When you look at your payslip, you may find the deduction and you see that it’s written for CPF. You may wonder why we have to contribute for CPF?
How much shall we pay; how did they get this amount?
And maybe, you wonder where does all this money go and for what purpose?
So, actually what is CPF?
Central Provident Fund (CPF) is a mandatory savings scheme funded by contributions from employers and employees. CPF is one of the scheme which the function is to ensure social security. That means, it ensures that Singaporeans have enough money for their retirement days, to pay their medical bills, and to buy a home with. For this purpose, it becomes mandatory for every Singaporean worker to put away some percentages of their monthly income in their CPF accounts.
If you are an employee, you will see that your take home salary is lower than your official salary. Because your monthly salary is automatically deducted for CPF contribution and deposit into your CPF accounts.
So, you don’t need to worry where that percentage of your salary go. If let’s say, we weren’t forced to save money in CPF, maybe we could use up all of the salary, spend it all at once. Then, we might not have enough when it’s time to pay for retirement or medical bills.
How much we need to pay?
For employees with salary, CPF contributions are deducted automatically. Every month, their employers are required to hold the portion of salary to go into employees’ CPF accounts. This portion is called employee’s contribution.
Furthermore, there is also the amount which employer is required to pay to employee’s account out of their own pocket, beyond the salary. This called employer’s contribution.
The following table is the percentage of how much each person contributes.
Note: Singapore will raise the retirement age and re-employment age to 65 and 70 respectively by 2030. Alongside in increase in CPF contribution rates for older workers. By the time the changes are completed, workers aged 60 and below will enjoy full CPF rates. The rates will drop after the age of 60.
None of the above is applied if you are a self-employed. Any CPF contributions are voluntary, except for healthcare saving.
How do those contribution applied?
For example: you are a 40 years old employee, earned a monthly salary of $5,000.
Every month your CPF employee’s contribution would be 20% of your salary. So that made $1,000 of your salary would be deducted every month and deposited into your CPF accounts. Your take home salary is $4,000.
Your employer is required to pay employer’s contribution to your CPF accounts, that based on the table, it would be 17% of your total salary. That means your employer will add up 17% x $5,000 = $850 to your CPF accounts per month and it doesn’t included in your $5,000 salary.
Thus, we make a total amount of $1,850 (employee’s contribution $1,000 + employer’s contribution $850) in your CPF contribution every month.
If you are curious on how much CPF you need to pay, HRMLabs CPF calculator will help you. Got a question?
Contact us and let us know how we can help you.