CPF contribution changes from 1 Jan: How will it affect you?

What happened?

As we enter 2024, there's an important change to Central Provident Fund (CPF) contributions that may affect you. 

From 1 January 2024, the CPF monthly salary ceiling will be raised further.

This follows a previous increase in the CPF monthly contribution on 1 September 2023.

If you are new to the CPF monthly salary ceiling, it is the maximum amount of monthly wages eligible for CPF contributions. 

As a recap, the CPF monthly salary ceiling was increased to S$6,300 on 1 September 2023 from S$6,000 previously. 

This means that if your salary is above S$6,300 per month, you will not be required to make CPF contributions on the portion of your monthly salary above S$6,300.

This ceiling is now set to be raised further in various stages from 1 January 2024 to 2026.

From 1 January 2024, the CPF monthly salary ceiling will be raised from S$6,300 to S$6,800. 

The CPF monthly salary ceiling will then be progressively increased to S$8,000 in 2026.

There is no change to the CPF annual salary ceiling, which will remain at S$102,000. The CPF annual limit will also remain at S$37,740. 

To learn more about what contributes towards your ordinary wage and additional wage, refer to this guide by CPF. 

Who will be affected by the increase in CPF monthly salary ceiling?

Employees with a monthly salary of S$6,300 and above will be affected by the increase in CPF monthly salary ceiling from 1 January 2024. 

However, recall that CPF contributions are made up of: (i) contributions by employee (ii) contributions by employer.

Employees aged 55 and below are required to contribute 20 percent of their salary while their employer contributes another 17 percent of the same salary.

Your employers will now have to contribute a higher amount due to the increase in CPF monthly salary ceiling.

This also means that the cost of hiring employees will go up across the board, even if salaries remain the same.

How will the increase in CPF monthly salary ceiling affect your take-home pay?

If your salary is greater than S$6,300 a month, your monthly take-home pay will be reduced due to the higher CPF monthly salary ceiling.

This is due to the increased CPF contributions you must make on a monthly basis.

If you earn a monthly wage of S$8,000, your 20% employee contribution will currently be S$1,260 as it is capped by the S$6,300 ceiling.

When the CPF monthly salary ceiling is raised to S$6,800 on 1 January 2024, your 20% employee contribution will increase to S$1,360. 

This would mean that your CPF contribution as an employee will increase by S$100 per month. Your take-home pay would also fall by S$100 per month as a result. 

When the CPF monthly salary ceiling is raised to S$8,000 in 2026, 20% of the revised ceiling will then be S$1,600.

This would mean that your CPF contribution as an employee will increase by S$400 per month compared to your contribution before 1 September 2023. Your take-home pay would then fall by S$400 per month as a result, if you are not getting any pay increase during this period.

To provide an illustration of how you will be affected at each stage of the staggered changes, we summarise the changes in the table below. 

How will the increase in CPF monthly salary ceiling affect your CPF savings?

As the CPF contributions increase, your retirement savings will grow at a faster pace in the long-term

The salaryman who earns S$8,000 a month will receive an additional S$400 in employee CPF contributions and S$340 in employer CPF contributions per month when the full changes take effect in 2026, compared to the contributions before 1 Sep 2023.

This means that there will now be an additional S$740 going into your CPF accounts every month, or S$8,880 every year.

Triple fortune, anybody?

CPF contributions are allocated to three accounts: Ordinary Account (OA), Special Account (SA) and MediSave Account (MA). The allocation between the three accounts will differ depending on your age. You can refer to the CPF website for more details on the contribution breakdown.

With an interest of at least 2.5% earned across your CPF accounts, these savings will still build up to a considerable amount when compounded over a long period of time.

For illustration purposes, we look at a 30-year-old salaryman with a monthly wage of S$8,000 and how his total CPF contributions will increase for the next 25 years until he reaches 55 years old.  

The illustration assumes that: (i) salary increments follow the staggered increases in CPF monthly salary ceiling (ii) CPF interest rates earned are not taken into account.

Of course, your wages will hopefully go up over time as well, which will allow you to save more for retirement.

With the illustration shown in the table below, the increase in CPF monthly salary ceiling can make a big difference of more than S$200,000 in the long term. 

What would Beansprout do?

If your monthly salary is above S$6,300, the increase in the CPF monthly salary ceiling from 1 January 2024 will lead to some reduction in your take home pay. 

However, it will also help to build up your retirement savings as the higher CPF contributions are accumulated over time. 

As we approach 2024, learn more about how we are doing a complete financial health check, covering everything from our cash savings to our CPF.

You may want to consider different ways to allow your savings to work harder for your retirement as your CPF savings grow. 

One of the options is to transfer funds from your CPF Ordinary Account (OA) to your CPF Special Account (SA) to earn a higher interest rate. We discuss the pros and cons of transferring to your SA here. 

Alternatively, you may also choose to invest your CPF funds. We look at the different investment options eligible for the CPF Investment Scheme here.

Lastly, Singapore T-bills have been gaining in popularity amongst CPF investors with their attractive yields. We examine if it might be worthwhile using your CPF OA funds to invest in the T-bill here. 

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