The increase of the Central Provident Fund (CPF) monthly salary ceiling is part of a slew of initiatives to address retirement adequacy in Singapore, says Christopher Gee of the Institute of Policy Studies.
Christopher Gee
14 Feb 2023
SINGAPORE: The announcement of a staggered increase in the Central Provident Fund (CPF) monthly salary ceiling, from S$6,000 per month now to S$8,000 by 2026, in this year’s Budget is hugely significant.
It will have major long-term effects on Singaporean workers’ retirement savings contributions and therefore accumulation. More will be able to reach their Full or Enhanced Retirement Sums by the time they retire.
The increase in salary ceiling will also mean that CPF savings will keep pace with wage inflation, so that the system continues to cater for the needs of workers up to the 80th percentile of the monthly income distribution.
The CPF monthly salary ceiling was last increased from S$5,000 to S$6,000 a month in 2016, with the similar objective of ensuring the CPF system covered workers up to that 80th percentile. This year’s moves will be implemented in a staggered fashion from Sep 1 onwards, reaching S$8,000 by the start of 2026.
This will lower the take-home pay of workers earning more than S$6,000 a month. A worker aged 55 years or below earning S$8,000 a month in January 2026 would have an additional S$400 employee CPF contribution to make each month, compared to if he or she earned that equivalent monthly wage in August 2023.
TRADEOFFS IN REDUCED TAKE-HOME PAY
This S$400 reduction in take-home pay may not be inconsequential for middle-income households with bills to pay, particularly those dependent on a single income earner. But for younger workers, an immediate benefit would be that the increased CPF contribution could help to pay housing loan commitments. Long-term retirement savings are the payoff for the short-term sacrifice.
Employer CPF contributions for workers earning monthly salaries more than S$6,000 a month will also rise. A rough back-of-envelope estimate is that raising the CPF monthly salary ceiling to S$8,000 would lead to an increase in labour costs of S$2 billion to S$2.5 billion annually, once fully implemented in 2026.
This increase in total worker compensation costs would need to be offset by productivity gains to ensure it is sustainable for businesses and their workers in the long run.
The increase of the CPF monthly salary ceiling is part of a slew of initiatives announced by Deputy Prime Minister Lawrence Wong to address retirement adequacy. Boosting middle-income workers’ CPF contributions will help to offset the effects of potentially higher inflation on retirement savings.
Christopher Gee is Senior Research Fellow and Head of Governance and Economy department at the Institute of Policy Studies, National University of Singapore.
Budget 2023: CPF monthly salary ceiling will be raised from S$6,000 to S$8,000 by 2026
The CPF monthly salary ceiling will be increased in stages from September 2023.
Matthew Mohan
14 Feb 2023
SINGAPORE: The Central Provident Fund (CPF) monthly salary ceiling will be increased in stages from S$6,000 to S$8,000 by 2026, Finance Minister Lawrence Wong announced in his Budget speech on Tuesday (Feb 14).
The increase will be phased in over four years starting in September this year.
Mr Wong said the move was to “keep pace with rising salaries” and would help middle-income Singaporeans save more for their retirement.
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