Plan will kick in with smaller payouts at age 85 until member dies
NEW scheme making annuities compulsory for Central Provident Fund (CPF) members will be tailored to cover them only in the last phase of their lives.
It will thus be different from current annuities members can buy now.
For a start, members do not use all of their CPF Minimum Sum on the annuity, as is the case now.
Only a small portion of the Minimum Sum will be used to purchase a 'tail-end annuity' which will kick in only after the member's Minimum Sum runs out.
An annuity is a scheme which one buys by paying a lump sum to an insurer, who invests the money, and pays him a monthly income for life.
With the new compulsory annuity, a CPF member will get a monthly payout for the rest of his life from the age of 85 at a subsistence level of $250 to $300.
Bond-pegged interest rate from Jan
FROM Jan 1 next year, CPF members will have a new interest rate on their CPF savings.
The rate for their Special, Medisave and Retirement Accounts (SMRA) will no longer be fixed at 4 per cent.
It will be re-pegged to an 'appropriate long-term bond rate', said Manpower Minister Ng Eng Hen yesterday. He assured Singaporeans the new rate should see higher returns over the long term.
More details will be announced next month.
The change comes in tandem with the higher interest rate CPF members will enjoy on the first $60,000 of their combined Ordinary and SMRA accounts. From January, the combined balances will get 1 percentage point more.
Compulsory Annuity: How it works
Manpower Minister Ng Eng Hen gave these details yesterday. He was elaborating on Prime Minister Lee Hsien Loong's announcement in his National Day Rally speech on Sunday that annuities will be compulsory for CPF members below age 50.
Said Dr Ng: 'The basic idea that we are after is to ensure the tail end of life expectancy... very long life protection, or if you like, extreme longevity protection.'
The Government will consult widely before introducing it, he promised.
The new details should go some way to assuage concerns that arose after Sunday's announcement.
Broadly, this is how it will work:
Members withdraw their CPF savings at age 55, but leave behind the Minimum Sum. This sum is set at $99,600.
They then use a small portion of the Minimum Sum to buy the annuity. When they reach 65, they start drawing down a monthly payout from the Minimum Sum until it runs out at age 85.
If they are alive then, the annuity gives a monthly payout - expected to be lower than their Minimum Sum payout - for the rest of their life.
Dr Ng noted that half of the people who reach 62 here are expected to live beyond 85.
'If I live past 85, I will get payouts from this sum which I insure. If I don't, it goes back into the pool to pay out for those who are still alive,' he said.
The news that annuities will be compulsory had miffed some CPF members as they felt they were denied a choice and forced to use up their Minimum Sum to buy the annuities.
Many would rather leave it in the Minimum Sum, as their family could get the remainder if they die before using it all up. Annuities do not return the remainder.
Yesterday, Dr Ng assured CPF members that, with the new annuities scheme, members will still draw down a large proportion of their Minimum Sum from age 65.
'We are not looking at putting the entire Minimum Sum into annuities,' he said.
He added that those who want the balance of their annuities payment returned to their family if they die before 85, will have to a bigger upfront payment.
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