Instead of providing four options for CPF members to choose form, members will now be given only two choices – the existing basic plan, and a new standard plan which is a combination of the two current most popular plans (Balanced and Plus Plans). The standard plan will now be the default option for those who do not choose.

The reason given for this change is to make the options of CPF Life simpler for people to choose.

I actually prefer having more options as it will give people greater flexibility to choose a plan that better suits their needs. For those people who are confused, they can always stick to the default option.

Anyway, we will change from the current:

• LIFE Income Plan – No bequest, highest monthly payout
• LIFE Plus Plan – Low bequest, high monthly payout
• LIFE Balanced Plan – Medium bequest, medium monthly payout (default)
• LIFE Basic Plan – High bequest, low monthly payout

to

• Life Standard Plan – average of low and medium bequest, average of medium and high monthly payout (default)
• Life Basic Plan – high bequest, low monthly payout    
  
     

We don’t have the details of the new projections yet but it is likely that the new default option will have a lower bequest since the standard plan is a combination of the old balanced and plus plan. This means a higher proportional of the Minimum Sum will be put into the life annuity pool.

We have come a long way from the original twelve options recommended by the National Longevity Insurance Committee to two options today.

I foresee that sometime in the future, CPF Life will be reduced to just one option. After all, we don’t have a choice where most of the CPF regulations and changes are concerned. So I don’t see why it would be any different for CPF Life.

Existing CPF Life policyholders on any of the four current plans can continue to remain on their existing plans.

He or she may also choose to switch to the new Standard Plan before 31 Dec 2013 if he or she finds that it now better meets his or her retirement needs. Existing policyholders will receive customised informational packages from the third quarter of 2012, to help them better understand the differences between their existing plans and the new Standard plan.

To leave your comments, please go to : Less Options for CPF Life

Reasons cited included Singaporeans living longer and needing to accumulate more for their old age.

This is probably one of those sensitive issues and the government is probably trying to test the ground first by using “may need to raise”. Depending on the response from the ground, they can then modify their policies accordingly. So make sure you voice out your comments if you feel strongly about this.

I always felt that the idea of a retirement age is something personal. No matter what the official retirement age is, if you have no money at that point in time, you will still have to continue working.

Nowadays, I am seeing more and more elderly people selling tissues; not just in hawker centers but also in the streets! Some of them are even collecting used metal tin cans from dust bins. I don’t think any one of them would be doing it if they had a choice. The official retirement age probably wouldn’t mean anything to them.

For another group of people, they enjoy their work so much that they will just continue working. The concept of retirement does not even exist.

Nevertheless, the official retirement age does have an important implication. It might reflect the age when your CPF minimum sum or CPF life payout starts. By increasing the retirement age from 62 to 65, we already saw the payouts being delayed to 65.

If the official retirement age is increased further to 68, does that mean our CPF minimum sum or CPF life payouts will only start at 68?

To leave your comments, please go to : Singapore May Raise Retirement Age to 68

Previously, only those with at least $40,000 in their Retirement Accounts when they turned 55 from 2013 would have been auto-included in CPF Life.

Now, those with at least $60,000 in their RA when they are 65 from 2023 onwards will also be compulsory opted into the CPF Life scheme.

This change will affect mostly those whose CPF balances have some additional form of net inflow (on top of CPF interest) from the age of 55 to 65. These could be from property refunds, top-ups, interest income and employment wages if the members continue working.

According to Manpower Minister Gan Kim Yong, the change will increase the participation rate of the scheme’s first auto-included cohort from 70% to 80%.

Mr Gan also announced other changes of how CPF savings of deceased members would be disbursed to their beneficiaries.

From January 2011, CPF members can choose to have their savings transferred directly to the CPF accounts of their nominees, instead of having the payouts made in cash upon their death.

Also, the CPF Board will automatically disburse the money to the nominees instead of having to wait for nominees to apply for the bequeathed funds.

Changes will also be made to the way the CPF Board manages unclaimed monies of deceased CPF members.

CPF savings left unclaimed for six months upon the member’s death will be moved into the Ordinary Account, which pays a lower interest than that for the Special, Medisave and Retirement Accounts.

These CPF savings, if left unclaimed for seven years following the death of a member, will be taken over by CPF.

Over the last few years, the beneficiaries of about 280 people who died annually who have not come forward to claim the money amounted to about $2.4 million each year.

I suppose the last two changes pertaining to the unclaimed monies of CPF will apply more for those people who do not make CPF nomination as those with nomination will have their money disbursed automatically to their nominees.

If you do not have an existing CPF nomination, it is wise to make one today. Note that CPF nomination becomes invalid upon marriage so you will need to make another nomination if you get married.

To leave your comments, please go to : Second Auto-Inclusion Point for CPF Life

There is a handbook on CPF LIFE (guide B) which tries to explain in details how the scheme works. Before reading it, you can read the basic guide which gives an overview of the scheme.

I will not be repeating everything from the handbook but will try to extract some information from them and explain what are some of the possible misunderstandings of the scheme. This post should be read in conjunction with guide B.

Q: What happens when I join? (page 4 of guide B)

A: When you join CPF LIFE, all your retirement account (RA) savings will be used for your LIFE plan. Part or all of the RA savings set aside will be deducted to pay a premium for an annuity (called annuity premium) while the rest of your savings will remain in your RA. The annuity payout will start at various ages, depending on the LIFE plan that you have chosen.

The table in the booklet shows the annuity start age to be 90, 80, draw down age (DDA) and draw down age for the basic, balance, plus and income plan respectively.

A person looking at the table at face value might decide that he will prefer to go for the plus or income plan as he does not want to wait until age 80 or 90 before he can start to get his money. Someone using the payout calculator might also have the same thinking.

This is a misintepretation as no matter which scheme you choose, you will start getting a monthly payout from your DDA onwards.

Just that for the case of the basic and balance plan, your monthly payouts from your DDA till age 80 or 90 will come from the balance in your RA which has not been used to pay for the annuity. The diagrams from page 6 and 7 of guide B actually shows this quite clearly.

Q: Do my savings used for CPF LIFE continue to earn CPF interest? (Page 10 of Guide B)

A: Yes. Interest earned on the RA savings will continue to be paid into the RA. Interest earned on the annuity premium will be paid into the Lifelong Income Fund and pooled with the interest earned from the annuity premiums paid by the rest of the CPF LIFE participants to provide the life long payout under the scheme.

In addition, you will earn the extra 1% interest on the first $60,000 of your combined CPF balances including the annuity premium (less annuity payout) that had been deducted from your RA. This extra interest will be paid into your Retirement Account.

The “YES” here should not be taken at face value. A wrong assumption here is to think that no matter which plan you choose, there is no difference and you will continue to collect full interest.

The difference is that interest paid to your RA goes directly to you while interest paid from your annuity premium goes into the Lifelong Income Fund which might or might not benefit you (depending on how long you live). This will make a difference to the amount you leave to your estate should you pass away.

Say I have $100k. The estimated annuity premiums payable at age 55 should I opt for basic, balance or plus plan are $10k, $30k and $100k  and my RA would have $90k, $70k and $0 respectively.

After 10 years (at age 65), my RA would have (assuming 4% interest) $133k, $103k and $0. If I kick the bucket at that time, my estate will get the balance of my RA plus the unused annuity premiums which works out to be $143k, $133k and $100k respectively. So, someone who dies early will not be able to benefit from the interest earned in the Lifelong Income Fund which is reflected as a lower payout to the estate.

Basically, all these “lost interest” will be used to fund the monthly payouts to those who live longer. There is nothing wrong with this as this is the core essence of an annuity plan –  the pooling together of longevity risk.

However, if everyone starts living beyond 85, the scheme will either become unsustainable or payouts will have to be reduced significantly.

Under the old scheme where you only get $X/month for 20 years, it is simply not possible for everyone to get $X+y/month for life if the interest rate is the same under both schemes. Where does the extra money come from?

So while you are opting for your plan, bear in mind that the monthly payout figures are only projections which assumes a certain mortality rate and interest rate. There also isn’t a guaranteed minimum payout, which would have helped members see what is the “floor” of their monthly payout.

Another minor point is on the extra 1% interest earned which is supposed to go into your RA. Note that 1 or 2 months before your DDA, the Board will deduct another annuity premium from additional monies which had gone into your RA from age 55 to 65. This of course includes the extra 1% that you have been earning. The deduction will be based on the proportion of the original CPF Life plan that you choose (Page 12 of Guide B).

The last point I want to address is someone asked whether the premium that goes into the annuity scheme is fixed or based on a percentage.

It is actually based on a percentage of the amount you have left in your CPF as part of the Minimum Sum. The percentages of 10% and 30% for the basic and balance plan that is given now is only an estimate.

So, if I have $50k in my RA and opt for the basic plan, $5k (assuming an estimate of 10%) will be deducted to fund the premium. If I have $117k, then $11.7k will be deducted. Even if I have $200k in my CPF, it will still be $11.7k as I would have withdrawn $83k from CPF (after meeting the Minimum Sum requirements) leaving behind $117k in the RA.

Taken from the FAQ on the CPF website:

Q: Is there a maximum amount that I can use to join CPF LIFE?

A: When you join CPF LIFE you use all your Retirement Account (RA) savings to join the scheme. The maximum amount that you can use to join CPF LIFE is therefore the maximum amount you have in your RA which is the prevailing Minimum Sum (MS).

Q: Why can’t CPF members commit more than the prevailing Minimum Sum into CPF LIFE?

A: Some CPF members may want a higher lifelong income and are willing to pay more for this. The National Longevity Insurance Committee had considered this but recommended that CPF Board should focus on operating CPF LIFE as an integral part of the Minimum Sum (MS) Scheme. The MS represents the basic retirement sum that the Government will help members to accumulate. Should members desire higher monthly income beyond what is provided by the prevailing MS, they could buy annuities from commercial providers.

To leave your comments, please go to : CPF Life Questions

To come up to speed with understanding CPF Life, let’s first look at how the current CPF withdrawal and Minimum Sum Scheme works. I have to put a big disclaimer here that the information presented here is correct at this point in time. Things change and if you are reading this some time after I wrote this, you will need to verify the information again.

I won’t be covering all the different cases here as it will get too lengthy. If you fall outside the criteria mentioned, the rules will be slightly different.

You may apply to withdraw your CPF money one month before you reach 55 or any time thereafter.

On or after 1 Jan 2013, the cash balances can only be withdrawn after setting aside both the CPF Minimum Sum and Medisave Minimum Sum. The Minimum Sum will be moved to the Retirement Account (RA) and you can then withdraw the rest of the savings in your Ordinary and Special Accounts in one lump sum.

The current Minimum Sum is $117,000 and will continue to increase every year to factor for inflation. For reference, the Minimum Sum was $40,000 in 1995. This is a tripling of the amount in 15 years. If we project it forward, will we see the Minimum Sum at $350,000 in 15 years time?

Half the Minimum Sum can be in the form of a pledged property, with the other half in cash. I suspect the pledged property portion may be reduced slowly in time to come.

Under the system (before CPF Life), CPF will pay you a monthly income in the form of withdrawals from your RA starting from the Draw Down Age (DDA). The DDA will be 65 for those who are still 55 and below as at 31st Dec 2009. This monthly payout is expected to last about 20 years.

All these while, the monies in the RA will continue to earn interest from the CPF. If you were to pass away, the remaining money in your RA will go to your CPF nominee beneficiaries or to your estate (depending on whether you made a nomination).

More on how CPF Life will affect all these in the next post but just for interest sake, I actually saw this question in the CPF Q & A section:

Q: When will the draw-down age be increased to 67?

A: We will first take steps to raise the draw-down age up to 65 as announced, and decide on the next steps in the next review.

I wonder what the Draw Down Age will be by the time I finally retire.

To leave your comments, please go to : CPF Withdrawal and the Minimum Sum Scheme