A Beginner’s Guide to the Maximum CPF Contribution
The Singapore government is doing its best to ensure all Singaporeans live a good life from the day they are born, until their golden years. A major part of this effort is the Central Provident Fund, also called CPF.
Although it was originally intended to help Singaporeans and PRs plan for retirement, CPF has broadened its purpose to investments, housing, and healthcare. Considering the many aspects of CPF, it’s no surprise that it can get complicated.
If you are curious about maximum CPF contribution, you’re on the right page. It’s integral to know the answer to ensure you’re maximising all the benefit you can get from the CPF contribution cap.
Here at OMY, you will discover the following:
What is CPF?
Before we start answering what the maximum CPF contribution is, let us first review what CPF is.
The Central Provident Fund is the country’s social security savings scheme. It is funded by employers and employees.
CPF is controlled by the Central Provident Fund Board or CPFB. Since 1955, it has become a way to ensure all Singaporeans would be self-sufficient after retiring. Considering 3 out of 10 Singaporeans between 30 and 39 have not planned for their financial needs upon retirement, CPF provides much-needed peace of mind for Singaporeans that they have money for retirement.
Want to know more about CPF? Check out our in-depth guide here.
Why Is the CPF So Beneficial?
When it was first introduced, CPF was met with a lot of backlash. But later on, Singaporeans and PRs realised how important it was.
If you’re still confused on why you should contribute to your CPF, we’ve gathered some of its benefits below.
Risk-free. When you contribute to your CPF and maximise your maximum CPF contribution, your returns are guaranteed by the Singapore government, which is one of the very few Triple-A credit-rated countries in the world.
High interest. Compared to banks, CPF offers a high interest rate between 2.5% for the Ordinary Account, and 4% on Special Account. For the Retirement Account, interest is 6%. Not only that, but the compounding interest is also very attractive.
Tax relief. Another great benefit of CPF is it provides much-needed tax-relief. (more on this later).
Retirement savings. CPF is a way for individuals in Singapore to practise forced savings so they will have enough money when they retire. When you start building your retirement fund at a young age, you will feel more peace of mind.
Safety net. CPF also provides a safety net for Singaporeans in case they find themselves in an unfortunate financial situation. CPF is free from legal liabilities so if you have to declare bankruptcy, you will still have your retirement fund.
What Is the Maximum CPF Contribution?
When it comes to what is the maximum CPF contribution, there are three limits every Singaporeans and PR employee, as well as employers must know. Here’s a quick look at the different maximum CPF contribution per month, and the max CPF contribution per year.
||What Is It?
|Ordinary Wage Ceiling (OW)
||Cap on your monthly salary
||S$6,000 per month
|Additional Wage Ceiling (AW)
||Cap on your non-monthly pay
||S$102,000 per year
|CPF Annual Limit
||Cap on mandatory and voluntary contributions
||S$37,740 per year
What is OW Ceiling?
The Ordinary Wage or OW ceiling is for employees that receive wages each month. For this, the CPF max contribution per month is S$6,000.
Depending on your age, the yearly amount of CPF contributions from your Ordinary Account also varies. Take a look at the table below.
||Annual CPF Ordinary Wage Contributions Ceiling
|55 and below
|55 to 60
|60 to 65
|Above 65 to 70
What is AW Ceiling?
The next max CPF contribution cap you should know is the Additional Wage or AW Ceiling. This is for the compensation given at intervals of more than a month. For this group, the cap is at S$102,000 per year.
Take a look at this table below to learn more about the AW Ceiling:
||Maximum Additional Wage (for those who earn $6,000 a month)
||Contribution Rates for Employer and Employee
||Total CPF Contributions for Additional Wage ($30,000)
|55 and below
||Employer: 17% Employee: 20% Total: 37%
|55 to 60
||Employer: 14% Employee: 14% Total: 28%
|60 to 65
||Employer: 10% Employee: 8.5% Total: 18.5%
|Above 65 to 70
||Employer: 8% Employee: 6% Total: 14%
||Employer: 7.5% Employee: 5% Total: 12.5%
What is the CPF annual limit?
The last thing you should know is the CPF annual limit or the maximum amount of mandatory and voluntary contributions (VC) Singaporeans and PRs can make to their Ordinary Account, Special Account, and Medisave account annually. For this, the CPf contribution max cap is S$37,740.
Examples of Maximum CPF Contribution
Let’s look at this example so you can understand the maximum CPF contribution better.
Person A is a 30-year-old Singaporean employee who has a salary of S$7,000. This 2022, Person A received an annual bonus of S$10,000.
So, what is the maximum CPF contribution for Person A?
OW refers to the monthly wages of employees per month so the monthly salary of Person A belongs to this category. Employers are required to pay their employees’ OW before the month’s due date. Considering this, the CPF cap for Person A’s OW is S$6,000.
Because Person A earns S$7,500 per month, only that amount would be liable for the maximum CPF contribution. The remaining S$1,500 is not liable. His annual OW limit is S$72,000, which is derived from this formula:
S$6,000 x 12 months
But what about the AW ceiling? This is defined as the compensation given to individuals made at intervals of more than one month. This includes commissions, allowances, bonuses, and leave pay, as well as other forms of compensation. Person A’s S$10,000 annual bonus falls under this category.
The AW ceiling for Person A is calculated with this formula:
S$102,000 – S$72,000 – S$30,000
What does this mean for Person A’s maximum CPF contribution? It means that Person A’s entire annual bonus is liable for CPF contributions since it falls below the contribution cap of S$30,000.
CPF has a very helpful AW ceiling calculator that employers and employees can use to calculate an individual’s AW ceiling.
That’s not all. There’s still the CPF annual limit. As stated above, the CPF cap limit per year is S$37,740. The total CPF cap amount already includes the CPF voluntary contribution limit, which is 20%, and the contribution by employers which is 17% (for those below 55 years old).
Let’s take a look at another example.
Person B is 25 years old and has a S$7,000 salary per month. This year, she did not receive any annual bonus. Because Person B is still below 55 years old, she has only amassed S$26,640 in her account in a year. How did we get to this Singapore CPF contribution limit?
20% + 17% (employee and employer contribution) x 12 = S$26,640
Let’s compute the maximum CPF limit Person B can contribute for the year.
S$37,740 – S$26,640 – $11,100
Maximum CPF Contribution: How Much Can I Top Up in CPF?
Now that you know the maximum CPF contribution you can make per year, you need to know one more thing: maximum CPF top up per year.
There are many things to keep in mind when it comes to the CPF top up limit. Under the Retirement Sum Topping-Up Scheme or RSTU, you can do a voluntary top-up with cash.
However, keep in mind that these voluntary top-ups are irreversible so you can’t withdraw your CPF top up limit once you’ve added them.
If you’re under 55 years old, you can add up to the CPF cap limit to your Full Retirement Sum or FRS. For those over 55 years old, you can add up to the Enhanced Retirement Sum.
You may only enjoy tax relief of up to S$8,000 per year if you top up your Special Account or Retirement Account, as well as an additional S$8,000 per year if you top up your loved ones’ SA or RA. This totals a sum of S$16,000 potential tax relief.
Keep in mind that only cash top-ups to your recipient’s current FRS are eligible for tax relief. It does not apply to the recipients of top-ups or CPF transfers.
The CPF top up limit does wonders to grow your retirement savings. This is great if you want to increase your monthly payouts in your golden years.
CPF recommends making your top-up or transfers early in the year so it will earn more interest through compounding interest. By doing this in January instead of December, you can earn up to 20% more interest on your top-ups in just 10 years.
For eligible members under the Matched Retirement Savings Scheme or MRSS, the Singapore government will match every dollar of top-ups made into their account, but only up to S$600.
More From OMY: Guide To Supplementary Retirement Scheme (SRS) Account In Singapore
If you are eligible for tax relief from top-ups, CPF will automatically inform IRAS. You don’t need to claim it manually.
A Word From OMY
Now that you know the maximum CPF limit and top-ups, you can finally start planning for your retirement better. As long as you maximise your CPF contributions, you can build a better nest egg that will ensure you stay comfortable even after you retire.
Because CPF is guaranteed by the government, this contribution is practically risk-free, and it’s a better option than simply letting your money sit in the bank.
More From OMY: A Beginner’s Guide to CPF Shielding