Contributing to the CPF in 2023 – Everything You Need to Know

one of the key highlights Budget 2023 is an upcoming change to the CPF contribution cap. To help Singaporeans increase their retirement savings, the salary cap will be gradually raised from his S$6,000 to S$8,000.

What does this change mean for the average Singaporean, and for that matter, what else should I know about contributing to the CPF in 2023?

CPF Contribution Salary Cap Increase

Starting this year, the salary cap for contributions to the CPF will gradually increase to a new cap of S$8,000. To help employers and workers adjust to the new pay caps, this change will come in four stages:

This change is important because it affects the entire workforce.

Most notably, employers’ labor costs will increase as companies are required to contribute an amount equal to a percentage of their gross salary to their employees’ CPF accounts.

Raising the salary cap to S$8,000 means companies have to pay CPF contributions for longer.

Impact of CPF salary cap hike on Singaporeans

Raising the CPF’s salary cap will reduce your take home pay. While this may sound alarming, the impact may not be as severe as it sounds.

First, this change will only affect those currently earning between S$6,000 and S$8,000 per month. For those who have not reached this income level, there will be no change in take-home pay.

Second, no one likes having less money to cover their daily expenses, but how much less will they take home?

Related: 5 Reasons You Need Emergency Funding

Let’s assume you are currently earning S$6,500 per month. Currently, the CPF contribution limit is S$6,000, so you only need to contribute 20% of S$6,000 to your CPF account. No deduction of the remaining S$500 is required.

So your current take home is (80% x S$6,000) + S$500 = S$5,300.

So here’s how your take-home pay changes when the salary cap goes up.

In our hypothetical scenario, by January 2024, the take-home salary difference will be S$100. As long as the salary stays the same, there is no further impact.

In fact, the people most affected by this change are those who already earn more than S$8,000 a month. The take-home pay will be reduced from S$6,800 to S$6,400 by January 2026.

That’s a difference of S$400 a month, not insignificant, especially when both earners are affected. So anyone who finds themselves in this salary range should take steps to adjust sooner rather than later.

But it’s also important to remember that what you lose at home is what you gain in CPF savings. As much as S$400 (or S$100) is saved each month, it will be multiplied by the power of compound interest and eventually used to meet your retirement needs.

Speaking of…

No changes to the CPF rate have been announced. CPF balances pay a basic interest rate of 2.5% per annum for Ordinary Account (OA) funds and 4% per annum for Special Account (SA), Medisave Account (MA), and Retirement Account (RA) funds. increase. ) – the latter is created when he turns 55.

Additionally, additional interest is accrued based on 1) account balance and 2) age. This means that if she is under 55 and her savings are less than her S$20,000, she will get 1% additional interest on her OA account. If the CPF amount is less than S$60,000, SA and MA accounts will be charged an additional 1% interest of him.

For those aged 55 and over, 2% interest will be added to the first S$30,000 of total CPF balance (OA limit is S$20,000) and 1% interest will be added to the next S$30,000 of total balance. Once the total balance exceeds S$60,000, the interest will revert to the base rate of the respective account.

Admittedly, it’s not exactly easy. To further complicate matters, the 1% additional interest earned on OA is transferred to the MA account (if less than 55) and RA account (if greater than 55).

Why should I pay attention to the CPF interest rate? Doing so will help you make an informed decision about whether to invest your balance CPF investment scheme for potentially higher returns.

However, please note that while the return on CPF is guaranteed, the return on investment is not. So if the return on the investment you’re considering buying has historically been similar compared to his CPF base rate, it’s best to leave the balance alone for a guaranteed return. increase.

Also read: What can I invest in under the CPF investment scheme?

What is the CPF voluntary top-up limit?

Those who believe in the slow, sure and steady path offered by the CPF scheme Voluntarily top up your CPF balance to maximize your profit.

You can top up all three CPF accounts (OA, SA, MA) with cash or transfer OA funds to SA or RA (under the Post Retirement Charge Scheme). You can also top up your MA to better meet your medical bills.

In addition to topping up your account, you can also donate cash to the accounts of your loved ones, spouses and children.

Please note that the amount that can be voluntarily topped up is limited as follows:

• Annual Limit: The difference between the CPF Annual Limit (S$37,740) and the mandatory CPF contributions made in the calendar year. The excess will be refined interest-free in the following year.
• Overall restrictions:
  • Maximum full retirement benefit (S$192,000) in SA if under 55
  • Increased Maximum Retirement Allowance (S$288,000) in RA for Ages 55+

What are the benefits of voluntarily replenishing your CPF account?

The main benefit is to take advantage of the guaranteed return provided by the CPF scheme to increase your retirement savings.

Additionally, certain types of top-ups are eligible for tax relief of up to S$16,000 per year. Top up your account for up to S$8,000 and top up your family or loved ones account for an additional S$8,000.

Notwithstanding the above, it is important to know that voluntary CPF top-ups (including transfers of OA funds to SA or RA) are strictly irreversible. You should only top up using funds that you do not need in the foreseeable future.

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Cover image source: Unsplash

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