CPF Annuities Scheme Will Offer Members 12 Options

Source : The Straits Times, Feb 13, 2008

ONCE they turn 55, Singaporeans can choose from one of 12 annuity plans available to them under a new scheme unveiled yesterday.

But they will be unable to change their decision thereafter, even if their circumstances change.

Explaining why, National Longevity Insurance Committee chairman Lim Pin said:

'Once you opt, then it (the premiums) will go into a pool, and that pool has to be fixed because the pooling is very important for the whole scheme.

'If you come in one day and go out another, the pool becomes variable, you cannot calculate how much money to pay out. It's a danger. It's an administrative problem. It's a kind of contract, a kind of insurance policy contract.'

It is the one immovable point in the scheme, of which flexibility is a hallmark.

Indeed, Singaporeans can choose to start receiving their annuity payouts from as early as age 65 or as late as age 90.

They can also decide whether or not to have the premiums refunded to their families should they die early.

In all, there will be 12 annuity options to choose from, to meet public calls for a flexible scheme.

'The committee recognises that different members have different retirement and bequest needs,' the committee noted.

Its report, released yesterday, detailed how the scheme - which kicks off in 2013 - will work.

That is when the first group of Central Provident Fund (CPF) members - about 35,000 who turn 50 this year - will come under the annuities scheme.

By that year, the Minimum Sum amount that this group is supposed to have is $134,000. This can be either fully in cash, or partly in cash and partly in the form of a property pledge.

Under the annuities scheme, the Minimum Sum cash balance will be divided into two parts: a portion that remains in the Retirement Account; and a Refundable Premiums (RP) portion.

The sum in the Retirement Account is used for monthly payouts to the member, starting at age 65, until the age at which he opts to start receiving payouts from the annuities scheme.

The RP portion, on the other hand, is used to pay the premium of the scheme.

At 55, the member will have to choose at which age he wishes to start receiving payouts from the scheme.

This can start at any one of six ages - 65, 70, 75, 80, 85 or 90 - and the payouts will continue for the rest of his life.

The earlier the starting payout age, the higher the premiums will be.

This means there will be less money left in his Retirement Account - and thus less money for his beneficiaries, as he loses out on the interest otherwise accrued on the amount in that account.

He does not get the interest from his RP, as it is pooled to fund the scheme.

For each of the six ages that the payouts can start at, a member can also specify if he wants a refund of the capital sum - which is paid out in premiums - if he dies before reaping them back.

These six options are named Refund 65, Refund 70, Refund 75, Refund 80, Refund 85 and Refund 90.

If he opts instead for the non-refundable plan, he will then pay relatively low premiums and get relatively higher payouts.

These plans are known as No Refund 65, No Refund 70, No Refund 75, No Refund 80, No Refund 85 and No Refund 90.

Take a hypothetical case of a male CPF member at age 55 who has half the required Minimum Sum, or about $67,000 in cash.

The costliest plan will be if he wants his payouts to start at the earliest age possible - 65 - and also wants the refundable option.

His premiums will cost 100 per cent of his Minimum Sum. In return, he will receive $650 a month in annuity payouts for as long as he lives. But if he opts for the No Refund scheme, then he will receive $690 a month.

If, on the other hand, he chooses to delay his payout age to age 90, his premiums will cost just 6 per cent of his Minimum Sum. In return, he will get annuity payouts of $560 a month.

The corresponding payout range for women is lower - $540 to $590 - as they generally live longer.

These figures are indicative, as they may vary. And the factors are: the balance that an individual has in his Minimum Sum; changing mortality rates, and the CPF Board's investment returns on the pooled premiums.

But committee chairman, Professor Lim Pin, noted that no matter what, the payouts will be calculated based on a minimum guaranteed interest rate of 3.5 per cent, which is what the Government offers to CPF members.