Singapore Budget 2023 - Increase in CPF Monthly Salary Ceiling

This Opinion post first appeared in my blog here: https://pwlcm.wordpress.com/2023/02/15/singapore-budget-2023-increase-in-cpf-monthly-salary-ceiling/

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.

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Yesterday (14 February 2023), Deputy Prime Minister Lawrence Wong gave a Singapore Budget 2023 speech in Parliament. The full speech can be watched in this YouTube video:
https://www.youtube.com/watch?v=EhjfZWJS9jU

The budget statement with annexes can be found on Ministry of Finance (MOF) website:
https://www.mof.gov.sg/singaporebudget/budget-2023/budget-speech

One of changes in this year budget is the increase in CPF Monthly Salary Ceiling. This refers to the Ordinary Wage Ceiling (OWC) as described in my blog post "Guide to CPF Mandatory Contribution (MC) for Employee".

The details of this change is given in Section C of Annex E-4: Retirement Adequacy Measures:

In summary, the OWC would be raised in 4 steps from $6,000 currently to $8,000 by 2026. Do take note that there is no change to the CPF Annual Salary Ceiling at $102,000. This means that the Additional Wage Ceiling (AWC) remains capped at the formula:

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

With the increase in OWC, the AWC would be reduced for employees with monthly salary higher than $6,000.

For example, for one who earns $8,000 or above, the total OW subject to CPF for the year would become $8,000 x 12 = $96,000, and the AWC would be reduced to $102,000 - $96,000 = $6,000. Just one month bonus would have sufficient to exceed the AWC, resulting in hitting the max CPF Annual Limit (CPFAL) of $37,740 from MC alone.

One interesting note is given in the last paragraph of Section C in Annex E-4:

To ensure that employees earning the same annual salary receive the same CPF contributions regardless of their salary structure, the CPF monthly salary ceiling will eventually be set at one-twelfth of the CPF annual salary ceiling at steady state.

Indirectly, this paragraph gives the intent behind raising the monthly salary ceiling while maintaining the annual salary ceiling. The current OWC and AWC formula gives the employers a way to reduce CPF contributions by shifting part of the bonus into monthly salary while maintaining the annual salary amount.

With this change, the employees will receive more CPF contributions for the same annual salary. The ultimate goal is to achieve the steady state where monthly salary ceiling is 1/12 of annual salary ceiling, and the employees will receive a fair share of CPF contributions regardless of their salary structure.