One of the greatest changes in the pension framework will come into effect in 2025, affecting CPF contribution rates, the Retirement Sum, and withdrawal options. The changes will help ensure that Singaporeans best prepare for their retirement, given the increasing living costs and longer life span. A thorough discussion on the new pension framework and its impact on CPF members follows.
Higher CPF contribution rates for older workers
From January 1, 2025, CPF contribution rates for workers aged 55 to 70 years will see an increase. This is part of an ongoing adjustment to foster retirement adequacy among older workers. For those in the 55-to-60-year age group, the increase will be from 31% to 32.5%. The increase from 22% to 23.5% applies to the 60-to-65-year age group, and the increase for those aged 65 to 70 years is from 15.5% to 16.5%.
Higher contributions to the CPF will allow these older workers to save more in their Retirement and Special Accounts to enhance their long-term retirement income.
Higher CPF retirement sums in 2025
The Retirement Sum Scheme (RSS), which determines the amount of money that CPF members need to set aside for monthly payouts, will be adjusted as well. The Basic Retirement Sum (BRS) will thus increase from $102,900-$106,600, the Full Retirement Sum (FRS) will increase from $205,800-$213,200, and the Enhanced Retirement Sum (ERS) will increase from $308,700-$319,800. Higher retirement sums will result in larger monthly payouts once the CPF members commence their retirement income at the age of 65 years.
Flexible CPF withdrawal rules
Among some of the most anticipated changes will be an increase in the flexibility for CPF members to withdraw their funds at retirement. Presently, CPF members can withdraw only 20% of their Retirement Account savings upon reaching age 65. Beginning in 2025, CPF members will be able to withdraw up to 30% of their retirement savings upon reaching 65, while the balance will continue to earn interest under CPF LIFE.
This type of flexibility gives retirees a greater degree of cash access (upfront) while still ensuring a steady monthly payout for life.
Higher CPF contribution ceiling for higher-income earners
With the raised CPF Monthly Wage Ceiling from $6,300 to $6,800, which comes into effect in 2025, higher-income earners will be able to set aside more savings. Higher contribution ceilings mean more CPF savings for those higher earners, especially into Retirement and Special Accounts.
Enhancing retirement income via CPF LIFE
The CPF LIFE (Lifelong Income For the Elderly) payouts will be adjusted to reflect the higher retirement sums as well. Based on the new framework, CPF LIFE monthly payouts are expected to increase by 3-4% for members who become payout-eligible from 2025 onward.
Final Thoughts
There are no instant changes for younger workers under 55 years of age. Higher contribution rates that translate into higher savings will benefit older workers aged 55-70 years. Retirees aged 65 years and above will enjoy.