The Singapore Budget 2015 was announced this afternoon and there are much things talked about but I find the CPF ceiling bumped up to be interesting. Singapore middle income are getting richer but they are getting squeeze so one of the move is to increase the CPF ceiling from $5,000 to $6,000.
The CPF Ceiling to put it simply affects your employer’s contribution to your CPF. If you earn $10,000 per month, under the existing 5k ceiling, only the first 5k your employers need to contribute the 17% to your CPF, the second $5k they do not have to pay it. This would also mean that the second $5k you do not need to contribute your 20% CPF employee contribution.
With the bump up to $6k, that would mean employers need to contribute more for the additional $1000 per month now. Higher middle income earners would have slightly less take home pay but more contributions towards their retirement and medical fund.
But how much more? It seems for older workers, employers would need to contribute even more:
From Jan 1, CPF contribution rates for workers aged 50 to 55 will match the level of those younger than them – due to a 1 percentage point raise in both employer and employee contribution rates. Employer contribution rates for those aged 55 to 60 will also be 1 percentage point higher, while those aged 60 to 65 will be 0.5 percentage points higher.
The increase in employer contributions will go to the Special Account, while the increase in employee contribution will go to the Ordinary Account.
I tried to work out the future value of this bump up. A hypothetical person would be some of my friends who is already earing more than $6,000 at the age of 35 years old, who have 30 years to 65 years old retirement. Each year now, an additional $12,000 will be subjected to CPF contribution.
The average interest that you can earn is assume to be 3% since 62% of it is made up of ordinary account (2.5%) and 38% is made up of special account and medisave (4%)
After 31 years, the cumulative future value ends up as $93,954.42. This is assuming you work for 12 months (highly possible) and it may be further bump up if you earn consistent 2 month bonus.
Not too shabby a sum of money! Although technically you can say 3% just barely keep up with inflation.
Why do I get a feeling this $93k is almost going to make up 20% of your future minimum sum.