Annuities : Means To Lifelong Income

Source : TODAY, Wednesday, September 12, 2007

Annuity helps one to better budget; here’s how to make the concept more palatable

Letter from TONY NG LYE HOCK

HAVING been a life insurance advisor for the last 23 years has helped me appreciate the magic and beauty of annuities. It is really an important instrument to help us continue to live with pride and dignity when we live too long.

I would like to take this “annuity sharing” period to share some of my personal views as to why the take up rate is not well received. The payout is deemed to be unattractive when compared to past annuity policies and/or the interest given by the CPF Board.

Most people also do not believe they will live long enough to enjoy the money. And there are not enough statistics, education and information to enlighten the insuring public that living beyond 80 or 85 in the future is realistic. A number also do not have enough to set aside the money required.

But in reality, annuity is an important tool for lifelong income. Some of your investments may fail you or because of poor budgeting, your cash may deplete faster than anticipated; at least you still have an annuity for support.

Some, if not most individuals do not know how to manage their money. For whatever reasons, they squander the money upon retirement. Annuity helps one to “budget” better because the amount received is fixed and regular. Locking away money will prevent “others” from preying on your money — this gives you a good reason to tell them that you have no money.

I have a few suggestions on how the Government can make the annuity concept more palatable for the public.

It will be a good gesture if the Government could lead by contributing a certain percentage to the CPF member’s retirement account. Risk sharing and pooling must be deemed to be shouldered by all stakeholders.

The compulsory annuity can be modelled after the Medishield concept implemented by the Health Ministry together with insurers. The minimum amount can be administered by the CPF Board while the enhancement is done by insurers. Only with economies of scale and avoiding “cherry picking” will this be sustainable in the long term.

The Government should also provide more education and statistics to the insuring public about longevity, for instance, the estimated number of citizens, say above age 75 or 80, that are alive annually.

Insurers can be given incentives to come up with better schemes, and those who purchase an annuity earlier can also be given incentives such as annuity bonus or annuity vouchers.

I am sure with proper education, incentives and flexibility, the public will learn to appreciate, understand and embrace the importance of having an annuity.