Guide to CPF Mandatory Contribution (MC) for Employee

This Opinion post first appeared in my blog here:

https://pwlcm.wordpress.com/2022/01/24/guide-to-cpf-mandatory-contribution-mc-for-employee/

Refer to the list of acronyms on CPF in the following blog posts: https://pwlcm.wordpress.com/2022/01/06/acronym-cpf/

I am a CPF Volunteer. If you find this blog post providing useful information about CPF matters and it leads you to using CPF online services, you may fill in my full name “Tan Choong Hwee” in the “Referrer Name” field in some selected CPF online services.

It is stipulated in the CPF Act that your employer is required by law to make CPF contributions to your CPF accounts, hence it is known as Mandatory Contribution (MC):

https://www.mom.gov.sg/employment-practices/central-provident-fund/employers-contributions

CPF Contribution Rates

CPF Contribution Rates refers to the % of wages that are contributed to your CPF accounts. It consists of employer and employee portions, the former is paid by your employer, and the latter is deducted from your salary. The rates is determined by your citizenship status, age group and wage band:

https://www.cpf.gov.sg/employer/employer-obligations/how-much-cpf-contributions-to-pay

Current contribution rates for Singapore Citizen and Singapore Permanent Resident (SPR)(from third year and onward) across different age groups are summarized in the following table:

Take note that the contribution rates is maxed at 37% for the age group of 55 and below, and will drop to lower % as we grow older towards higher age groups.

CPF Allocation Rates

CPF Allocation Rates refers to the ratio of contributions to the 3 CPF accounts (OSMA). It is determined by your age group:

https://www.cpf.gov.sg/content/dam/web/member/faq/growing-your-savings/documents/CPF_Allocation_Rates_from_1_January_2022.pdf

Current allocation rates across different age groups are summarized in the following table:

Take note that allocation to OA is the highest among OSMA before age 60 to cater for housing and education needs, and allocation to MA is the highest among OSMA after age 60 to cater for medical needs. Across different age groups, the highest allocation to SA happens in the age group of above 50 to 55, signifying the last mile effort to build up SA savings for retirement needs when RA is formed at age 55.

Ordinary Wage (OW) and Additional Wage (AW)

The Total Wage (TW) you received from your employer is divided into Ordinary Wage (OW) and Additional Wage (AW):

https://www.cpf.gov.sg/member/faq/growing-your-savings/saving-as-an-employee/what-is-the-difference-between-ow-and-aw

OW for the month refers to wages due for your employment during the month, e.g. basic salary, overtime pay, allowance, commission.

AW for the month refers to other wages not considered OW, e.g. annual bonus, leave pay, incentive payments.

OW Ceiling (OWC) and AW Ceiling (AWC)

There are ceilings that limit the amount of OW and AW that attract CPF contributions in a calendar month:

https://www.cpf.gov.sg/employer/employer-obligations/what-payments-attract-cpf-contributions

Current OW Ceiling (OWC) is capped at $6,000 in each month. If your OA is $7,000, only $6,000 is used to compute your MC, meaning the remaining $1,000 is not required for MC.

AW Ceiling (AWC) is applied on a per calendar year basis. The AWC is currently capped with the following formula:

$102,000 – Total OW subject to CPF for the year

Take note that the magic number $102,000 is equivalent to 17 months of OWC of $6,000.

AW can be given in any month of the year, making it a little tricky to compute AWC as full year OW might not be available at the time AW is given. Your employer has to estimate full year OW based on current monthly OW, make adjustments whenever there are changes in your OW, and finalize the exact AWC at the end of the year. Any shortfall or excess would have to be adjusted.

Refer to the AWC computation example given by CPF website: https://www.cpf.gov.sg/content/dam/web/employer/employer-obligations/documents/ExamplesonAdditionalWageCeilingComputation.pdf

CPF Annual Limit (CPFAL)

Due to OWC and AWC, there is a cap to the total MC your employer can contribute to your CPF accounts per year:

(12 x OWC + AWC) x Max Contribution Rate = (12 x $6,000 + ($102,000 – 12 x $6,000) x 37% = $37,740

The magic number $37,740 is the current CPF Annual Limit (CPFAL), which is the maximum MC any employer can contribute to your CPF accounts.

If you have multiple employers in a year, either by changing jobs during the year or by having multiple jobs concurrently, each employer is required to pay MC based on the OW and AW payable to you. Therefore, CPFAL is applicable on a “per employment” basis, and your maximum total MC can be CPFAL x number of employers.

By the way, while all your employers have to pay the employer portion of MC, you may apply to limit the employee portion of MC if your total monthly OW from all your employers exceed OWC:

https://www.cpf.gov.sg/member/faq/growing-your-savings/saving-as-an-employee/can-i-choose-to-contribute-cpf-for-one-of-my-employments-only