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'A financial burden': Higher CPF salary ceiling will add to businesses' woes, say associations and experts

The increase in the CPF salary ceiling means that those who earn more than S$6,000 – and their employers – will soon have to contribute more towards their retirement savings.

'A financial burden': Higher CPF salary ceiling will add to businesses' woes, say associations and experts

Office workers cross a road in the financial district of Raffles Place on Sep 6, 2021. (Photo: CNA/Gaya Chandramohan)

SINGAPORE: The raising of the Central Provident Fund (CPF) monthly salary ceiling will add to the woes of companies already grappling with increasing costs, said business associations and experts.

While the phased increase by 2026 can help soothe the impact, some smaller firms will still feel an additional “financial burden”, they added.

The ceiling sets out the maximum amount of ordinary wages that can be used to compute CPF contributions. An example of an “ordinary wage” would be a monthly salary.

This is currently set at S$6,000 and will go up in four stages to S$8,000 by 2026, as announced by Deputy Prime Minister Lawrence Wong in his Budget speech on Tuesday (Feb 14).

The first increase to S$6,300 will kick in on Sep 1 this year, before the next hike to S$6,800 in 2024. It will be raised again to S$7,400 in 2025 before reaching S$8,000 in 2026.

The CPF annual salary ceiling, which takes into account additional wages such as a performance bonus, remains at S$102,000.

Changes to CPF monthly salary ceiling

Current: S$6,000

From Sep 1, 2023: S$6,300

From Jan 1, 2024: S$6,800

From Jan 1, 2025: S$7,400

From Jan 1, 2026: S$8,000

Annual salary ceiling: S$102,000 (no change)


Currently, employees aged up to 55 years old contribute 20 per cent of their wages to their CPF, while employers contribute 17 per cent.

The rise in the monthly salary ceiling essentially means that workers who earn more than S$6,000 – and their employers – will have to contribute more to their CPF.

The Singapore Business Federation (SBF), which represents 27,000 companies, said the move will add to businesses' manpower costs.

The pressures on this front are already piling up with the rise in foreign worker levies, local qualifying salaries and wage adjustments under the Progressive Wage Model, it said.

“SBF urges the Government to consider spacing out some of these wage and manpower-related policies to help businesses survive immediate cost challenges,” said Mr Albert Tsui, executive director of the federation's advocacy and policy division.

Beyond labour costs, businesses have also been paying more in other aspects of their operations ranging from logistics, raw materials to energy, said Professor Sumit Agarwal from the National University of Singapore (NUS). 

“Will this change cause a burden on employers? Clearly it will because it’s a tough time with rising costs and economic uncertainties,” said the professor of finance, economics and real estate at the NUS Business School.

Some businesses may have to pass on these costs to consumers, he added.

Deloitte Singapore’s tax partner Yap Hsien Yew described the announcement as possibly being “a financial burden” for businesses, especially small- and medium-size enterprises (SMEs) which may not have the same access to cash flow and healthy profits as larger corporations.

Beyond financial metrics, the impact on SMEs will also differ depending on the industry.

Those that employ more higher-income workers will feel the heat, said the Association of Small and Medium Enterprises (ASME). This group will likely involve SMEs in industries such as technology and professional services such as accounting and auditing.

“In other sectors like retail, most of the workers employed by SMEs are between the salary range of S$2,500 to $$4,000, which means they will not be affected in the near term,” said the association's vice-president Ang Yuit.


The phased increase in the CPF monthly salary ceiling will help cushion the impact on employers, both ASME and the Singapore National Employers Federation (SNEF) said.

This will allow employers to "gradually adjust and factor this increase" into their business costs against the backdrop of slower economic growth, rising costs and a tight labour market, added SNEF, which has more than 3,400 members.

The CPF annual salary ceiling has also been left unchanged for now, said Prof Agarwal, noting that this will also mitigate the impact on businesses.

Mr Christopher Gee, a senior research fellow and head of the governance and economy department at the Institute of Policy Studies, estimates that the change in the monthly salary ceiling, when fully implemented by 2026, will result in an increase of S$2 billion to S$2.5 billion in labour costs annually.

This increase would need to be offset by productivity gains to ensure it is sustainable for businesses and their workers in the long run, he wrote in a commentary.

Deloitte's Mr Yap said employers should view the announcement as helping to build a more financially secure workforce, which ultimately benefits them in the long run.

“While the increase may be a financial burden in the short term, it is an investment that businesses should consider in order to reap the long-term benefits of having a financially secure and experienced workforce,” he told CNA.

It was also announced in Budget 2023 that the Government will continue with the next increase in CPF contribution rates for older workers, following the first two steps of increases in 2022 and 2023.

From next year, the total CPF contribution rates for workers aged 56 to 60 and 61 to 65 will go up by 1.5 percentage points to 31 per cent and 22 per cent, respectively.

The contribution rate for workers aged 66 to 70 will rise by 1 percentage point to 16.5 per cent.

To mitigate the rise in business costs, employers will get a one-year offset that is equivalent to half of the 2024 increase in employer contribution rates for every Singaporean and permanent resident they employ aged 56 to 70.

Source: CNA/sk(cy)


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