During the budget 2023 speech by DPM Lawrence Wong on Valentine’s Day, one of the key things that he announced is the Increase in Monthly Salary Ceiling for CPF contributions for individuals (and employers).
The Salary Ceiling will gradually increase from S$6000 to S$8000. It will be done in 4 stages, with the current first stage already in effect as of 1 Sep 2023. (Refer to table below)
Direct Impact on Singaporean/PR : Reduction in take-home pay
With this change, those earning above $6000 will start to see reduction in their take-home-pay, but, fret no, given an example of an individual that is already earning $8000 per month, and assuming there is no change in salary throughout till Jan 2026, this individual will only have a reduction in take-home salary from $6800 (before Sep 2023) to $6400 (from Jan 2026). This $400 difference should not make a huge impact for those in this salary range hypothetically.
Even with the change in salary ceiling taking full effect on Jan 2026, the annual salary ceiling still remains at $102,000. This means that even for someone earning $8,000 today, the total amount of CPF contribution will still be up to the CPF Annual Limit of $37,740. What will change is how much of it comes via the Ordinary Wage (OW) compared to Additional Wages (AW). When that happens (in 2026), we will only receive CPF contributions on up to $6,000 of Additional Wages (compared to $30,000 on the current system where the monthly salary ceiling is $6,000).
Direct Impact on Companies: Increase in Cost of Labour for Employers
Raising the wage ceiling will mean that companies will have to pay more in CPF contributions for their staff that are earning more than $6000 in monthly salary effective 1 Sep.
As business owners, you might want to manage your cash flow, and here at Pinnacle Wealth, we have corporate solution for you.
Reminder to plan ahead for Retirement Planning
Be it that this move by the Government is a Yay or Nay for some, but this move is evidently pointing at reminding all of us to look at our own retirement nest egg.
Referring to the articles below, our cost-of-living has definitely increased gradually.
The best thing you can do for your retirement planning is to start early, and let me illustrate with the magic of compound interest when it comes to saving and investing for retirement. The earlier you start growing your retirement nest egg, the more time you will have for your money to grow through compound interest.
Effect of Compounding Interest
Let us illustrate just how powerful compounding interest is with an example. Assuming, given your current income and expenses, you can afford to put aside S$1200 a year towards your retirement. This amount could be invested in a balanced portfolio that gives a modest average rate of returns of 5% per year. By investing your S$1200 yearly, you would have accumulated $91,917.98 towards your retirement after just 35 years.
If you have started your retirement savings 10 years earlier, you would have accumulated a staggering S$151,044.68 by saving the same amount yearly at the same rate of return. By starting earlier, you would only have had to save an additional S$12,000 but you would be able to accumulate an additional of $59,126.70.
So, don’t make the mistake of relying on your CPF as your one golden retirement nest egg, why not let us create that additional one or two more nest egg that can set you on a plan to possibly retire earlier. Speak to us here at Pinnacle Wealth to help you have a head-start on your retirement planning now.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
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