WHAT DOES IT MEAN FOR EMPLOYERS?
Employees aged 55 and below currently contribute 20 per cent of their monthly wages to CPF, subject to the CPF ceiling, while employers of such workers contribute 17 per cent.
With the latest move, employers’ monthly contributions will rise if their employee earns above the ceiling.
For example, at the current monthly ceiling of S$6,000, an employer will have to make a CPF contribution of S$1,020 – 17 per cent of the ceiling – for a worker who earns S$8,000 a month.
From January 2026, when the monthly ceiling is S$8,000, the employer’s contribution for such a worker will rise to S$1,360.
The change in the CPF monthly salary ceiling will only affect employers whose employees earn above the ceiling.
As such, employees aged 55 and below who earn above the ceiling will get more overall because of the increased employer CPF contributions. While they take home less, they will now have more in their CPF accounts for various purposes, including for retirement or to pay for housing loans.
HOW WILL THIS HELP WITH RETIREMENT NEEDS?
Deloitte Singapore’s tax partner Yap Hsien Yew described the raising of the CPF monthly salary ceiling as “one of the most significant measures” regarding retirement planning in this year’s Budget, given how it will enable Singaporeans to accumulate larger amounts in their CPF accounts over time.
More people may be able to achieve the basic retirement sum “much sooner”, or even set aside more to qualify for the full and enhanced retirement sums that provide higher monthly payouts, he added.
Younger workers will have the benefit of time to enjoy the compounding effects on larger CPF account balances, said Mr Christopher Gee, senior research fellow and head of the governance and economy department at the Institute of Policy Studies.
But the change will be painful for some. For example, those in the sandwiched generation, who have to care for their children and elderly parents, will likely “feel most acutely” the impact of smaller take-home pay, Mr Gee added.
Taken together with other CPF-related announcements such as the increase in the monthly payout for seniors on the Retirement Sum Scheme, Budget 2023 will provide “much-needed financial security” for both the lower- and middle-income groups and give Singaporeans a greater peace of mind when planning their finances, said Mr Yap.
“(The measures) will help them to accumulate more savings and provide them with a more reliable income during their retirement years. This will help to ensure that these earners have a comfortable and financially secure retirement,” he said.