Saturday, May 01, 2010

CPF Life Annuity

Dear Mr. Tan
I read an article (link from your blg) about the pros and cons of annuities. It seems that the cons are overwhelming. What is your opinion about CPF Life annuity?

REPLY
The cons apply mostly to annuities sold by comercial insurance companies, where the charges are high and the consumer does not get a fair return on the annuity. These negative points do NOT apply to CPF Life, as it is runned on a mutual basis (i.e. the CPF does not run it to make a profit), and any surplus is distributed fairly among the annuitants.

This is explained in my book, Practical Guide on Financial Planning. You will also find other tips that are benefiicial to people approaching retirement.

34 comments:

Anonymous said...

Dear Mr. Tan,

I hope you can take a closer look at the CPF Life again because many analysis that I have read suggest that it is not a good deal. It is quite irrelevant whether CPF Board run it for a profit or not.

Thanks,

Tan Kin Lian said...

reply to 1;)22 am

It is very important that you buy a life annuity from an insurer that operates on a non-profit basis, such as CPF Life. The difference in payout could be as much as 10% (as this is the total of the expeses and profit margin).


Do not trust any insurance agent who tells you that their annuity is better than CPF Life. It is not possible. The agent is trained to mislead the consumer by presenting an unbalanced view. This is how they can justify earning commission and profit for their insurance company.

If you get a "better offer" from an insurance company, you can send the benefit illustration to me, together with the comparable payout from CPF Life, and I will give you an indepedent analysis.

An alternative to CPF Life is for you to invest in a low cost investment fund, such as the STI ETF and sell 1,000 units ($3,000) every 2 or 3 months to spend on your living expenses. You may get a better deal than CPF Life and certainly much better than any life annuity from a commercial insurance company.

Anonymous said...

CPF restoration:

Interesting propaganda:

i) NTUC proposed restoration
ii) SNEF caution such move.
iii) Straits Times wrote a topic on how NTUC Sec-Gen tick on 1st May
iv) Straits Times wrote WP support CPF restoration on 1st May
v) Straits Times reported employers CPF contribution increase by 1% on 1st May.

Looking at the above series of events, CPF restoration was decided long before NTUC sec-gen talk about it.

Why the need to play this kind of childish games? Is this to maximize the NTUC Sec-Gen positive exposure given he is the person who coined the "Faster, Cheaper and Better", "upturn the downturn" and "Deaf Frogs" which was not well recieved by TKL blog. PAP propaganda machine then has to step in and try to change people opinion of him. Same as when MAS reputation was hit by the mismanagement of Minibond. Again PAP propaganda machine put up a biography of GCT in The Straits Times? Worst is MD Heng was promoted recently which also means that Govt approved of how MAS handled the toxic Notes saga. What was I saying? Of course MAS actions were approved by Govt as the Chairman and Deptuy Chairman are the Govt and MD Heng is just carrying out their directions......

Anonymous said...

Dear Mr. Tan,

Thank you very much indeed for your quick response. I guess the big question for some 700,000 Singaporeans is whether or not to convert from the Minimum Sum Scheme to CPF Life. The government is trying hard by offering bonuses but it seems that only about 5% have signed up so far. Using the Basic Plan as the base, the numbers that I got were that the break-even point between MS and CPF Life is 86 years old. If you live longer than 86, CPF Life has an advantage. However, the advantage of MS is that we get about 16% more per month. So I choose to stay put with the MS Scheme.

Best Regards,

Tan Kin Lian said...

Reply to 12:22 PM
It is okay to stay with the Minimum Sum scheme, which also gives an attractive payout. The difference is the lifespan. If you do not like to have pooling of the risk, e.g. if you have more than enough savings, then stay with the minimum sum scheme.

I am also staying with MS, rather than convert to CPF Life.

But CPF Life is better than an anuity from a commercial insurance company.

Anonymous said...

Anon,May 01, 2010 12:22 PM,
please understand that in order for CPFLIFE to give the best to members it needs a LARGE pool of participants.
There is NO comparison between CPFLIFE and private annuities.Either you believe it or not it is up to you. There is NO vested interest here, CPF doesn't give COMMISSION to us for advising you. CPFLIFE is the best.
To decide between leaving with CPF or buy CPFLIFE, the key question is health. Unhealthy people or people with short life , annuity is disadvantageous.Better to leave with CPF.
But never never buy a commercial annuity.So , don't let the insurance agents con you. If an insurance agent tries to sell you their annuity report to police or MAS because they know that their is inferior than CPFLIFE why try to sell you one that is inferior? It is obvious that they try to cheat you, right?

Anonymous said...

If MS is a preferred scheme for so many people, I think the government should respect that and maintain the Scheme instead of forcing everybody to buy CPF Life in the future :-(

Anonymous said...

It is a non issue for those born after 1957 regarding CPFlife becuase it is compulsory. The concern is those who have options between leaving as Minimum Sum, CPFLife and private insurers. Of these 3 options there is one that can earn a commission for the insurance agents. The insurance agents are not going to leave you alone .They will try to sabotage your retirement by telling you all sorts of noises. You know who are these agents, the ntuc agents, lah.
Don't fall into their trap. They are not putting your interest first. They are thinking of the commission when they can CONvince you and their annuity is of the worse as compared to the other 2 options. Remember that CPFlife is the best annuity and if you still have doubt leave your money in your MS but NOT into the unconscienceous insurance agents hand.
As someone suggested , if the agents try to con you to buy their annuity report to the police becuase it is cheating.

Anonymous said...

"But never never buy a commercial annuity.So , don't let the insurance agents con you. If an insurance agent tries to sell you their annuity report to police or MAS because they know that their is inferior than CPFLIFE why try to sell you one that is inferior? It is obvious that they try to cheat you, right?"

Using this logic if a retail assistant attempted to sell me a "high quality" pair of shoes, i should report them to the police as well because i do not believe their shoes are as high quality as the store next door. Or if i eat at a restaurant that charges $10 for a plate of chicken rice, i should also report the restaurant to the police if i feel that the $10 chicken rice tastes the same as the local hawker center's $3 chicken rice.

You sound absolutely ridiculous. In the world of products, no company is obligated to provide the absolute best deal to you by referring you to a competitor. If you walk into any store right now...like Topshop at orchard road...bring in a shirt from another clothing store...and keep asking the retail assistants "Hey, how come this shirt is better than your shirt because of blah blah blah, but is cheaper also, you trying to con me issit???"...i can guarantee you ONE THING....mall security will be coming to escort you out...

Let me say this again. NTUC agents, or any agents from any company, are under NO obligation to refer you to a competitor in order for you to get the "best deal", UNLESS they are SPECIFICALLY PAID TO DO SO. If they are not paid to do so, they have no obligation. If you are not paid, do you think you are obligated to come into your office everyday to work 8-5?

I have an interesting question...why is there no demand for annuities in Singapore compared to countries like the US? Annuities are sold on a large scale to retired seniors over there, but here, annuities are barely mentioned at all, people don't even know what it is, and those that do seem to dislike the idea. While in western countries, retired seniors love the idea of monthly payouts for life. Why is there such a large gap?

Anonymous said...

CPF is my money and yet I have no choice but to buy CPF Life in time to come. I feel it is unfair and feel cheated!

Anonymous said...

"CPF is my money and yet I have no choice but to buy CPF Life in time to come. I feel it is unfair and feel cheated!"

I agree, so i suggest leaving the country ASAP and voting opposition parties in the meantime.

The whole nanny state idea of CPF is ridiculous. Freedom of retirement planning should be left to the individual.

Anonymous said...

Anon,May 01, 2010 6:38 PM,
you are wrong . NTUC agents are under obligation to disclose it if it is a PUBLIC KNOWLEDGE. CPFLife is a public knowledge. And as a competent retirement planner, if the ntuc agent is, he or she MUST have knowledge and it is his or her fiduciary duty to know and to disclose that there is a superior product that gives better deal than his or hers. Ignorance is no excuse. CPF IS NOT A COMPETITOR.
Your example of shops is not appropriate. You are referring to a situation of an imperfect market where knowledge is NOT freely available AND not PUBLIC KNWOLEDGE, where mispricing can take place becuase of location. .I do agree that you are not obliged to disclose even you know it.
But not telling their clients about CPFLIFE is like concealing the fact that CPF pays risk free 4+1% for the retirement account and instead ntuc agents con your their clients to buy a growth product that pays 4% wihtout guarantee and with all the risks.Isn't this dishonesty? Isn't dishonesty considered cheating? Isn't cheating a crime? Shouldn't this be reported to the police?
Under the FAA it is considered concealment of fact and recommendation not on reasonable basis.It is a breach of the law.
Don't act blur, lah ntuc agents.It is not play play . It is cheating.How about spending your time behind iron bars to reflect on ethics and your values.

Anonymous said...

Anonymous May 01, 2010 10:26 PM,
CPF is your money but you can't touch, can see only until you are 65 when CPF will pay you for life.
Why is CPF doing it? Becuase you people are NOT competent to manage your retirement money and the govt doesn't want to be your nanny during your old age . Imagine looking after 2 old over grown babies. You will come to that soon. Still feel cheated?
Before 55 you have a choice. To be cheated by whoever you like and that is what happened to 87% of the members who were cheated by insurance agents disguised as financial consultants who gambled them away.
However, you can protect it from them by buying the largest house provided it is appreciating all the time otherwise you will be cheated by the market.
Give up?

Anonymous said...

Anon May 01, 2010 11:09 PM


"The whole nanny state idea of CPF is ridiculous. Freedom of retirement planning should be left to the individual."
Aren't you given the freedom to plan your retirement? CPF only retains the minimum sum(MS) which is paltry and you might not even have the MS.
You might have squandered on stock and shares or your beloved insurance agents might have gambled away in high performance funds or Unit Trusts. Is this reason? Do you want CPF to return your Medisave too, your money right?
My advice is if you want all your money leave the country and come back again as FT.

Anonymous said...

To: Anon May 02, 2010 12:00 AM

If what you said represents the government, I will not vote for them anymore! It is scary to have a government that penalizes all the citizens because of a perceived idea that one in a few thousands might be cheated. They should strengthen the regulations rather than holding our money hostage.

Anonymous said...

Your entire basis for your argument is completely wrong.

"And as a competent retirement planner, if the ntuc agent is, he or she MUST have knowledge and it is his or her fiduciary duty to know and to disclose that there is a superior product that gives better deal than his or hers."

NTUC agetns are not retirement planners. They are insurance salesmen.

They are not paid to help you do retirement planning. Are you even familiar with how insurance agents are paid? They are not paid a monthly salary to go to your local starbucks, buy you coffee, and do financial needs analysis.

They are paid a % based commission based on whatever products they can sell to you.

CPFLife is a competitor because it offers the EXACT SAME PRODUCT(annuity) as NTUC. Therefore people can choose NTUC or CPFLife.

It is like two clothing stores side by side, except one(CPFLife) sells the exact same shirt at a lower price. But even in this situation the retail assistants of NTUC are not obligated to tell you "hey, the store next door got better price leh, go buy from them".

You want NTUC agents to help you do retirement planning? Take out your wallet, give them $100+ to help you do retirement planning. Fee-based. [b]Nothing is free.[/b]

Think about it. I am your client. You are a NTUC agent. I ask you to meet me at starbucks. You will of course, buy me the expensive coffee. Then you spend 30 mins - 1 hour to help me do financial needs analysis and retirement planning.

Totally free. Then i thank you for the coffee, say "i will think about it" and then go buy CPFLife.

Want to eat grass?

I dont think you get it so i will say it again.

[b]Agents are not obligated to recommend a non-company product to you if they are not paid to do so[/b].

Don't act blur. Or maybe you want to come work for me for free? Come, next saturday i free, buy me coffee at starbucks leh.

"Becuase you people are NOT competent to manage your retirement money and the govt doesn't want to be your nanny during your old age ."

Please explain to me how millions of people around the world can do their own retirement planning then. Please go to US and see how many seniors are living comfortably. Do you know that the insurance license in US has even LESS requirements than the Singapore one for M5/M9/HI?

Anonymous said...

I have known a few poor people who kenna conned by ntuc agents,. Instead of giving the best to these poor people they robbed them..It is real evil when you think of that. Poor people need protection from these evil agents who kick them even the poor people are already down.
The poor are easy victims. They are less educated, blur blur and gullible and the agents take advantage of them.
The law must protect them from these unconscientious salesmen and conmen and women.

Anonymous said...

Anon May 02, 2010 9:44 AM,
as i have said what the insurance agents are doing is conjob. They are doing what they shouldn't be doing if they are NOT planner.If ntuc agents are just salesmen or conmen and women it is unconscientious too to conceal facts that will benefit their clients like CPFlife and not con them into buying their annuity. CPF Public info is also available to ntuc agents and which part of their training.
You can argue till the bull or cow comes home, the truth is ntuc agents bull their clients about CPFlife.They MUST know all the CPF schemes and cannot pretend they don't know. They are obliged to know and if the agents recommend against it they must justify otherwise they will be guilty of non disclosure.
Of course there are free loaders like you who would take the agents for a ride in Starbuck. It is not uncommon.win some lose some.Thank goodness, it might come to past when commission is removed and fee as remuneration model.
In US conjob is at its hike and that is why insurance agents are spitted on and despised.
As for seniors in US are living comfortably I wonder where is your source of info? Maybe you referring to the rich ones..you forgot to mention there are many who are foraging the rubbish dumps.
You seem familiar with the tikam tikam licensing exams but you forgot that all PUBLICLY AVAILABLE INFORMATION THAT is relevant or pertaining to the trade all financial salesmen or planners are obliged to know. Insurance agents cannot act blur and say I don't know but my company's products only or my company says that you must act blur and don't mention about CPFlife when not asked.
You are barking up the wrong tree by using the analogy of competition bewteen stores selling similar products. THIS IS ABOUT FINANCIAL PRODUCTS and not clothing.Get your fact right, leh.

Retire soon said...

Can someone here share your views about the Minimum Sum Scheme ( MSS)?

What if I choose not to join CPF life and stay with the MSS, and not withdraw any monthly payout or instruct the CPF to pay less monthly?
Would this not achieve the same purpose?.. I know I cannot predict when I will pass on or how much I need to spend etc..

Thanks!

Anonymous said...

May 02, 2010 3:16 PM

If you want lesser then the period of payouts is lengthened .
or if you delay the draw down, eg to receive at 65 instead of at age 62 , for every one year delay there is additional 2 years. You have to arrange with CPF. This might be better for some people who may live to 90 years old. This is good.This arrangement was offered a few years back but insurance agents kept their clients in the dark. Insurance agents always tell their clients that annuity is for life and they don't go beyond defining what is for life.. I find these ntuc agents not truthful and never had their clients' interest at heart. They are only interested to push their product for commission.
In today's Sunday Time ntuc and GE show off their top salesmen and women, and yes, they are salesmen and women at best. Salesmen can't plan and don't plan your retirement either. They push and peddle.You know how they got there, don't you?

Anonymous said...

CPF :
for Annunity like CPF Life,
for Medisave,
for Asset Enhancement - Properties,
for Equities,
for Gold Investments?
and some say for Cash Paid Funeral too.
Botttom line: Asset Rich, Cash Poor!
Solution: Downgrade & Move on!

Anonymous said...

"If you want lesser then the period of payouts is lengthened ."

Yes but obviously the money you receive per month is lesser. Wow. You accuse NTUC agents of conning people yet you want to con people as well.

"or if you delay the draw down, eg to receive at 65 instead of at age 62 , for every one year delay there is additional 2 years. "

Not applicable to people who retire at 62 and earlier. Also never mention. By your own definition you also con people.

"clients that annuity is for life and they don't go beyond defining what is for life.. "

If you dont even understand what "for life" means you need to wake up your idea. Annuities are popular in developed countries as elderly can live till 80+ and still receive a monthly benefit to live on in addition to whatever their children are supporting them with.

"In today's Sunday Time ntuc and GE show off their top salesmen and women, and yes, they are salesmen and women at best. "

Congratulations after multiple times of me saying it, you realise insurance agents are SALESMEN. Salesmen CAN plan for your retirement, but the problem is they will try to sell you a company product for your retirement. Which may or may not be the best price for you. Because THAT IS THEIR JOB. TO SELL A PRODUCT.

Which part of this is difficult to understand???

I don't blame retail assistants for picking out an expensive shirt for me that doesn't suit me color wise because they want to earn their commission.

Anonymous said...

Yep ! Agree. CPF is our money !
Why are we not given a choice in MSS and CPF Life !

They did this is so as to ensure that they don't have to worry too much about taking care of the citizens in their old age.

It is unfair and I feel that we are being forced to accept it. Has Singapore become a totalitarian Police state like North Korea ? !

We indeed need a change. Yes we can! We need to vote in more opposing voices in the gahmen !

Would you (Tan KL) consider standing for the coming election ?

Anonymous said...

At 63, I was given a choice to buy CPF Life of $10,000 to $20,000 and get $50/- to $100/- monthly respectively on that options.
I'm stricken with Diabetes & CAD and all I know, I cannot outlive to be in the 80s. so I wonder whether to opt in for CPF LIFE?
Am in a FIX at this moment........

Anonymous said...

May 02, 2010 10:30 PM

obviously, you have difficulty understanding the difference bewtween selling and planning. But if you say selling is planning I can't stop you either.
Tell me the meaning of "for life".As far as I am concerned it is a illusive word and it can mean anything and ntuc agents are good at it.The hearer may think he or she is going to live for 200 years old or never die.
You still think ntuc agents are not obliged to know and if possible recommend CPF schemes or products if they are better off for their clients and this is what the law requires the agent to do.
I hope you are not a ntuc agent becuase soon the law will catch up with you.It is not my business to tell you.

Anonymous said...

Anon May 03, 2010 3:56 AM

"It is unfair and I feel that we are being forced to accept it. Has Singapore become a totalitarian Police state like North Korea ? "

by your definition US is included becuase every able bodied gainfully employed MUST pay the tax to support the Social Security Plan. To escape the tax is stop working.

Anonymous said...

"Yes but obviously the money you receive per month is lesser. Wow. You accuse NTUC agents of conning people yet you want to con people as well."

Lesser is relative to the CPF normal payouts but they are still far higher than ntuc annuity payouts. It is an option for you to decide the amount.

Applicable to those retiring at age 62 who exercised it some time ago. First it must meet the time horizon. The future is of course 65 as it will be the mandatory retirement age.Every one year delay there will be additional 2 years but this scheme will stop in 2013.
This scheme was in place some years ago and it was the best of annuities in the market and many who had the MS were conned into buying ntuc annuity by unscrupulous and unconscientious agents. Where got put the clients' interest first? Every beginning of year they take an oath and swear that they will put the interest of clients first.
For this , the law won't know , only the 18 level hell king knows.
Anyway insurance agents traffic products like drug traffickers without considering the well being of the buyers and only commission for themselves. I wonder this commission is considered ill gotten gain?

Anonymous said...

Insurance companies , especially ntuc, should stop selling MS based annuity and not to confuse consumers if they have their interest at heart.
Those who were conned into buying private annuity should lodge with MAS and the company to get the refund. Conflict of interest is immoral and unethical.

Anonymous said...

Anonymous May 03, 2010 9:10 A,
don't buy CPFlife . Stay where you are and take whatever you receive instead of pinning your hope on for life annuity. I am not saying you will die soon but face it your life expectancy is shorter, right? Annuity is for people who expect to live very long, say more than 90 years old.

Anonymous said...

Life is short generally speaking!
If you are a cat with 9 Lives, It is worth to buy CPF Life and say Meow Meow!!!

Lump Sum Annuity said...

U work hard, But i think this posting needs more...CPF LIFE is a new scheme that will be launched in September 2009 to
provide members with a lifelong income. Through this scheme, members
will receive a monthly income for as long as they live, the amount
depending on the cash savings they have in their Retirement Account
(RA).

Upon a member’s enrolment into CPF LIFE, a portion of the cash savings
in his Retirement Account (RA) will be set aside as the premium for an
annuity. Combined with the remaining cash savings, the member will get
a lifelong monthly income from his Draw Down Age (DDA)

ZinY said...

Dear Mr Tan,

I came across this valuable info at you blog only now.
Sorry for posting so late.
But, I came across what someone posted here -
"Using the Basic Plan as the base, the numbers that I got were that the break-even point between MS and CPF Life is 86 years old.
If you live longer than 86, CPF Life has an advantage."
Based on my own calculations -
CPF Life Basic Plan monthly payout is equivalent to 55 + (64-55) + 29 = 93 years old!
Only CPF Life Income Plan (which you get nothing if you die before 64) is equivalent to 86 years old.
I assumed 4% p.a. interest rate for all cases.
Any comment on this, please?

Anonymous said...

When you buy CPF Life with $123,000 at 55, your family would get back only $123,000 when you passed away 10 years later, and losses more when you passed away 20 years later.

Sounds "GREAT"!

It sounds even "BETTER" after I checked it out for my uncle, for now I know that I would be force to buy CPF Life in future. And we all have NO say about it. "GREAT"!!!

nomzam said...

Exactly If you sure you have more than one life then you can go for CPF life income Other wise if you really think that you have single life so g for some good Annuity plan.

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