Singapore Budget 2023: The CPF Factor

With this year’s announcement on Valentine's Day and the ongoing Committee of Supply debates thereon, Budget 2023 can be characterised as an attempt by the Singapore Government to address the critical financial issues on the minds of Singaporeans—cost of living and housing affordability. In a post-Budget 2023 survey polling 712 Singaporeans aged 21+, cost of living and housing affordability were among the top 3 concerns among polled Singaporeans.

It should be no surprise that cost is the key theme of Budget 2023. With overall inflation rising to 6.6% year on year in January 2023, Singaporeans have noticed the rising prices for virtually everything. For DPM/FM Lawrence Wong, addressing inflation and living costs is priority.

Will CPF address long term cost concerns?

A key policy tool to address retirement and cost of living issues long term is the Central Provident Fund (CPF) scheme. CPF is, at its core, a savings account to get Singaporeans to save for their retirement, medical expenses, and housing needs. While Singaporeans may be more distracted by immediate Budget 2023 policies such as the cost-of-living special payments, GST vouchers, and additional housing grants, CPF changes might have gone slightly under the radar.

Two key changes have come for the CPF scheme. Firstly, CPF monthly salary ceiling will be raised in stages to $8,000 by 2026 so that it keeps pace with rising salaries and helps middle-income Singaporeans save more for their retirement. It is currently set at $6,000. There are no changes to the annual salary ceiling of $102,000.

Understandably, the decision to raise the monthly income ceiling for CPF contributions may not be immediately popular among Singaporeans as it means a lower take-home net salaries for those earning above $6,000 currently. However, it is worth noting that with rising healthcare and future retirement costs, there is the genuine possibility that Singaporeans may not have sufficient savings for their future expenses.

There is room for debate on increasing CPF income ceilings. CPF was introduced at a time when Singaporeans did not have the various financial products offered by financial institutions today. Many Singaporeans today would have complimented their CPF monies with investments into ETFs, bonds, and even cryptocurrencies. While the latter’s financial returns are questionable, traditional investment products have a proven long-term track record. Singaporeans are financially savvy, and one may assume that while well-meaning, CPF changes might not be as necessary. However, the rise in income ceiling for CPF has been met with overwhelming support (82%) among Singaporeans across age groups so there is certainly still value in how CPF is perceived.

Another critical change to the CPF scheme is the introduction of employer and employee CPF contributions for gig economy workers aged 30 and below. Reception has been surprisingly positive given previously mentioned concerns about rising costs to employ gig workers, the low daily wages some gig workers face, and the risk of impacting their disposable income. A substantial 79% of polled Singaporeans rated this as favourable. Even among 20-39-year-olds, reception was positive (78%) and in-line with other age groups.

The introduction of employer CPF contributions will incur increased labour costs for the likes of Grab, Deliveroo and even other companies that hire creative talents or seasonal workers. It remains to be seen how these companies will respond given that there have been questions raised about the long-term financial viability of these companies.

For gig workers aged below 30, the immediate drop in disposable income will be complimented by longer-term benefits of CPF contributions. Younger Singaporeans typically have fewer financial options for investment and a longer runway to accrue the annual interest rates of CPF’s Ordinary and Special accounts. Implementing CPF contributions for gig work can also been seen as the Government’s recognition that gig work is a viable employment model and gig workers need some form of income insurance.

As Budget 2023 becomes the first truly post-Covid budget for Singapore, long-term challenges persist. Things will get more expensive as global inflation is yet to be fully reigned in.

To learn more about Budget 2023’s impact on Singaporeans and how businesses and government agencies can make better business and policy decisions, reach out to us at connect@blackbox.com.sg