What's the Real Impact of CPF Ceiling Changes to You?

Introduction 

Hi everyone, welcome back to The Investing Iguana, where we talk about all things related to money, savings, and investments. I'm your host, Iggy, and today were going to discuss a very important topic that affects many Singaporeans: the changes to the monthly CPF ceiling. If you're not familiar with CPF, it stands for Central Provident Fund, which is a compulsory savings scheme for all working Singaporeans and permanent residents. CPF helps you save for your retirement, healthcare, housing, and education needs. Every month, a portion of your salary goes into your CPF account, and your employer also contributes a matching amount. You can use your CPF savings to buy a home, pay for medical bills, invest in various schemes, or withdraw them when you reach the retirement age.
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​CPF Monthly Salary Ceiling to be Increased to S$8,000 by 2026

But how much of your salary goes into your CPF account? Well, that depends on two factors: your age and the CPF monthly salary ceiling. The CPF monthly salary ceiling is the maximum amount of your monthly salary that is subject to CPF contributions. For example, if the CPF monthly salary ceiling is S$6,000 and you earn S$7,000 a month, you only contribute CPF on the first S$6,000 of your salary. The remaining S$1,000 is not subject to CPF contributions.

So why does the CPF monthly salary ceiling matter? Well, it affects how much you can save for your future needs through CPF. The higher the CPF monthly salary ceiling, the more you can save in your CPF account. The lower the CPF monthly salary ceiling, the less you can save in your CPF account.

Now, here’s the big news: the CPF monthly salary ceiling is going to change soon. In fact, it’s going to increase gradually from S$6,000 to S$8,000 by 2026. This means that more of your salary will be subject to CPF contributions in the coming years. This is part of the government’s plan to help Singaporeans save more for their retirement and other long-term needs.
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​How to Make the Most of Your CPF Savings

But what does this mean for you? How will this affect your take-home pay and your CPF savings? Well, that’s what we’re going to find out in this video. We’ll look at how the changes to the CPF monthly salary ceiling will impact different income groups and age groups. We’ll also look at some of the benefits and drawbacks of having a higher CPF monthly salary ceiling. And finally, we’ll give you some tips on how to make the most of your CPF savings and investments.
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​How the CPF monthly salary ceiling affects low-income earners

How will the changes to the CPF monthly salary ceiling affect different income groups?

The changes to the CPF monthly salary ceiling will affect different income groups differently. Basically, there are three income groups that we can consider: low-income earners, middle-income earners, and high-income earners.

Low-income earners

Low-income earners are those who earn less than or equal to the current CPF monthly salary ceiling of S$6,000. For this group, the changes to the CPF monthly salary ceiling will have no impact on their take-home pay or their CPF savings. They will continue to contribute 20% of their salary to their Ordinary Account (OA), up to the current CPF monthly salary ceiling of S$6,000. Their employers will also continue to match their contributions dollar-for-dollar.

So if you’re a low-income earner, you don’t have to worry about any changes to your take-home pay or your CPF savings. You can continue to enjoy the benefits of having a compulsory savings scheme that helps you save for your future needs.
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Middle-income earners

Middle-income earners are those who earn more than the current CPF monthly salary ceiling of S$6,000 but less than or equal to the new CPF monthly salary ceiling of S$8,000 by 2026. For this group, the changes to the CPF monthly salary ceiling will have some impact on their take-home pay and their CPF savings. They will have to contribute more of their salary to their OA in the coming years as the CPF monthly salary ceiling increases gradually.

For example, let’s say you’re a middle-income earner who earns S$7,000 a month. Currently, you only contribute 20% of S$6,000 (which is S$1,200) to your OA every month. Your employer also contributes another S$1,200 to your OA every month. The remaining S$1,000 of your salary is not subject to CPF contributions.

However, from September 2023 onwards, you will have to contribute 20% of S$6,300 (which is S$1,260) to your OA every month. Your employer will also contribute another S$1,260 to your OA every month. The remaining S$740 of your salary will not be subject to CPF contributions.

This means that your take-home pay will decrease by S$60 every month from September 2023 onwards. However, your CPF savings will increase by S$120 every month from September 2023 onwards.
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​Similarly, from September 2024 onwards, you will have to contribute 20% of S$6,600 (which is S$1,320) to your OA every month. Your employer will also contribute another S$1,320 to your OA every month. The remaining S$480 of your salary will not be subject to CPF contributions.

This means that your take-home pay will decrease by another S$60 every month from September 2024 onwards. However, your CPF savings will increase by another S$120 every month from September 2024 onwards.

And so on, until September 2026, when you will have to contribute 20% of S$8,000 (which is S$1,600) to your OA every month. Your employer will also contribute another S$1,600 to your OA every month. The remaining S$0 of your salary will be subject to CPF contributions.

This means that your take-home pay will decrease by a total of S$400 every month from September 2026 onwards. However, your CPF savings will increase by a total of S$800 every month from September 2026 onwards.

So if you’re a middle-income earner, you have to be prepared for some changes to your take-home pay and your CPF savings in the coming years. You will have less cash in hand every month, but you will have more savings in your CPF account.
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​High-income earners

High-income earners are those who earn more than the new CPF monthly salary ceiling of S$8,000 by 2026. For this group, the changes to the CPF monthly salary ceiling will have no impact on their take-home pay or their CPF savings. They will continue to contribute 20% of their salary to their OA, up to the new CPF monthly salary ceiling of S$8,000 by 2026. Their employers will also continue to match their contributions dollar-for-dollar.

So if you’re a high-income earner, you don’t have to worry about any changes to your take-home pay or your CPF savings. You can continue to enjoy the benefits of having a compulsory savings scheme that helps you save for your future needs.
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​CPF Income Ceiling: What Does It Mean for Youths?

Experts agree that the changes to the CPF monthly income ceiling may not seem relevant to most youths now, as the average salary for people between the ages of 20 and 34 is between S$4,446 and S$5,792. However, they argue that raising the income ceiling now is still beneficial for youths, as it allows them to start saving more for their future.

When the income ceiling is raised, it means that a larger portion of their salary will be contributed to their CPF. This means that they will have more money saved up for retirement, a home, and other expenses. Additionally, a higher income ceiling can help youths to boost their Special and MediSave accounts, which can be used to pay for medical expenses and other healthcare needs.

In short, raising the CPF income ceiling is a form of future-proofing for youths. It allows them to start saving more money now, so that they will be better prepared for their future financial needs.

​How will the changes to the CPF monthly salary ceiling affect different age groups?

The changes to the CPF monthly salary ceiling will affect different age groups differently. Basically, there are four age groups that we can consider: below 35 years old, 35 to 45 years old, 45 to 55 years old, and above 55 years old.

Below 35 years old

If you’re below 35 years old, the changes to the CPF monthly salary ceiling will have a positive impact on your long-term CPF savings. You will be able to save more for your retirement and other needs through CPF in the coming years. You will also have more time to grow your CPF savings through compound interest and investments.

However, you may also face some challenges in managing your cash flow and budgeting in the short term. You may have less disposable income every month as more of your salary goes into your CPF account. You may also have less flexibility in using your CPF savings for other purposes such as buying a home or paying for education.

Therefore, if you’re below 35 years old, you should plan ahead and adjust your spending habits accordingly. You should also make use of the various schemes and grants that are available to help you achieve your financial goals with CPF.
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​35 to 45 years old.

If you’re between 35 and 45 years old, the changes to the CPF monthly salary ceiling will have a mixed impact on your long-term CPF savings. On one hand, you will be able to save more for your retirement and other needs through CPF in the coming years. On the other hand, you may not have enough time to grow your CPF savings through compound interest and investments.

Moreover, you may also face some challenges in managing your cash flow and budgeting in the short term. You may have less disposable income every month as more of your salary goes into your CPF account. You may also have less flexibility in using your CPF savings for other purposes such as buying a home or paying for education.

Therefore, if you’re between 35 and 45 years old, you should review your financial situation and goals regularly. You should also make use of the various schemes and grants that are available to help you achieve your financial goals with CPF.
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45 to 55 years old

If you’re between 45 and 55 years old, the changes to the CPF monthly salary ceiling will have a negative impact on your long-term CPF savings. You may not be able to save enough for your retirement and other needs through CPF in the coming years. You may also not have enough time to grow your CPF savings through compound interest and investments. Furthermore, you may also face some challenges in managing your cash flow and budgeting in the short term. You may have less disposable income every month as more of your salary goes into your CPF account. You may also have less flexibility in using your CPF savings for other purposes such as buying a home or paying for education.

Therefore, if you’re between 45 and 55 years old, you should take action and boost your CPF savings as much as possible. You should also make use of the various schemes and grants that are available to help you achieve your financial goals with CPF.
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Above 55 years old.

If you’re above 55 years old, the changes to the CPF monthly salary ceiling will have no impact on your long-term CPF savings. You have already reached the retirement age and can withdraw your CPF savings at any time. You can also choose to leave your CPF savings in your account and earn interest on them.

However, you may still want to consider how the changes to the CPF monthly salary ceiling will affect your future income and expenses. You may want to plan ahead and decide how much you need to withdraw from your CPF account and how much you want to leave behind. You may also want to explore the various options and schemes that are available to help you manage your retirement income and healthcare costs.

Therefore, if you’re above 55 years old, you should review your retirement plan and budget regularly. You should also make use of the various schemes and grants that are available to help you achieve your financial goals with CPF.

How can you make the most of your CPF savings and investments?

Regardless of how you feel about the changes to the CPF monthly salary ceiling, you should always try to make the most of your CPF savings and investments. Here are some tips on how to do that:

a. Start saving early and save consistently. The earlier you start saving, the more time you have to grow your CPF savings through compound interest and investments. The more consistently you save, the more stable and secure your CPF savings will be.

b. Transfer excess funds from your OA to your Special Account (SA) or Retirement Account (RA). Your SA and RA earn higher interest rates than your OA (up to 6% per annum). By transferring excess funds from your OA to your SA or RA, you can boost your retirement savings and enjoy higher returns.

c. Top up your own or your loved ones’ CPF accounts with cash or voluntary contributions. By topping up your own or your loved ones’ CPF accounts, you can increase your retirement savings and enjoy tax relief (up to S$14,000 per year). You can also help your loved ones achieve their financial goals with CPF.

d. Invest wisely and diversify your portfolio. By investing wisely, you can grow your CPF savings faster and achieve higher returns. By diversifying your portfolio, you can reduce your risk exposure and balance out your gains and losses.

e. Plan ahead and review regularly. By planning ahead, you can set realistic and achievable financial goals with CPF. By reviewing regularly, you can monitor your progress and make adjustments if necessary.

Conclusion 

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