Editor
Today Paper
I refer to the letter from Dr Vincent Chia Wei Meng entitled "The numbers tell the story" (Today, 4 Oct 2007).
Dr Chia argued that life annuity is a disadvantage for the poor. He quoted studies that showed poor people have a shorter life expectancy, compared to people who are better off.
This is probably correct, but in a general sense. There are poor people who are healthy and can live longer. It depends on each individual.
If a person knows that his or her health is poor, and is like to have a shorter life expectancy, then this person should avoid buying a life annuity, or should buy a life annuity that provides a partial refund on early death.
The majority, who are in normal good health for their age, should buy a life annuity.
Poor people need the pooling of longevity risk in a life annuity more than the wealthy. The wealthy people have sufficient money to last for more than a lifetime and do not need to pool this risk.
The advantages of a life annuity outweigh the perceived disadvantage, even for poor people. Here are the benefits:
* They do not have to manage their money. The annuity provider takes care of this matter.
* By investing in an annuity fund, the annuitant can get a better return on their money, compared to investing on their own
* They participate in the pooling of longevity risk.
Those who are very poor probably do not have sufficient money to buy a life annuity that can give an adequate income for a life time. With a small capital sum, they can only buy a small payout. They will still need some financial assistance to top up this small payout.
Tan Kin Lian
Mr. Tan the poor are always at the losing end.In any scheme the poor cannot benefit fully. Just like the compulsory annuity is meant to help them, unfortunately not many will make this 'claim'. It is ok if you look at it from another angle. But if they do claim at least there is money
ReplyDeleteto see them through.
You have to take into account the amount of monthly payout. The meagre $300/month in 30 years time would be just rounding errors!!
ReplyDeleteAlso, there isn't much sophisticated fund management by the insurer as annuity funds are highly likely to be invested in govt or highly rated bonds giving low yield in the current interest rate environment.
dear Mr Tan,
ReplyDeleteMy letter addresses the COMPULSORY annuity scheme, not just ANY annuity scheme.
It does make alot of difference.
Kind regards,
Vincent Chia
Dear Vincent Chia
ReplyDeleteThank you for clarifying. I am sorry if I read your intent wrongly.
I am glad that you generally agree with the advantages of a life annuity, if it is taken earlier.