Scheme Gets Thumbs-Up From Experts And MPs

Source : The Straits Times, Feb 13, 2008

Most S'poreans feel all the important feedback has been taken into account

THE new annuities scheme has received the thumbs-up from financial experts, MPs and Singaporeans.

Most interviewed said the plan, to be called CPF Life, addressed the concerns of Singaporeans and is a vast improvement on the original idea.

As MP Denise Phua, a member of the Government Parliamentary Committee (GPC) for Manpower, put it: 'Major feedback on making the premiums affordable, allowing for choices and flexibility in payout ages, and refunds of premiums on earlier demise have all been taken into account.''

The compulsory scheme was first suggested by the Government last year to help Singaporeans, who are living longer, have a more secure retirement.

The initial idea was for CPF members to use part of the Minimum Sum in their Central Provident Fund (CPF) account to fund the annuity. It would give them monthly payouts when they turn 85.

But it upset many Singaporeans. Some were sceptical they would live to 85 while others baulked at losing their money should they die early.

A committee was then set up and it consulted widely before designing the scheme which the Government has now accepted.

Manager Koh Lee Peng particularly welcomed the decision to allow for the refund of unused premiums.

Said the 40-year-old: 'Even if you pass away early, your money can go to family members. The scheme looks more attractive now.'

She said she would opt for the payout to start when she hits 65 - the earliest possible - as she hopes to retire then.

When CPF Life is introduced in five years' time, people can choose to start getting their payout from one of six ages - 65, 70, 75, 80, 85 and 90.

Mr Andrew Linfoot, an actuary at the local office of Scottish Annuity & Life Insurance Company, singled out the flexible payout age as a key sweetener.

'Offering a range of options is a good way to meet the differing retirement needs of different parts of the community,' he said.

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, noted that CPF Life offers a better interest rate - around 5 per cent - than the projected 4 per cent or less of private sector annuity plans.

But Mr Leong, like Dr Lim Wee Kiak, member of the GPC for Manpower, feels the man-in-the-street needs help to figure out which annuity plan among the dozen offered is best for him.

Said Dr Lim: 'The CPF Board has a huge task ahead just to communicate the scheme to the public. But the old scheme cannot compete with this one, which guarantees lifelong income.'

Currently, the payout from the CPF Minimum Sum is for 20 years, after which many have few sources of their own funds.

However, Ms Koh, like some others, worries the payouts may not keep pace with inflation.

'Twenty years on, medical bills are going to be more expensive. How to survive on $600 a month?' she said, referring to the estimated monthly payout.

Ms Phua pointed out that the annuities scheme was not meant to provide for all the retirement needs of Singaporeans.

'CPF members should know how much they would need on retirement to maintain their desired standard of living. CPF Life is only one possible stream of income.'

They could consider healthcare insurance and renting out part of their homes, she added.

But critics like Mr Joseph Chong, chief executive officer of financial advisory firm New Independent, said it may not cater to its target group: those who outlive their resources.

'Are we spending a lot on something which is a small improvement to the present scheme?' he asked.

Mr Chong feels the payout makes little difference for many well-off Singaporeans, but not for those outside the CPF system or with few funds. 'They may just fall through the cracks. The Government should top up such people's CPF accounts.''

MORE ATTRACTIVE

'Even if you pass away early, your money can go to family members. The scheme looks more attractive now.'
MANAGER KOH LEE PENG, 40, who welcomed the decision to allow for the refund of unused premiums

JUST ONE OPTION

'CPF members should know how much they would need on retirement to maintain their desired standard of living. CPF Life is only one possible stream of income.'
MS DENISE PHUA, a member of the Government Parliamentary Committee for Manpower