Tan Kin Lian's Blog: Payout under CPF Life

Saturday, November 28, 2009

Payout under CPF Life

Dear Mr Tan
In the CPF-Life form they ask two questions (which I feel is irrevelant):
- annual assessable income
-annual value of house.

I am doing some part-time job with provides an irregular income and may downgrade to a smaller flat later on. I do not know if the CPF will pay me more, less or the same amount in the future, due to my change of circumstances.

I intend to put $75000.00 into my retirement account to join this scheme. Should I go ahead or put my money here or go elsewhere?

REPLY
The CPF ask you for the annual assessible income and the annual value of your house to determine if you quality for the full amount of the L-Bonus of $4,000, or a partial bonus or none at all. Apart from the L-Bonus, the monthly payout from the CPF Life will not be affected by your income or housing.

In my view, the CPF Life is attractive to the members as it is run operated as a non-profit and on mutual principles (i.e. all the members share the experience of the scheme fairly), has low expense ratio and earns an attractive interest rate of around 4%.

The annuity plan offered by the insurance companies, will not be able to offer this attractive payout.

16 comments:

Anonymous said...: The objective of the scheme is benefit the low middle income and yet these people are suspicious and have so much doubts about it.
Why not buy the annuity from ntuc and get fleeced and fooled by the 'for life' talk.. Worse you will be given distorted information and and 'gong gong' led into their kelong.
The annual value and income are meant to see if you qaulify for the scheme. Income above certain level and living in landed property don't qualify.
Please ask the private insurance companies all sort of difficult questions when you buy something from them instead of keeping dumb and let the agents bullshit you.CPF is Not a profit oreinted sales organisation peddling inferior products like insurance companies and their greedy agents.; November 28, 2009 9:39 PM
Anonymous said...: It might be good??? but it is rather inflexible!!

You either put all your money in retirement A/C (RA) into CPF Life or none at all.
Why not allow us to put only 50% of money in RA into CPF Life?; November 28, 2009 11:03 PM
Anonymous said...: If you are born before 1957 you have the choice of NOT participating.
But if your family history shows everyone is living beyond 200 years old you die die must join. But if you are sickly, got diabetes , got high blood pressure, got heart problem then you are better off leaving with CPF and enjoy the draw down for 20 years.
Do you have the flexibility when you buy private annuity?
Come on, it is meant to take care of you, why half half?
In my opinion, people like you should be allowed to do whatever you want and on your own and see how smart can you manage your pension fund . CPF can save money instead of paying you 4%. Should let you put in the bank and earn 0.5%. I know of rich people who refuse to take out their excess CPF fund but unfortunately CPF doesn't allow. You see, they are smart.; November 28, 2009 11:40 PM
Anonymous said...: if u are not low income group, dont join. if u are low income group, this scheme is not too bad.; November 29, 2009 12:32 AM
Tan Kin Lian said...: Someone, presumably an agent for an insurance company, made some statements against CPF Life that are untrue. I did not post his or her comments.

If this person is willing to give a real name, and to send it to me by e-mail, I will post his reply.; November 29, 2009 12:22 PM
Anonymous said...: I guarantee that agent is an agent from ntuc..ntuc agents are still desparately pushing the annuity and hoping they can find suckers and victims. That is the problem with product peddling agents. They don't care about the interest of their customers.I wonder they have conscience or not.; November 29, 2009 6:28 PM
Anonymous said...: "has low expense ratio and earns an attractive interest rate of around 4%."

Hi Mr Tan, I remember reading when CPF Life was introduced some netizens indicated that the 4% amount is not guaranteed and subject to the (mis)management of the investments being made by CPF. Can you kindly enlighten me on this matter?

Regards,
Mr. Just Started Working.; November 29, 2009 6:31 PM
Anonymous said...: My parent are 80yo and strong. They join the LIFE and recieve payout in Jan 10. The payout will be higher than $297/mth now.

Before LIFE, I was very worry if they still alive after 100yo.
As I am getting old too. I also worry who to take care them if I die earlier than my parent. My young brother and young sister already passed away !

I fully support CPF LIFE.

Please join and do away the polity.; November 29, 2009 7:37 PM
Anonymous said...: I was hesitating if I should convert my MSS to CPF Life. With your expert advice, my wife and I will sign up CPF Life for life. Thank you very much.

We will also advise our friends and relatives to sign up ASAP. However, there are four options, I think "Balance" sounds good; we shall go for that. After all, it seems that there is nothing else as good as CPF Life.; November 30, 2009 3:26 PM
Anonymous said...: Honestly,I don't buy this scheme because of the string attached.We preferred to stay-put with MMS.What bonus etc are all a gimmicks.So far no expert in the industry has come forward to voice there opinion on the cons on CPF Life yet.; November 30, 2009 3:59 PM
Anonymous said...: Yes, bonus is all gimmick to get you to join. Typical of Singaporeans, they need freebies to kick them in the ass to take action.
What cons do you want?
1. once joined cannot get out
2.choose the wrong plan you forfeit the refund
3.it is compulsory in future
4. pay too much until some people question it
Pros?
1. the best annuity . Private can't compare
2. higher interest rate
3. higher payouts
4. it is variable between 3.75 and 4.25%
5. theoretically no limit to upside but limit to downside
6.; November 30, 2009 5:08 PM
LWL said...: Participants of CPF LIFE will have to contribute an annuity premium depending on their age and gender.

This annuity premium will no longer earn interest that is accrued directly to the member but the interest will instead be credited into the LIFE Fund. The amount of interest forgone is substantial compared to if the amount is left in the CPF Retirement Account.

I have done some calculations over the last weeks after speaking and getting clarifications from CPF Board.

The biggest disadvantage to an individual is that the interest earned on the annuity premium will go to the CPF LIFE fund, from age 55 to the respective draw-down age of 90, 80 or 65, and thereafter. There is no rebate on the interest earned in the event of death of the member.

The interest forgone is significant in sum. For example, a 55 years old, Male, with just $40000 in his CPF, and enrolled in LIFE Balance, will stand to lose about $19990 in interest (from age 55 to 80) as a result of the $12000 annuity premium, as the interest earned will be credited to the CPF LIFE Fund instead.

That means the lost of bequest of up to $19990 if the person signs up for the LIFE Balance and does not live up to age 80 or a loss of up to $11780 for LIFE Basic if the person does not live up to age 90.

This would not be the case if the sum was retained in the CPF Retirement Account (RA) and earning interest that is credited back into the RA.

Assuming the same withdrawal of $343 from age 65 onwards (as per LIFE Basic), the $40000 in the CPF Account can last up to age 96.

Assuming the same withdrawal of $362 from age 65 onwards (as per LIFE Balance), the $40000 in the CPF Account can last up to age 92.

Although the CPF LIFE may provide better yield compared to other commercially offered annuity, I find it a poor alternative to leaving the money in the Retirement Account.

I believe that by limiting the withdrawal to the above monthly limits, but leaving the sum in the CPF RA would yield a far greater benefit than participating in the scheme.

The L-Bonus distorts the above for those above 53 of age.

If you are already above 55, you may consider signing up for CPF LIFE because of the $4000 L-bonus.

In my opinion, the best deal would be to sign-up for LIFE Basic. By doing so, you would minimise the amount that will be treated as annuity payment, whereby all interest (expect the additional 1%) will go to CPF LIFE Fund and not to your retirement account.

Those that sign up with only $20000 in the RA will stand to gain the most.

Unfortuately, a member that decides to sign up will either have to take an 'All or Nothing' position. There is no choice where part of the amount in the Retirement Account can be retained.; December 01, 2009 10:56 AM
Anonymous said...: Dear Anon 5:08pm,

Cons
1. Once joined cannot get out.

I think this may not be a con. If you have money on hand, all sort of people will con you, even brother or sister.

I will rather put my money in CPF Life where there is no possibility of me being con out of taking it out when I am old and senile.

Think about it carefully!; December 01, 2009 4:04 PM
Anonymous said...: LWL,
you are right that the premium for the longevity insurance would have yielded much if it is left in the RA to earn interest. But participants in the scheme have to buy an insurance against an event risk, risk of living beyond 85 and the payouts henceforth are claims against that event.
The premium is like buying a single premium (present value) term policy which insures against that event, longevity risk.
The draw down is the net amount which attracts interest.; December 01, 2009 10:17 PM
Anonymous said...: My wife and I were planning to convert our MSS to CPF Life after reading the basic facts highlighted by Mr. Tan. We also advised our relatives that they should go for it. But after reading what LWL had said, it seems that things are more complex than it appears. I wish someone who has a good understanding of the systems can give us the laymen some simple and fair guidelines to make a decision. I am very confused now so I will play safe by leaving my money in the MSS until I get a clearer picture, if ever.; December 02, 2009 8:34 PM
Anonymous said...: can leave in the MSS in the meantime. But be careful of wolves in sheep's clothing (they have new clothing now after rebranding) who will snatch it from you with false argument. Their argument is their annuity is guaranteed(low) and with bonus declared each year and for life. Do you know it will take annuitant by the age 100 to equal the payouts of CPF?(this they won't tell). My point is don't get conned while you are still studying.; December 05, 2009 5:12 PM