Budget 2023: Phased raising of CPF monthly salary cap will help employers to adjust

• CPF monthly salary ceiling to rise in four steps: to S$6,300 from September 2023, S$6,800 from January 2024, S$7,400 from January 2025 and S$8,000 from January 2026
• Phased-in increases give time for businesses to adjust

THE phased-in approach in raising the Central Provident Fund (CPF) monthly salary ceiling will allow businesses to adjust to any added costs, said Ang Yuit, vice-president of the Association of Small & Medium Enterprises.

The government is raising the CPF monthly salary ceiling – the maximum amount of ordinary wages on which employee and employer contributions are calculated – from S$6,000 to S$8,000 in 2026, in four steps. This is to keep pace with rising salaries and help middle-income Singaporeans save more for retirement, said Finance Minister Lawrence Wong in his Budget speech on Tuesday (Feb 14).

From Sep 1, 2023, the monthly salary ceiling will rise to S$6,300. From Jan 1, 2024, it will be further lifted to S$6,800. By Jan 1, 2025, the ceiling will go up to S$7,400 and by Jan 1, 2026, it will reach S$8,000.

This ceiling caps the amount of a worker’s salary that attracts CPF contributions. Employees aged 55 and below contribute 20 per cent of their wages – up to this ceiling – to their CPF, while their employers contribute 17 per cent. These percentages are not changing.

Ang noted that small and medium enterprises (SMEs) in some sectors may not be impacted too much by this change, depending on their size and the nature of their business. 

Elaborating, Ang said: “For example, F&B (food and beverage) and retail may have most of the staff in the S$2,500 to S$4,000 salary range. But with competition for talent over the last year as we come out of Covid, resulting in significant salary increases, employers would all be mindful of how this change will impact their business costs over the next few years.”

The Singapore National Employers Federation (SNEF) said that the phased-in rise “will allow employers to gradually adjust and factor this increase into their overall business cost”. 

But Albert Tsui, executive director of the advocacy and policy division at the Singapore Business Federation (SBF), said that the CPF change will add to existing manpower cost pressures, such as higher foreign worker levies and wage increments under the Progressive Wage Model.

“SBF urges the government to consider spacing out some of these wage and manpower related policies to help SMEs survive immediate term cost challenges,” he said.

Panneer Selvam, Asean integrated mobile talent leader at EY People Advisory Services, calculated how the stepped hikes reduce the immediate impact on companies: “The first increase effective Sep 1, 2023 will increase company costs by S$51 per employee earning over S$6,300. Ultimately, the overall increase in cost from Jan 1, 2026 would be S$340 per employee earning over S$8,000 per month.”

For individuals earning over S$8,000 per month from Jan 1, 2026, the higher ceiling would result in additional employer and employee CPF contributions of S$266,400 (not including accumulated interest), based on Selvam’s calculations. This assumes the individual is contributing for 30 years from January 2026, and does not take into account the additional contributions paid during the transition phase from September 2023 to January 2026.

Selvam noted, in an opinion piece published in The Business Times recently, that the ceiling historically reflects the salary of individuals at the 80th percentile of incomes. Also noting that the last raise was in 2016 – from S$5,000 to S$6,000 – he had suggested that an increase in the cap was timely.

Lorna Tan, head of financial planning literacy at DBS Bank, pointed out that the increase in contributions resulting from a higher CPF monthly salary ceiling will also translate to less disposable income for individuals. With the goods and services tax rising to 9 per cent from January 2024, she suggested that individuals should make any must-have big-ticket purchases this year.