I believe that CPF Life is good for the people. Here are my reasons:
a)It is operated as a mutual scheme. The future payment will reflect the investment yield and mortality experience.
b) The administrative expense is low
c) Most people (except the affluent) will receive a bonus when they join the scheme
d) The interest rate credited to the investments is higher than the market rates.
e) CPF or the Government will not make any profit from the scheme.
Members who buy CPF Life is getting a good deal, much better than any life annuity that can be offered by an insurance company. The view held by some people, that the Government is trying to make money from CPF Life is unfounded.
The non-guaranteed nature of the monthly payout will work better for the members. If there is high inflation in the future, it is likely that a higher payount will be made under CPF Life (as inflation is usually accompanied by higher interest rate).
I hope that readers of my blog will listen to my positive views on CPF Life and not be influenced by the negative views and the distrust.
Tan Kin Lian
Mr Tan,
ReplyDeleteRef your para
"...(as inflation is usually accompanied by higher interest rate)."
But that's not quite true for the past few years. So will it be true in future?
Over the past few years, we have low inflation (except for one year) and low interest rate in Singapore.
ReplyDeleteIf inflation is high, you should expect interest rate to increase. Usually, there is a positive margin between the interest rate and inflation.
If we look at the next 30 years, this relationship is likely to happen.
For those who will be benefitting from the bonus of up to $4K and intend to sign up for a life annuity, there is little doubt that no private scheme exist presently that is superior to CPF Life.
ReplyDeleteFor thsoe who will not enjoy the bonus and have sufficient balance in the Minimum Sum, the decision is not so simple - to trade off premiums for life payment!
In the ST article today, one of the question posed was "How do I calculate the bequest amount?".
The answer provided was "The bequest amount is the savings used to join CPF Life minus the monthly payouts already received".
I think the premiums will also be deducted before arriving at the bequest amount. Unfortunately, the premiums are unknown.
Mr Tan, am I interpreting it correctly?
The premium is the amount that you used to buy the CPF Life annuity. This is the current minimum sum, or whatever you have in the retirement account.
ReplyDeleteBefore the introduction of CPFLife, the arrangement was either leave behind a Minimum Sum to be drawn down till depletion, or buy an approved annuity. The word compulsory tagged with CPFLife seems to have caused anxiety and sceptism among many when actually, whether before after CPFLife implementation, one still have to leave a stipulated sum of retirement fund with CPF or invested according to the prevailing CPF regulation.
ReplyDeleteHowever, many people won't buy private (even approved) annuities because of the low rates of returns. Most insurance companies can't match CPFLife returns after expenses. Indeed, many insurance companies aren't interested in offering annuity plans. I think that's one of the main reasons why CPFLife scheme is introduced.
Mr. Tan,
ReplyDeleteCould you elaborate on your comment of 6.30pm.
Using a numerical example
"If Mr A starts CPF Life Balance with $100K and after 15 payouts of $600 each (total payout $9K), he passed on.
Would his bequest be $100K minus $9K resulting in $91K for his beneficiaries? We assume there is no accrued interest.
Reply to 9:15 PM
ReplyDeleteYes, your understanding is correct.
If you live for 20 year, the total payout will be $180k which is more than $100k. There will be no payout to the benefit on death.
The advantage of a life annuity is that you will continue to receive the payout for as long as your live, even though the initial sum may have been exhausted after about 15 to 20 years.
The man is right. Governments don't make profits, most of the time losses. So their loss is our profit, at least in the short term. The losses will be born by taxpayers and inflation anyway. One only stands to lose if he opts out of this scheme.
ReplyDeleteCPF Life is good stuff. If they don't make it compulsory, 10 years down the road there will be another opposition party fighting for compulsory state sponsored annuities.
CPF is running the largest annuity scheme in Singapore but they don't seems to be as transparent compared to the industry standard where an Benefit Illustration is given and explained.
ReplyDeleteIts okay to use projection in the illustrations but unfortunately the calculators in the CPF website is simply insufficient for the public to analyse what they are actually buying and what will happen at various ages.
I also believe CPF Life is a good scheme but I think CPF Board needs to improve on the disclosure part.
Mr. Tan,
ReplyDeleteIn reference to your reply at 9.20pm, I thought in the CPF LIFE BALANCE PLAN, there will always be something for your beneficiaries although you may have outlive your initial premium and its accrued interest i.e. If Mr A lives a long time and has drawn out more than he has put in, will his beneficiaries still get something in a balance plan?
No...there won't be any refund after this time. Please refer to the plan charts.
ReplyDeleteIt is not so much the government trying to make money from CPF Life that is the source of the unhappiness.
ReplyDeleteRather it is the government forcing the problem of longevity onto the Singapore people that is the source of unhappiness.
Not everyone is able to live a healthy lifestyle.
About a third of Singaporeans are overweight. Quite a number of Singaporeans smoke. A significant number also drink regularly.
Due to their lifestyle habits, these people have lower life expectancies. Under CPF Life, they are forced to indirectly subsidise those who live healthier lifestyles.
Hello Mr Tan, I hv this "concern" regards CPF Life. I believe there was a mention by a minister not too long ago, that a CPF Life fund pool is related to each cohort (I don't really know what that means, so my "concern" below may be wrong).
ReplyDeleteHere's my "concern"...
Consider there are 100 CPF Life annuitants in one cohort. Monthly payout for each year depends on interest rates and mortality experience. If 90 annuitants passed-on after 10years of payment, does it mean the fund pool(which also the interests the 90 annuitants) will be spread out among the remaining 10 annuitants? Therefore, these 10 surviving annuitants will then have a much higher monthly payout? What when the remaining 10 annuitants also passed-on early, where will the remaining fund(of this cohort) go to? Kindly help me understand. Thank you.
reply to 7:38am
ReplyDeletewrong, refer to CPF LIFE Payout Estimator https://www.cpf.gov.sg/cpf_trans/ssl/financial_model/lifecal/index.html
click on 'compare button' at e end of the calculation you get the graph on how long your payout last and how much u be getting every month.
Aurdvandil ,
ReplyDeletecurrently insurance agents don't check and sell annuity as life long paying plan.These old folks were conned.
For CPFLife, unhealthy ones should one with hgihest refund if they fear dying before draw down age.
The Incomeplan should be for people with nobody to give as legacy, ie no sibling, alone in this world.When they die is not important.
Wah low, dunno waht is good or bad product. given a good product still disect, analyse, criticise but when sold by a private insurer their mouths are jammed up, dunno ask questions..End up with a 'F' product and till dunno. This is typical of Singaporeans.
ReplyDeleteSomeone says that it is not the CPFLIFE that is attracting a lot of criticism and suspicion but the gahment. Becuase it is a gahmen sponsored product it is suspected.
You can take your time to analyse as long as you want but don't end up in the fire.There are many who end up in the fire, kenna conned by insurance agents to buy their annuity with payouts less than half of CPF. Smart aleks a lot..indian grapes the more you count the lesser they become.
Warning....don't let insurance agents steal your dream of decent retirement. There are insurance agents prowling seeking to prey on the unwary, idiotic consumers.
ReplyDeleteIf you have been a victim of these unscrupulous agents report them to MAS because no ANNUITY FROM ANY INSURANCE COMPANY CAN BEAT CPFLIFE.
Report them and bring them to justice for they must be removed from preying on consumers.
Thanks for your free advise.
ReplyDelete