payslip? Earlier this year, the Singapore government announced that it would raise the CPF contribution ceiling. You may have to contribute more to your retirement fund every month, resulting in less take-home pay for you to spend freely.
The monthly salary ceiling for the Central Provident Fund (CPF) has gone up from S$6,000 to S$6,300 starting September 2023. And this is just the start of the gradual adjustment, there’s more to come in the next couple of years.
TLDR: If you earn over S$6,300, your in-hand monthly salary will be reduced by S$60, and this is only the beginning. The Singapore government has kick-started raising the CPF ceiling every year until 2026. You will potentially see a drop of up to $400 over the next coming years.
CPF monthly ceiling rundown
The CPF monthly salary ceiling determines the portion of the Ordinary Wages (OW), which is your salary, on which you are required to make the CPF contribution that goes into your retirement fund.
Individual contributions have always been capped at 20% of $6,000 since 2016. Meaning that even if you made more than S$6,000, say S$8,000 a month, your contribution is capped at S$1,200 per month.
| Start Date | CPF Monthly Ceiling | Monthly Contribution |
|---|---|---|
| Baseline | $6,000 | $1,200 |
| 1 Sep 2023 | $6,300 | $1,260 |
| 1 Jan 2024 | $6,800 | $1,360 |
| 1 Jan 2025 | $7,400 | $1,480 |
| 1 Jan 2026 | $8,000 | $1,600 |
During the 2023 budget update, the monthly CPF income ceiling was proposed to be raised from S$6,000 to S$8,000 between 2023 and 2026 in four stages. Over the course of 3 years, your individual monthly contributions will be raised by $400.
However, the CPF annual salary ceiling of S$102,000 and the CPF annual limit of $37,740 remain unchanged.
What does it mean for you?
An increased CPF monthly ceiling will translate into you paying more CPF contributions from your salary every month.
Pros:
- Stronger safety net for your retirement
- More CPF contributions coming from you and your employer
- Overall more savings for retirement, which is needed to keep pace with inflation.
Cons:
- Less take-home pay, and the freedom for you to spend or invest the amount
- The change is gradual so you have time to adjust to the pinch but $400 per month change adds up to $4,800 annually, which can be used to offset other loans or a vacation
How much impact does the CPF ceiling have on my take home pay?
Let’s say your monthly salary is S$7,000, you would have contributed 20% of your salary capped at S$6,000, or S$1,200, to CPF before September 2023, and taken home S$5,800. Meanwhile, your employer would have paid 17% of $6,000, which is S$1,020.
| Year | Monthly Salary | Take Home Pay |
|---|---|---|
| 2023 (before Sep) | $7,000 | $5,800 |
| 2023 (after Sep) | $7,000 | $5,740 |
| 2024 | $7,350 | $5,990 |
| 2025 | $7,718 | $6,238 |
| 2026 | $8,103 | $6,503 |
Now that the ceiling is $6,300, you will contribute $1,260 every month to CPF, S$60 more than before. This will leave you with a take-home pay of S$5,740. Your employer will also be contributing more—17% of S$6,300, or S$1071, extra S$51.
Combining your and your employer’s contributions in a month, you will put S$111 more in your retirement pool. Since CPF is a type of investment which gives you a fixed interest, the more you put in your kitty, the more interest you will earn, and the faster your retirement savings will grow.
| Year | Monthly Salary | Employee Contribution | Employer Contribution | Total CPF Contribution |
|---|---|---|---|---|
| 2023 | $7,000 | $1,200 | $1,020 | $2,220 |
| 2023 (after Sep) | $7,000 | $1,260 | $1,071 | $2,331 |
| 2024 | $7,350 | $1360 | $1,156 | $2,516 |
| 2025 | $7,718 | $1480 | $1,258 | $2,738 |
| 2026 | $8,103 | $1,600 | $1,360 | $2,960 |
It all sounds great having more money for your retirement. But for the next few years to come, that ceiling hike will adjust further up. And even with a salary increase, you might not get to enjoy the immediate increased spend power with this ceiling in mind.
Assuming your salary goes up by 5% every year. By 2024, the CPF income ceiling will be raised to S$6,800 and your individual CPF contribution will increase from S$1,260 to S$1,360.
In comparison to the in-hand monthly pay of S$5,740 in 2023, you will be taking home S$5,990 after the hike in 2024. This means, your realised monthly pay increase will be just S$250 against the actual hike of S$350. Despite the salary raise, your ability to spend won’t grow as much due to the adjusted ceiling.
Overall, you will be paying S$160 extra in your CPF contribution, while your employer will pay S$136 more every month, compared to 2022. You will end up with an additional S$296 in your CPF account per month and earn interest on a larger balance.
In a nutshell, you will have to make do with lesser pay per month in lieu of future financial safety.
What to do with extra money now added to CPF?
You may want to consider making your money work harder in the long term. A few options:
- Option 1: Keep your money in your CPF within Ordinary Account – and earn a steady 2.5% interest
- Option 2: Transfer parts to other CPF accounts (Special Account and Medisave)- to earn higher interest of up to 5%
- Option 3: Invest your CPF, through available instruments- weigh the pros and cons of risk vs. return
Try to research the options to understand your personal situation before moving money around. Everyone has unique needs and goals that they would like to achieve with their finances. Remember there is no size fits all when it comes to financial planning!
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