Starting from 1 September 2023, CPF contribution changes brought adjustments to employer-employee contribution rates, and by extension, savings for retirement and other purposes.
Before we dive into these changes, let’s refresh our understanding of CPF.
What is CPF?
The Central Provident Fund (CPF) Board provides a mandatory social security savings scheme in Singapore. This comprises three main accounts:
- Ordinary Account (OA): Used for housing, education, investment, and insurance.
- Special Account (SA): Designed for retirement, investment, and old age needs.
- MediSave Account (MA): Reserved for healthcare expenses, including medical insurance.
CPF helps Singaporeans save for retirement, housing, and healthcare by managing contributions to these accounts.
Employee’s age (years)
|Contribution rates from 1 January 2023|
(monthly wages > $750)
(% of wage)
(% of wage)
(% of wage)
|55 and below||17||20||37|
|Above 55 to 60||14.5||15||29.5|
|Above 60 to 65||11||9.5||20.5|
|Above 65 to 70||8.5||7||15.5|
To calculate the CPF contribution, we need to also understand the different attributes that will affect the outcome of the CPF contribution.
CPF Ordinary Wages (OW) refers to the portion of an employee’s salary or income that is subject to CPF contributions in Singapore. It includes various components of an individual’s income, such as basic salary, overtime pay, bonuses, and commissions, but excludes allowances, reimbursements, and other non-pensionable items.
To qualify as OW for a given month, two conditions must be met:
- The wages must be earned solely for the employee’s work during that month
- Wages for that month must be payable by the 14th of the subsequent month
CPF Additional Wages (AW) refers to a category of wages that includes various types of payments made to employees on top of their regular monthly salary. This can encompass bonuses, incentives, commissions, and other forms of supplemental income.
The AW ceiling is computed as follows in a calendar year:
$102,000 (equivalent to 17 times $6,000 [previous OW ceiling]) minus total OW subject to CPF for that year.
Wages that are not classified as OW will be AW for the month.
- Example of OW: monthly salary
- Example of AW: annual performance bonus
CPF Annual Limit refers to the maximum amount of total CPF contributions that an individual can receive or make in a calendar year in Singapore. It is calculated based on the individual’s age and contributions to the OA and SA. The current CPF Annual Limit is $37,740.
Read more: What is CPF LIFE?
Increase in CPF OW ceiling
|CPF OW ceiling||CPF annual AW ceiling|
|From 1 September 2023||$6,300|
|From 1 January 2024||$6,800|
|From 1 January 2025||$7,400|
|From 1 January 2026||$8,000|
Take, for example, an individual, aged 40 who earns $8,000 per month. Let’s look at the illustration below of how this person’s take-home pay will be affected by the increase in CPF OW ceiling.
Before 1 September 2023
Employee: $6,000 (OW ceiling) x 20% = $1,200
Employer: $6,000 (OW ceiling) x 17% = $1,020
Take-home pay: $8,000 – $6,000 + ($6,000 – $1,200) = $6,800
From 1 September 2023
Employee: $6,300 (OW ceiling) x 20% = $1,260
Employer: $6,300 (OW ceiling) x 17% = $1,071
Take-home pay: $8,000 – $6,300 + ($6,300 – $1,260) = $6,740
From 1 January 2024
Employee: $6,800 (OW ceiling) x 20% = $1,360
Employer: $6,800 (OW ceiling) x 17% = $1,156
Take-home pay: $8,000 – $6,800 + ($6,800 – $1,360) = $6,640
From 1 January 2025
Employee: $7,400 (OW ceiling) x 20% = $1,480
Employer: $7,400 (OW ceiling) x 17% = $1,258
Take-home pay: $8,000 – $7,400 + ($7,400 – $1,480) = $6,520
From 1 January 2026
Employee: $8,000 (OW ceiling) x 20% = $1,600
Employer: $8,000 (OW ceiling) x 17% = $1,360
Take-home pay: $8,000 – $1,600 = $6,400
From the above illustrations, you can see that there is an increase in contribution amounts to the CPF accounts by the employee and employer.
For an employee, this can be good news as the increased contributions can help with housing loan repayment, saving up for retirement or funding healthcare expenses or insurance.
However, the take-home pay will gradually reduce (if the salary remains constant), and the smaller take-home pay may affect the employee’s cash flow.
This increase in the CPF OW ceiling can bring positive and negative impacts.
As an employee in the short term, you will need to review your financial health to ensure that the key indicators in your financial health report are in the normal or optimal range. Thereafter, you will need to look at how you can potentially increase your earning income through ways such as upskilling your knowledge and skills so that you can command a higher salary. In this way, you can ensure your take-home pay stays sufficient, while also carrying out long-term planning for retirement.
However, for the employer, this will result in higher spending since the employer’s contribution increases as part of the overall higher contribution to the employees’ CPF accounts. This may impact the prices of the goods and services offered by the employer and also the labour market.