Flexi-Approach Is What’s Needed

Source : TODAY, Tuesday, September 18, 2007

Public concerns noted, so committee to be set up to study longevity insurance

THE idea of a “longevity insurance” makes much sense for Singapore’s rapidly ageing society. But add an element of compulsion to it, and many start viewing the proposed annuity scheme in a less favourable light.

In a tacit acknowledgment of public concerns over the plan, the Government has given its strongest indication yet that it would adopt a flexible approach in implementing the National Longevity Insurance Scheme.

Manpower Minister Ng Eng Hen told Parliament yesterday that a new committee would be formed to study how best to roll out the scheme. Dr Ng said the Government recognises that each Central Provident Fund (CPF) member has different needs when it comes to saving for their old age.

“We should be flexible in accommodating the different circumstances of members, and offer different ways to provide for their full life expectancy.

“He can do this either by buying longevity insurance or by stretching out his RA (Retirement Account) money to last longer and so reduce the need for longevity insurance. So long as he has provided for his old age, and will not run out of savings prematurely, we should be satisfied,” said Dr Ng.

The Government, he said, had received feedback from many members of the public since the annuity scheme was first announced by Prime Minister Lee Hsien Loong during his National Day Rally speech last month.

Some younger Singaporeans say they want to come on board earlier because it is cheaper to do so. Others who are older want to be included because they have no dependants.

Then, there are those who do not want to be included because they have dependants who are able to take care of them or have other savings apart from their CPF.

“They want the balance of their RA to go to their dependants when they pass away,” Dr Ng said.

Under an annuity scheme, a person invests a lump sum with an insurer, which then pays out a monthly sum for life. In his Rally speech, PM Lee had said annuities would be compulsory for CPF members below 50.

The plan is to have a member buy an annuity when he turns 55, using a small portion of his Minimum Sum. This guarantees him a monthly payout of about $250 to $300 after his Minimum Sum is exhausted at age 85.

The scheme’s controversial element is that it forces a CPF member to lock up part of his CPF savings to buy the annuity — and his family will not get the money back even if he dies before 85.

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, welcomed the Government’s signal that it would be open to all suggestions relating to the scheme. “I’m glad there is this flexibility. I also hope more emphasis will be placed on helping the lower-income.”

Heading the new annuities’ committee will be National Wages Council chairman Professor Lim Pin, who will work with experts from unions, the academia, and grassroots and non-government organisations.

Their report is expected to be ready within the next six months, said Dr Ng.

He also told Parliament that the Government is set to raise the drawdown age of the Minimum Sum — from 62 years now to 63 years in 2012; 64 in 2015; and 65 in 2018. It will eventually be raised to 67.

To help those affected by the later drawdown age, the Government will pay CPF members a one-off deferment bonus (D-Bonus) or voluntary bonus (V-Bonus). (See Table). These one-off bonuses will cost the Government $1.2 billion.

“We expend considerable resources every year to help Singaporeans work longer and improve their retirement savings,” said Dr Ng.