This is the most talked about among my peers as I guess this impacts them the most. There will be 4 years of adjustment (until 2026) to realised the full impact of this increase. The annual salary ceiling of $102K will not be changed for now.
CPF Changes 2023 Budget Highlight Impacts CPF Monthly Salary Cap
You will feel this impact if you are earning between $72,000 to $102,000 annually. There are 3 obvious impacts from this change. Firstly, our take home pay will be lower. Secondly, our total CPF contribution will be higher. Thirdly, our overall package will be higher.
This will directly raise our ability to fulfill the Full Retirement Sum (FRS) as there will be more contributions. In 2021, 66% of CPF members have hit their Basic Retirement Sum (BRS). While this is a good sign, this will increase the number of people hitting BRS or even FRS.
From June 2023, the minimum payout from RSS will increase from $250 to $350 per month.
Easier to receive CPF-Life Payouts from CPF-OA and CPF-SA
If you have not achieve FRS and are still working (getting CPF contributions), CPF board will automatically annuitised your CPF-OA and CPF-SA for higher CPF LIFE payouts.
Some of these changes are not new. They have been around for a while and we are beginning to see the implementation of it now.
Final Thoughts
There are also other initiatives that are welcome. I personally like the part where there will be extra CPF grant for eligible first-time buyers to buy resale HDB flats. This will relief some pressure in the property market and at the same time give families an affordable and more “immediate” home.
Do you like the new changes? Let me know.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
On Feb 18, 2022, Finance Minister Lawrence Wong delivered the Singapore Budget 2022 in Parliament. The topics were broad ranging as it addresses the economy, helping businesses and green initiatives. The focus which I saw was mainly into healthcare, retirement and funding them.
In this article, I will talk about 4 main things from the Singapore Budget 2022 that will affect ordinary people like you and me. In addition, I will talk about the possible impact in a limited context.
4 Things From Singapore Budget 2022 That Will Affect You and Me
This might be dreadful news for everyone. GST is basically a tax on all goods and service in Singapore. Think of your coffee at Breadtalk, the iPhone you buy from Singtel or the massage at the parlor. We might not “see” GST very often as most shops would have already incorporated GST into their final prices. When GST increase, this will inevitably be passed to consumers like us. It is more important than ever to plan more for our retirement.
Positively thinking, the GST in 2022 is still 7%. If you have any bigger expenditure (Read more: How To Save On Big Ticket Purchases) that you require, you can consider doing so in 2022. These could be things like renovation, buying a laptop etc.
On a side note, this might boost the Singapore economy in 2022.
#2: Vouchers for You and Me
The Assurance Package first announced in 2020 by then Finance Minister Heng Swee Kiat has been topped up to be $6.6B by current Finance Minister Lawrence Wong. The main intention is to help support lower and middle income household in the increase in GST (maintain standard of living) even after the package ends.
The Straits Times actually did a beautiful summary on the vouchers that could be received. For a more detailed look at how much specially you will be getting, the Ministry of Finance page is the place to go.
I can safely say that the minimum that a Singaporean age 21 and above will get at least $700 from 2023 to 2027.
#3: CPF Retirement for You and Me
CPF Retirement Sums Raised
The first impact on CPF retirement is that our retirement sums will be raised by 3.5% per year for the next 5 cohorts that will be turning 2023 to 2027. There have been no mention if this will be reduced after that. It would be good to note that it was previously increasing at 3% per year.
Singapore Budget 2022 CPF Retirement
This means that more have to be put inside of CPF so that you will be able to have a higher monthly payout at 65. However, this will also mean that you will likely draw out less at age 55. (Read More: 3 Key Changes To CPF Policies From 2022).
It is also worth noting that 8 out of 10 active CPF members aged 55 in 2027 will be expected to hit their BRS securing a basic level of retirement in any case.
CPF Contribution Rates Raised
The second impact on CPF will be of contribution rates for employers and employees will continue to be increased. The first increase has started from 1 Jan 2022. The next increase will be in 2023. This will also mean that more will go into CPF.
It is worth noting that if a CPF member have already hit the FRS, you will be able to withdraw the excess out as cash. Therefore, increase in contribution rate (by the employer) is generally seen as a good sign.
Singapore Budget 2022 CPF Contribution
#4: Taxes for You and Me
If you are affected by some of these tax, congratulations! You might be the top 1% income earners in Singapore. In the budget 2022, there will be 3 main taxes namely, income tax, property tax and luxury car taxes.
Income Tax
This change will come in for year of assessment 2024. This means that it will be for income earned between 1 Jan 2023 to 31 Dec 2023. There will be 2 additional upper bands.
For chargeable income from $500K to $1M, it will be taxed at 23%.
For chargeable income from $1M and above, it will be taxed at 24%.
Singapore Budget 2022 Effective Income Taxes
In the grand scheme of things, our effective income taxes are still reasonable as compared to many other countries. I believe this will affect the top 1% of us. (Read More: Income Tax Deductible 2021)
Property Taxes
To understand property taxes, there are 2 concepts that you need to know. One is Annual Value (AV) and the other is whether the owner is staying in the property. As the latter is quite clear, I will explain AV.
This number is decided by IRAS and there is nothing much you can really do about it. You can find the AV of your property on the IRAS portal. Looking at the photo below, you can have a rough sense by looking at the AV compared with the type of property.
Singapore Budget 2022 Property Taxes
Property taxes will be raised in 2 phrases namely in 2023 and 2024.
I believe impact will be felt for Non Owner occupied of AV > $45,000 with tax rates increasing from the current 14% to 28% in 2024. These would most likely be an investment property that are collecting rent.
For Owner occupied of AV > $55,000, the tax rates will increase from the current 4% to 10% in 2024. According to Lawrence Wong, this will affect 7% of owner-occupied residential properties. I believe this will be a combination of landed property owners (5% according to Department of Statistics in 2021) and some condominiums owners in central areas (2% of residential properties owners by subtraction). It will not affect most of us.
This is be seen as a form of wealth tax.
Luxury Car Taxes
An additional registration fee (ARF) tier has been created for cars, taxis and goods-cum-passenger vehicles with open market values (OMV) exceeding $80,000.
This will only affect Porsche Cayenne, Lamborghini Urus and Bentley Continental GT, and it will also affect several other makes such as Ferrari, McLaren, Aston Martin, Rolls-Royce and Mercedes-Maybach as well as top-end models in a number of other brands.
I believe this will not impact most people on the ground.
Singapore Budget 2022 Car Taxes Bentley Continental GT: Seen any of these around?
Conclusion
The budget comprises more than just the above 4. The 4 points above just show how the Singapore Budget 2022 will directly impact you and me.
I wish you the best in your financial journey. Hope to hear from some of you.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
January is the month where many people are interested in the CPF. I believe this is because we usually set our life / financial / career goals for 2022 at the start of the year. For those of you who have financial goals, I welcome you to Wealthdojo and hope that this website will be a good resource for you.
3 Key Changes To CPF Policies From 2022
This article will only highlight 3 2022 CPF Policies updates. If you wish to look at all the other changes that was announced in Nov 2021, you can take a look here.
#1: Basic Retirement Sum (BRS) / Full Retirement Sum (FRS) / Enhanced Retirement Sum (ERS) Updates
In 2022, the BHS will be $66,000. This is the estimated savings needed for basic healthcare for old age and is adjusted yearly until the age of 65. This will be fixed for the rest of your lives. If you are turning 65 this year, this number will be relevant to you.
This update has posted the most concerns and I believe this will affect a specific group of individuals which I will explain later.
To understand this, we have to take a step back and look at how top ups were done before 2022 especially MA Top-ups.
Before 2022, topping up MA is a popular tax relief option together with Retirement Sum Top-Up (RSTU). It depends on 2 factors.
The difference between the CPF Annual Limit ($37,740) and the CPF contributions made for the calendar year
The difference between the BHS and current MA balance
I will be illustrating using an example of Mr Goh (age 25) with a salary of $10,000 monthly with no bonus. As he is young, we can safely assume that his MA amount is way below the BHS. As the the Ordinary Wage ceiling is capped at $6,000 currently, his annual CPF contribution will be the following.
As you can see, it is slightly more complicated to calculate tax-reliefs previously.
After 2022, it is very simple. $8,000 tax relief cap is now shared between Special Account (SA), Retirement Account (RA) and the MediSave Account (MA). This means for Mr Goh, his eligible tax relief decreased by $10,100 ($18,100 – $8,000).
Now that we understand the theory behind it, let’s put things into context.
The group that I believe will be affected are the high income young individuals. At that income level, you might be looking for ways to have tax-reliefs such as SRS Top-ups to reduce your taxes.
Final Thoughts
The journey of your financial freedom begins with the first step. Congratulations for reaching the end of the article. I hope to see and hear (write down your thoughts in the comments below) from some of you in 2022.
Take care.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
2nd Nov marks an important date for many of us. There are changes in the CPF act that will potentially affect us. Please view the original article here. I will help to interpret these changes to those that are affected and how these changes will affect them.
That is the lifeblood of Wealthdojo and I aim to share one Financial Tip a day from my Telegram Channel.
For Retirement Sum Scheme (RSS) Members
If you born before 1958 or have less than $60,000 in your Retirement Account (RA) at age 65, you are probably be in this category. RSS was the main payout scheme prior to the CPF Life.
For the RSS, it will allow you to receive a monthly payout until your retirement saving is depleted. If you continue to work and contribute to your Ordinary Account (OA) and Special Account (SA), the money will sit in your respective accounts. To continue to receive payouts, you will have to apply to transfer money from your OA and SA to RA.
With the new changes, OA and SA saving will be automatically transferred to the RA. There is no need to apply to transfer the money.
I believe this is to make it easier for money to be received by RSS members. Previously, the application might have been a cumbersome process.
For CPF Life Members
As compared to RSS, CPF Life allows you receive monthly payout no matter how long you live.
If you are already receiving your monthly payouts and wishes to contribute more to your RA for higher CPF Life payout, you will have to apply for it.
With the new changes, your new contribution to the RA will be automatically transferred. There is no need to apply to transfer the money.
For People Who Top Up Their CPF
From 1 Jan 2022, tax reliefs will be provided to the giver who tops up the account. The cap for tax reliefs will be set at $8,000 for top up to your Retirement Sum Top Up (RSTU) and voluntary contribution to Medisave Account (MA) for employees.
If you wish to contribute cash top up to your loved ones’ account, the tax relief will be $8,000. This will bring the total to be $16,000 a year.
The top up limit for Medisave will just depend on Basic Healthcare Sum (BHS) moving forward.
If you wish to reduce your taxes with tax reliefs, please be aware of the limits, run your numbers before contributing.
For People Making A Estate Claim From CPF
For un-nominated CPF-monies more than $10,000, all eligible beneficiaries must submit their information and supporting documents to the Public Trustee’s Office (PTO). This could be a long process.
For un-nominated CPF-monies less than $10,000, a beneficiary representative may be appointed to represent all eligible beneficiaries and make one consolidated claim for the dead CPF member’s un-nominated monies.
This representative must be an eligible beneficiary according to the rules of distribution under the Intestate Succession Act or the Administration of Muslim Law Act.
Preferably, you should do you CPF nomination. It is free and took less than 5 minutes for me.
Others
CPF will not retain unclaimed CPF monies after 6 months. No interest will be payable after that. I believe this is to encourage people to quickly claim from CPF.
Final Thoughts
Personally, I believe that the new changes are for the better. Certain policies are “smoother” and clearer. Hope it benefits you in the right way. Here’s a summary. In an event of a doubt, please refer back to the CPF Amendment Bill Highlights 2021 here.
Let me know what you think about the changes below.
If you wish to read more CPF, here are our top 5 most read articles.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
As the population gets financially educated especially whenit comes to the usage of CPF, the idea of CPF-SA shielding is gaining traction. Some says it is a “loophole” and wants this to be closed. Personally, I think it is weird to call it that way. It is like calling investing a loophole because it helps you achieve financial freedom.
If you have read my articles before, you would be aware that context is very important for planning and today’s focus will be the 3 things to know before you do CPF-SA Shielding.
3 Things To Know Before You Do CPF Shielding (Beautiful Photo From NME)
What is CPF SA Shield?
At age of 55, your Retirement Account (RA) will be funded from your Special Account (SA) first and then your Ordinary Account (OA) to make up Full Retirement Sum (FRS).
As SA gives 4% interest as compared to OA 2.5%, there is an interest (pun intended) to keep monies in SA. The idea of CPF-SA shielding is to fund your RA with more of your OA than SA by transferring your SA monies out temporarily.
Context. It is always about context. In my own opinion, not everyone should/can do shielding.
Context #1: Paying For Mortgage Using CPF-OA
Your CPF-OA contribution rate at age 56 is 12%. Using an salary of $6000 (Ordinary Wage Ceiling is $6000 anyway), $720/month goes into your CPF-OA. If your monthly mortgage is > $720/month, you might be using your previous CPF-OA contribution if you don’t want to use cash. (There is a whole literature on why you should use cash but we will leave it for another discussion).
When you do CPF-shielding, your CPF-OA balance drastically reduces and this might mean that you would need to use cash for your mortgage. This might adversely affect your cashflow in future.
Context #2: It Assumes You Know Where to Park your Money Temporary
There are several instruments that you can consider purchasing using your CPF-SA. Different investment carries different risk. It is most important to know your own risk profile or work with someone who can do that for you. Even money market funds carries it’s own unique set of risk. Please take time to understand the benefits and risk of your chosen funds.
To illustrate an example: Mr Suay bought $100,000 worth of Singapore Bond Funds using his CPF-SA to do shielding at the age of 54. Before Mr Suay could sell the Singapore Bond Funds, there was an economic crisis. Typically, volatility of bond funds are not high. However, because of the crisis, Mr Suay may see his Singapore Bond Funds be worth $90,000 now. Mr Suay may experience losses if he wishes to sell it and put it back into his CPF-SA.
And yes, there may be transaction costs involved. Please do the calculations to see if it is worth it.
Sidetrack: It is only when you know what the risk is, then you can learn how to manage those risk. It might be unwise to avoid risk altogether.
Context #3: If you are risk adverse
Every trained financial professional will be able to find out your risk profile by doing a questionnaire. If you happen to be a risk adverse individual, this might not be the best strategy for you.
It is okay to be risk adverse. I think everyone of you will have a different experience with money. There is nothing wrong planning your financial journey as a risk adverse individual. It just means the instruments that you will be using will be different from the rest. There is nothing wrong with that. You are uniquely you.
Final Thoughts
I believe that are merits of doing CPF-SA shielding if done well. The most important consideration is to see if this strategy makes sense to you. The context of the strategy is very important. It may not be applicable to some out there especially if they fall into #1, #2 or #3 as explained above.
If you wish to find out if CPF-SA shield is applicable for you, please do reach out to me.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
