Any upcoming CPF review?

[Okenba]

The last time CPF salary ceiling was raise in 2015 from $5k per month to $6k per month.
At that time, it was mentioned that "this would realign the salary ceiling to cover wages up to the 80th percentile of resident income.

After the past few years, and especially with inflation pushing up, I'm sure the 80th percentile is quite a bit higher than $6k per month.

Waiting for CPF to quickly raise income ceiling...

 

[reddevil0728]

There’s already a recent review but never cover this.

 

[BBCWatcher]

After the past few years, and especially with inflation pushing up, I'm sure the 80th percentile is quite a bit higher than $6k per month.

It is higher, but if the government wants an even $1,000 increment in the monthly figure (from $6,000 to $7,000) based on the prior 80th percentile standard then -- eyeballing it -- they could wait another couple years....

....Or they could change the game up a bit. Just to pick a random example, maybe they could increase the variable pay component. Currently the first $30K per year attracts compulsory contributions at the 37% (combined employer plus employee, under age 55 currently) contribution rate. How about lifting that to $40K, or adding 2 percentage points to the employee share, or both? So let's suppose you increase the variable pay cap to $40K and increase the percentage to 39%. Here's what you get....

Before
Base Pay: $6,000 * 12 = $72,000 * 37% = $26,640
Variable Pay: $6,000 * 5 = $30,000 * 37% = $11,100
CPF Annual Limit = $37,740

After
Base Pay: [...] $26,640
Variable Pay: $8,000 * 5 = $40,000 * 39% = $15,600
New CPF Annual Limit = $42,240

The logic in this sort of change is that you don't affect regular monthly take home pay for anyone, but for "windfalls" you take a slightly bigger bite on a somewhat bigger amount. So you do a little better catching "gig economy" and commissioned sales scenarios than the current arrangement. (Although the "gig economy" fix is really to extend compulsory SA contributions, at least, to the self-employed workforce. I'm surprised that hasn't happened yet. In my view it should.)

 

[SBC]

Indirectly telling taxman to raise tax.

 

[reddevil0728]

Indirectly telling taxman to raise tax.

can explain the connection?

 

[SBC]

can explain the connection?

Taxman & other agencies need to decide which area they can tax both residents & the corporate.

Is payback time & is not over yet.

Rising this income cap is giving back. The employers will suffer too.

 

[reddevil0728]

Taxman & other agencies need to decide which area they can tax both residents & the corporate.

Is payback time & is not over yet.

Rising this income cap is giving back. The employers will suffer too.

so by increasing the income cap for cpf contribution. it will mean can tax more? a little don't get the connection

 

[SBC]

so by increasing the income cap for cpf contribution. it will mean can tax more? a little don't get the connection

You need to see taxman, agencies as a whole to better understand this view.

 

[reddevil0728]

You need to see taxman, agencies as a whole to better understand this view.

i mean i can understand the possibility of such conspiracy la. just want to make sure i am getting it

 

[RedsYWNA]

i mean i can understand the possibility of such conspiracy la. just want to make sure i am getting it

Bcos CPF is a hidden tax.

 

[BBCWatcher]

I'm lost. I don't equate compulsory savings to taxes. Merriam-Webster defines tax as "a charge usually of money imposed by authority on persons or property for public purposes." (Emphasis mine.) All of these dollars go straight into individually segregated accounts paying well above market interest for future individual use, not for public purposes.

 

[reddevil0728]

Bcos CPF is a hidden tax.

I think only the disgruntled sees it that way in SG.

not as if other countries no pension. People want to put more also cannot.

uniquely Singaporean problem...

 

[ExEngineer]

It is higher, but if the government wants an even $1,000 increment in the monthly figure (from $6,000 to $7,000) based on the prior 80th percentile standard then -- eyeballing it -- they could wait another couple years....

....Or they could change the game up a bit. Just to pick a random example, maybe they could increase the variable pay component. Currently the first $30K per year attracts compulsory contributions at the 37% (combined employer plus employee, under age 55 currently) contribution rate. How about lifting that to $40K, or adding 2 percentage points to the employee share, or both? So let's suppose you increase the variable pay cap to $40K and increase the percentage to 39%. Here's what you get....

Before
Base Pay: $6,000 * 12 = $72,000 * 37% = $26,640
Variable Pay: $6,000 * 5 = $30,000 * 37% = $11,100
CPF Annual Limit = $37,740

After
Base Pay: [...] $26,640
Variable Pay: $8,000 * 5 = $40,000 * 39% = $15,600
New CPF Annual Limit = $42,240

The logic in this sort of change is that you don't affect regular monthly take home pay for anyone, but for "windfalls" you take a slightly bigger bite on a somewhat bigger amount. So you do a little better catching "gig economy" and commissioned sales scenarios than the current arrangement. (Although the "gig economy" fix is really to extend compulsory SA contributions, at least, to the self-employed workforce. I'm surprised that hasn't happened yet. In my view it should.)

I’ve often wondered what actually is the rationale for the separate limits on base vs variable pay. Seems unnecessarily complicated to me, and theoretically invites some strange scenarios (eg someone at the limit of base pay but not being paid much in bonuses might try to convince their company to cut their base pay and increase bonuses just to optimise their CPF…). And with more & more people switching to gig/commissioned income vs traditional salaried employment, I’m not sure if this very traditional split of base & variable contribution portions will remain relevant.
Do any other similar provident schemes do this? I know Malaysia’s EPF does not; India has a very similar scheme but not sure how the contributions are structured.

As for revising limits upwards, I’d be in favor as long as the main beneficiaries are the working & middle class. The wealthiest people in this country (ie those at the very top end who are already at the 37k max & incomes are way above the ceilings, really shouldnt need any help to boost their mounting CPF stockpiles) - if they have excess cash from income, they should have the means to invest it through other avenues (if piling up wealth is the priority). Or perhaps better for the rest of society , just spend it into consumption (sacrificing some personal wealth accumulation but enjoying the purchases) and generate multiplier effects for the broader economy.

 

[RedsYWNA]

I think only the disgruntled sees it that way in SG.

not as if other countries no pension. People want to put more also cannot.

uniquely Singaporean problem...

In other countries, you pay higher taxes, but have pension system and cheap medical services.

In SG, you fund your own retirement and medical services via CPF system.

I prefer the SG system but it is what it is. A hidden tax system.

 

[Okenba]

I'm actually fairly certain the 80% has gone up by more than 1k by now. There's probably a singstat page where we can find that data.
But raising the ceiling will be unpopular among employers. I guess govt may be looking for a suitable time for such news...

 

[reddevil0728]

In other countries, you pay higher taxes, but have pension system and cheap medical services.

In SG, you fund your own retirement and medical services via CPF system.

I prefer the SG system but it is what it is. A hidden tax system.

Fair point.

 

[reddevil0728]

I'm actually fairly certain the 80% has gone up by more than 1k by now. There's probably a singstat page where we can find that data.
But raising the ceiling will be unpopular among employers. I guess govt may be looking for a suitable time for such news...

Apparently if one earns 6.7k, will be in top 20%. Saw some comic strip that sourced from singstat number

 

[azeris10]

unlikely, employers will be super unhappy

2015 is election year also, maybe need wait until 2025

 

[ExEngineer]

unlikely, employers will be super unhappy

2015 is election year also, maybe need wait until 2025

Maybe, probably, but frankly even so, would be a bit of a bullsh*t objection from employers.

Based on comments in thread above, the only people really affected in overall dollars would be those in the top 20% of income earners. So while employers may complain as if it’s a big hit to their salary costs for their entire workforce, the reality is it only applies to a minority of their senior and highest-paid workforce. And even then, the “hit” to them is only for a small fraction (employer contribution %) of the 12k/year (difference between 6k vs 7k monthly), only for that small subset of their people. And if we assume those higher-paid people (btw including the CEO, CFO & most senior management), are also the ones who are “mature enough” (read: financially literate; short-term-solvent and long-term-oriented) to accept the predictable “company line” (“sorry your increment is lower this year but please understand we are paying more into your longterm CPF funds blablabla”), then actually the genuine valid objections from employers should shrink significantly.

Don’t get me wrong, from a Company/Employer POV, even the slightest increase in costs - especially in an economically challenging environment - are tough to deal with.
But just as we might question the motives of the government to raise the limits (multiple comments above, including mine), I think we should also be honest brokers and take any protests from employers with a grain of salt.
My personal view/prediction is, if this increase happens (or rather, when it happens), the real “hit” to businesses’ profitability will be significantly smaller than they will make it sound (and again, a BIG chunk of that “incremental cost-of-doing-business” is flowing into the pockets of the senior-most management, into-whose personal CPF pockets the money will be actually flowing).
Meanwhile, the broad rank and file employees (>=80% or whatever), will get nothing whatsoever in additional CPF $$$ but at the same time need to accept their Comapny saying “I’m really sorry, we’d love to pay you more but business is tough and the government has just raised our CPF costs (for your bosses’ all-in-compensation, but let’s not mention them specifically…).

 

[gold_eagle36]

I dun think 6k per month is top 20%. Should be nearer to median. So as OP referring to the 80th percentile. They can definitely raise it it they based purely on that benchmark.