CPF Contribution Ceiling Increase – How Does it Affect You?

Alevin Chan

Alevin Chan

Last updated 14 February, 2024

The CPF Board is raising the contribution ceiling progressively until 2026. What’s the reason behind this change, and how does it affect you?

Salaried employees are accustomed to having a portion of their monthly salaries diverted to their CPF accounts. This acts as a form of mandatory savings to help Singaporeans meet housing, healthcare and retirement needs

CPF deductions only apply up to a certain cap – this is known as the contribution ceiling. Up until recently, this was set at S$6,000 monthly. However, starting last year, the contribution ceiling is being progressively raised till 2026, when it will settle at a new level of S$8,000.

If you’re currently drawing a salary that’s under S$8,000, here’s how the change will impact you. 

Table of Contents


CPF contribution ceiling changes explained

The CPF contribution ceiling increase will be accomplished gradually over five phases to allow time for those affected to acclimatise. See the timeline below:

Milestone

CPF contribution ceiling

Increase

Prior to 1 Sep 2023 

S$6,000

N/A

1 Sep 2023 onwards

S$6,300 

S$300

1 Jan 2024 onwards

S$6,800

S$500

1 Jan 2025 onwards

S$7,400

S$600

1 Jan 2026 onwards

S$8,000

S$600

Why increase the contribution ceiling?

Like so many things, inflation is also to blame for this. According to the Budget Statement 2023, delivered by DPM Wong, the increase is to help middle-income workers save more and keep up with rising inflation

In case you’re one of those affected, know that raising the contribution ceiling will result in more CPF savings for you, especially down the line. This is because the more CPF savings you have, the more you benefit from the interest paid out on your CPF balances – as you’d expect, given how compounding interest works. 

Ultimately, you’re likely to see the most benefit in the form of larger CPF Life payouts when you become eligible to receive them.  

In more immediate terms, you may find yourself with a larger OA budget with which to pay your mortgage. This can be advantageous for aspiring homeowners.

Who does the change impact, and what are the immediate implications?

First off, for those with salaries under S$6,000, the change will have no effect, and it’s business as usual.

Instead, the contribution ceiling increase will impact those drawing salaries higher than S$6,000 and up to the prevailing ceiling. In 2024, this means anyone with salaries between S$6,001 and S$6,800. 

So, what is the immediate effect? Well, your take-home pay will be reduced. By how much? Let’s run through some numbers. 

How much reduction will you see in your take-home pay?

Let’s assume Paul has a salary of S$6,500 in 2024. The table below shows the difference in Paul’s take-home pay before and after the contribution ceiling change. 

 

With no contribution ceiling increase

After the contribution ceiling increase (S$6,800)

Gross salary 

S$6,500

S$6,500

CPF deductible on 

S$6,000

S$6,500

CPF contributions 

20% x S$6,000 = S$1,200

20% x S$6,500 = S$1,300

Take-home pay 

(80% x S$6,000) + S$500 = S$5,300

80% x S$6,500 = S$5,200

In our example, Paul takes home S$100 less each month, contributing S$100 more to his CPF savings monthly. This doesn’t seem like such a significant change and should be easy to cope with. 

But, the impact starts to get larger the higher your salary goes. According to the CPF Board, by 2026, when the contribution ceiling has been raised to S$8,000, a 45-year-old earning S$8,000 a month would see their take-home pay reduced by S$400 each month. 

(To be fair, CPF contributions would also increase by S$740 monthly, which could ultimately increase CPF Life payouts by as much as S$680 every month.)

Given that this reduction is per breadwinner, if you’re a double-income household, this means making do with a family budget of S$800 lower!

It’s a good thing that the increase will occur in phases, as this will give families with tight margins to start making adjustments now.


What to do if you’re affected by the CPF contribution ceiling change

Granted, not everyone will be affected by the change. Even among those who are, the impact will differ, depending on your salary.  

But if you’re not relishing having to work with a tighter budget soon, know that you have the better part of two years to make the necessary adjustments. Hence, the best thing you can do is to take action early. 

Look for where you can make immediate cuts in your budget. One good candidate is unsecured debt, which is likely dragging down your finances through interest payments. Resolve to clear your debt before 2026, or restructure your payments to accommodate your budget. 

Also, consider getting a headstart on future expenses now with high-yield savings accounts. The extra interest generated could help ease the transition as the full effect of the contribution ceiling increase takes place. 

You can also bolster your efforts by switching to eligible credit cards to increase your interest or give you more savings through cashback or rewards points

Ultimately, the contribution ceiling increase is just another change to take in a stride, and a little preparation can go a long way in ameliorating its negative impact. 

Also, don’t be too quick to count out macro factors, such as heightened economic growth and a return to saner inflation levels, or even micro ones, such as salary increments or career advancement.

An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.

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