SINGAPORE — For some Singaporeans, their take-home pay might look slightly different this month. During Budget 2023, Deputy Prime Minister and Finance Minister Lawrence Wong announced that the monthly salary ceiling for the Central Provident Fund (CPF) will be raised in stages from S$6,000 to S$8,000 by 2026. 

Starting Friday (Sept 1), if your monthly pay exceeds S$6,000, you will receive more in CPF contributions because of the increased limit.

But this also means that a greater proportion of your salary will go to your CPF savings, which explains the difference in take-home pay. 

This increase to the CPF monthly income ceiling is to help middle-income workers save more and keep pace with inflation and rising salaries, said Mr Wong during his 2023 Budget statement.

The last change to the income ceiling was in 2016 when it was adjusted from S$5,000 to S$6,000. 

TODAY speaks to experts to break down these changes and what this increase means for working adults. 

WHAT IS AN INCOME CEILING AND WHY NOW?

The CPF monthly income ceiling refers to the maximum amount of monthly wages eligible for CPF contributions. 

From September 2023, the CPF monthly salary ceiling will go up by S$300 to S$6,300.

It will rise to S$6,800 from January 2024, S$7,400 from January 2025 and S$8,000 from January 2026.

The CPF annual salary ceiling of S$102,000 remains unchanged.

This income ceiling can also be understood as the point where one's income is considered enough to cover one's basic needs, said Mr Christopher Gee, the deputy director and senior research fellow at the Institute of Policy Studies, National University of Singapore.

Citing the median gross monthly income from work (including employer's CPF contributions) of full-time employed residents, he pointed to how it has risen from S$4,680 in 2021 to S$5,070 in 2022. 

Currently, the CPF income ceiling is at S$6,000 and “this amount is benchmarked to the ordinary wage levels of those considered to be in the middle-income group”, he added.

Mr Gee said that if the income ceiling is not raised periodically, there is a danger over time that the CPF system will cover less and less of members’ basic retirement needs, particularly if projected retirement costs rise in the future. 

Associate Professor Walter Theseira of Singapore University of Social Sciences (SUSS) echoed Mr Gee's sentiments, adding: “There is a need to have a more regular process of adjusting the salary ceilings to allow workers to increase their retirement savings in line with increases in retirement costs.”

LESS TAKE-HOME PAY MEANS MORE FOR LATER  

Experts said that the changes to the CPF monthly income ceiling might not seem “relevant” to youths now, as most people between the ages of 20 and 34 earn an average of S$4,446 to S$5,792 as reported in the Labour Force in Singapore 2022 report.

However, they pointed out that raising the income ceiling now ensures larger contributions can be made to their CPF in anticipation of future increases to their salary. 

A higher income ceiling serves as a form of future-proofing, where money is set aside to finance a home, save for retirement, and pad their Special and MediSave accounts to boost health savings, said Mr Gee. 

“It is important for all CPF members to understand the fundamental purpose of CPF, which is to set aside sufficient savings to cover their basic needs in retirement,” he added.  

For those who might feel the pinch of having less take-home pay, Mr Gee noted how the changes to the income ceiling will be implemented in four stages, which will “allow those whose take-home pay might be reduced to plan appropriately for these changes”.

WOULD HIGHER EMPLOYER CONTRIBUTIONS LEAD TO FEWER PAY RAISES OR BONUSES?

A raised CPF income ceiling also means a larger employer contribution towards CPF savings. As it stands, employees aged 55 and below contribute 20 per cent of their wages to their CPF, while employers put in 17 per cent.

With this increase in income ceiling, there are some concerns that employers might hold back on bonuses and pay raises.

These concerns are “valid”, said Mr Reginald Koh, the founder of financial literacy podcast The Financial Coconut.

As a small business owner himself, there is more to consider when the employer's CPF contributions increase. 

To this, Assoc Prof Theseira believes that employers are not likely to directly offset planned changes to wages, but they might “account for the impact of the change in their wage bill” and adjust accordingly. 

However, Mr Koh said the more significant concern is when companies start implementing unorthodox pay structures to circumvent employer CPF contributions.

“If we see more of that, then the Government needs to intervene to adjust this behaviour,” he said.

An increase in CPF contributions will be an issue if there is a trend of wages plateauing in the next five to 10 years, or if middle-income earners are stuck in this bracket because of this change, added Mr Koh.

Experts agree that given rising salaries and inflation, workers can expect more changes to their CPF income ceiling. 

“We should expect a regular review of the CPF income ceiling in the future,” said Mr Gee. “This is to ensure appropriate coverage for CPF members’ basic retirement needs.”