How will you be affected by CPF changes in 2016?

cpf singapore

Some of you may find something fishy about your first paycheck of the year.  Well, that’s if you somehow managed to miss the news that the dear government has once again made changes to the CPF’s allocation rates and interest rates.  Depending on your retirement and savings philosophy, you may or may not be pleased.

Here’s how you’d be affected by the changes in CPF this year.

1.    Increase in wage ceiling from $5000 to $6000

Honey, who shrunk my take-home pay?

The government, darling, but it’s all for your own good.

For your own good or not is something debatable, but what’s for sure is that if you earn a gross monthly income of more than $5000, you’d probably see a smaller take home sum.

Previously, a 20% employee contribution is taken from the first $5000 of your income.  In other words, if you earned $6000, you contributed the maximum of $1000 to your CPF.  This year onwards, and until the next change, 20% will be taken from the first $6000 of your income, which means that up to $1200 will be deducted from your monthly salary.

Your employers will also contribute more to your CPF.  At the current employer’s contribution rate of 17%, this means up to $170 per month more.  And, if you intend to use your CPF to finance a home, or tertiary education for your children, then this certainly helps.

A reduction of $200 in take-home pay would probably not feel like much if you were already earning at least $6000 a month. So all in all, you can pretty much treat this as savings that you would get/need to use anyway.

But wait, this sounds too painless.

We hear you.  If you think your take home annual bonuses can remain unscathed, then we’re here to let you know that the Additional Wage Ceiling has also, naturally, increased.

Say your monthly salary was $6000 last year and remains so this year. With the new ceiling, an additional $5,000 of your annual bonus will now be subjected to CPF contribution deductions.

cpf deduction

But remember the CPF mantra. It’s all for your own good.

2. Contribution rate increases for those aged between 50 to 65 years old

In a bid to get you to save more money if you are close to retirement age, the CPF contribution rates for those between 50 to 65 years old have increased.

cpf table

  • Increases that you contribute are allocated to your Ordinary Account, which is what you use to pay for housing, insurance, investment and education.How are the increases allocated?
  • Increases that your employers contribute, on the other hand, are put into the Special Account, which is used for old age and investment in retirement-related financial products.

3.    Higher CPF Interest Rates for those aged 55 and above.

Now, this is good news.  Your CPF savings now have an additional percentage point to fight against inflation.

If you are 55 and above, you will now enjoy 1% more on the first $30,000 of your CPF balance.  This is on top of the existing 1% additional interest on the first $60,000 of your balances.

There is also an order of priority of which accounts would make up the $30,000 and $60,000 balance. Since retirement is the name of the game here, naturally, your retirement account is the topmost priority.

  • 1st:    Retirement Account (RA)
  • 2nd:   Ordinary Account (OA), up to $20,000
  • 3rd:    Special Account (SA)
  • 4th:    Medisave Account (MA)

With the additional interest rates, you would be able to reap a maximum of additional $600 a year if you are below 55 years old, and $900 if you are 55 and above.

While these changes to the CPF are meant to help Singaporeans be better prepared for retirement, given the rising costs of well, everything, don’t expect to be able to retire comfortably with just your CPF.  If you are used to living a lifestyle that was easily supported by a $8000 monthly income, getting a payout of $1200 a month when you retire will most definitely require a dramatic change in your lifestyle.

If you plan to live well as you do, then plan and invest accordingly instead of relying solely on CPF.


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