Singapore Budget – How It Impacts Your Retirement

Singapore budget – how it impacts your retirement

Keeping up to date with Singapore’s yearly budget can often help with your retirement planning. Understanding these budget changes year-to-year and how each point impacts your future retirement can place you in a better position to capitalise on the new policies. Let us revisit and examine the recent budget changes to give us a view on how they affect us and our finances.

Increase in wage ceiling

From 1 January 2016, the wage ceiling will be increased from $5,000 to $6,000 across all age groups. For middle income Singaporeans who earn more than $5,000 a month, an increase in CPF savings will occur. CPF uses three types of numbers to determine the maximum annual contribution of a member, which in turn affects how much goes into their CPF-OA/SAMA and eventually RA account (which is created at age 55).

If you are below 50 years old, the following will apply from 1 January 2016:

If you are below 50 years old, the following will apply from 1 January 2016
Adapted from "FAQs On Increase In CPF Salary Ceiling And CPF Contribution Rate Changes For Budget 2015" by CPF Board dated 27 Feb 2015 -

Increase in CPF contribution rate

If you are aged 50 and above, the Employer’s additional contribution from 1 Jan 2016 will go to CPF-SA while the employee’s additional contribution will go to CPF-OA savings.

Adapted from Singapore Budget 2015 (Annex B-1: Retirement Adequacy Measures) -

The table below summarises the effect on the increase in contribution rate for members aged 50.

Adapted from Singapore Budget 2015 (Annex B-1: Retirement Adequacy Measures) -

For example, if you are 44 now and you work until 65, this will result in an annual income of $200,000 inclusive of $30,000 bonus. Below are the effects of the changes taking place in January 2016 (when you turn 45), compared to the current policy.

View Full Chart
Calculated based on CPF contribution rates taken from CPF website -

Over a span of 20 years, the overall implication of the changes will result in an increased total savings of $120,190 in your CPF account. You will have an additional $49,895 in your CPF-OA, an additional $33,490 in your CPF-SA and an additional $36,805 in your CPF-MA. This will mean three things to you:

  1. More CPF-OA savings to service existing mortgages without drawing from cash
  2. More CPF-SA to build your retirement nest egg
  3. More CPF-MA for medical expenses

1% Extra interest earned on the first $60,000 of CPF savings

This benefit applies to every CPF account holder. Furthermore, if you are aged 55 and older, you will also enjoy 1% extra interest on the first $30,000 of your CPF balances starting from 1 January 2016. This new initiative, when combined with the existing scheme of the additional 1% interest on the first $60,000 of CPF balances, enables you to accumulate more savings for retirement and other needs.

Adapted from Singapore Budget 2015 (Annex B-1: Retirement Adequacy Measures) -

So what’s in it for you?

These changes have positive long-term effects for when you retire, because they allow you to increase your minimum sum savings. This ensures you receive a higher monthly retirement income to provide a basic standard of living via the CPF Life Scheme.

The government aims to help Singaporeans save more for their retirement by enabling middle income Singaporeans to increase their retirement savings through CPF, while ensuring that the lower income elderly are not left out.

The wage ceiling will ensure that both Singaporeans and their employers contribute more into citizens’ CPF accounts for old age. Ultimately, the aim is for Singaporeans to retire in financial independence, with the ability to achieve their desired standard of living expectations with peace of mind.

If you are keen to know more about how you can better secure your financial health for the future, make an appointment with us or visit any of our branches today.

Make an appointment