CPF Life Annuity vs Annuities from Insurance Companies. A Discussion online
January 17th, 2010 by ALVIN SOONG
While doing some research between the both, I extracted this out from 10th Jan Discussion Forum on Straits Times as there was a disagreement as to which is better. I would leave the readers to touch. Nevertheless, the comments are extremely important who are deciding between the both:
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Last Sunday’s article, ‘10,000 to get first CPF Life payout’, fails to point out that the Central Provident Fund Lifelong Income Scheme For The Elderly (CPF Life) states not in bold letters, but in very fine print that is often overlooked, that ‘the payout range is based on CPF interest rates of between 3.75per cent and 4.25per cent and does not represent the lower and upper limits of the payout. The monthly payout may be adjusted every year to take into account factors such as CPF interest rate and mortality experience’.
Hence, people like Madam Siti Khadijah Abdullah, who had surrendered her NTUC annuity plan for the CPF Life Balanced plan because according to her son’s calculation, she could get $100 more each month, may some years later end up getting $100 less instead. This will be when she needs the money even more as the cost of living would have gone up much more.
Hence, it is essential that the CPF Board states for each annuitant the bottom-most value the payout can possibly reach. This has not been done and I hope the board does so at once.
It may be the case that those who had taken up the NTUC policy, enticed by the expectation of continued growth that apparently took into account the rising cost of living, were disappointed to find that their annuity stopped growing after a few years, so that even after 10years, their annuity had not reached the fixed annuity value that other insurance companies had offered right from the start.
The CPF payout that can go down in value may end up being worse than the NTUC annuity that did not grow.
However, all these annuity schemes will be of not much value if the cost of living were to go up drastically, or the value of the Singapore dollar were to go down sharply.
Hence, the best scheme would be a pension plan that takes into account inflation for all Singaporeans.
Till then, the ordinary Singaporean sadly can only dream of relaxing like the old man depicted in the CPF pamphlet, with money flowing freely from the CPF tap.
Manuel Nathan
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Latest comments
Mollimolli,
If everyone starts asking back their CPF monies @ 55 or even 65yr…do you think the Gov’t can “tahan” ?
Where do you still they get “unlimited” supply of money to “invest” in all the …you know what !
Imagine, even when you screwup and lost billions…..no need to answer for mistake ?..( you knw which investment arm i am taking abt )
Oso, by “forcing” you to buy these insurance….they hve less headache and social responsibilities or liabilities ,down the road…when more Singaporeans are aging ..in an aging population.
Again …why aging population?…
Again, who was partly responsible ….?
Posted by: MaluforSG at Sun Jan 10 17:08:14 SGT 2010
Lets say 5-10 years down the road after this CPF life scheme is “enforced” will the pple be short-changed considering the annual inflations rate that bound to increase as time rolls.When that happens what will the gov do?Come up with another scheme?
iWhy can’t the gov just “return” the money with interests owed to the retirees and let them decide what to do with their own money.What and how they going to use their money is their perogative and not the responsibility of the gov.
Stop treating our pple with suspicions and look at them as fools who do not know what to do with their money.
Posted by: mollimolli at Sun Jan 10 14:47:29 SGT 2010
I see CPF life plans as duplicating the industry, especially if we are going to strengthen the protection of insurance policy owners, and provide compensation to policy owners in the event of the default of an insurer.
It will probably be privatised some years down the road, like the MediShield schemes.
Posted by: pappy at Sun Jan 10 14:10:12 SGT 2010
See the report below.. If members live longer than the CPF board expected and the government bond interest rate remain low, the payout will be substantially reduced. If the fund become insolvent, CPF can suspend annuity payout.
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ST
21 July 2009
CPF Life payouts to be lifelong: Minister
Sue-Ann Chia
MANPOWER Minister Gan Kim Yong has assured Singaporeans they will receive a monthly payout from the CPF Life annuity scheme for the rest of their lives, despite a ‘disturbing’ provision in the new law.
He gave this pledge yesterday when replying to Madam Halimah Yacob (Jurong GRC) and Madam Ho Geok Choo (West Coast GRC).
They were debating a major change to the Central Provident Fund (CPF) Act that will introduce the CPF Life scheme. This will give members a steady stream of retirement income from age 65.
However, both MPs were worried by the lack of guarantee on premiums and payouts in the new law, which they argued gave the Government too much discretion in deciding the amounts.
Mr Gan, in his bid to allay any fears, said it was not feasible to guarantee the amount paid.
This is because the monthly sum would have to be adjusted regularly, ‘taking into account interest rates and mortality experience to ensure the solvency of the Lifelong Income Fund’.
The fund, administered by the CPF Board, holds the money that members use to participate in the annuity scheme.
But the minister was quick to add: ‘CPF Life members can rest assured they will receive payouts for as long as they live.’
The remark was directed at Madam Halimah, chairman of the Government Parliamentary Committee for Manpower, who noted that the law allows the CPF Board to stop CPF Life payments unless the Lifelong Income Fund is solvent.
‘While I can understand the legal basis for this provision, I find it quite disturbing to have it reflected in the Bill,’ she said.
There are similar clauses for commercial insurance companies, she noted, but added: ‘The relationship between the CPF Board and the CPF members, however, is not just a legal contract but… a social contract as the board has a social responsibility to manage CPF funds prudently in order to help Singaporeans meet their retirement needs.’
She wanted to know what are the safeguards for protecting CPF members against the risk of the fund’s insolvency.
In his reply, Mr Gan said CPFLife has to be self-funded and sustainable. ‘The minister cannot make changes at will but must base his decisions on sound actuarial principles to ensure that fund solvency will not be compromised.’
The CPF Life scheme will be rolled out in September for those who are 55 this year - ahead of its implementation date in 2013. They can choose one of four plans that offer different amounts of payouts.
Madam Halimah, as well as Nominated MP Paulin Tay Straughan, also wanted more to be done to help those who did not have enough CPF savings to join the scheme. Associate Professor Straughan said: ‘If we fail to do so, we may inadvertently entrench social inequality.’
Mr Gan reiterated that no minimum CPF balance is required to join the annuity scheme.
He estimated that 70 per cent of CPF members turning 55 in 2013 will have at least $40,000 in their Retirement Accounts - the level which qualifies them for automatic entry into the scheme.
Those with less can also opt in, he said, but ‘members with very low balances may not be in a position to maximise their benefits from CPF Life’.
This group will be supported by the Government’s Workfare programme. It gives low-wage workers an income supplement, part of which is paid into their CPF accounts to boost their retirement savings.
They are also encouraged to work beyond age 55.
Other changes to the Act, which was passed yesterday, also help members to enjoy the benefits of CPF Life.
One is the Lease Buyback Scheme for low-income senior citizens to unlock the value of their housing assets.
The Housing Board buys back the tail-end of their flat’s lease, leaving members with a shorter 30-year lease.
Part of the sale proceeds can be used to join the CPF Life scheme, said Mr Gan.
‘This ensures the elderly continue to enjoy a roof over their heads and financial security in old age,’ he added.
sueann@sph.com.sg
Posted by: pappy at Sun Jan 10 10:23:11 SGT 2010
CPL life payout is based on the current yield of the 10 year maturity Singapore Government bond. MAS would issue such special bonds to CPF. Thus the payout fluctuates every year, it is not inflation-protected and there is no minimum guaranteed payout.
This is unlike the annuities you buy from private insurers where there is a guaranteed payout, with the mortality and investment return risks managed and absorbed by the insurer.
Posted by: pappy at Sun Jan 10 10:06:56 SGT 2010
