Changes to CPF LIFE
Acting Manpower Minister Mr Gan Kim Yong announced in parliament yesterday on the changes to the national annuity scheme. The number of choices is reduced from 12 to 4 – called LIFE Basic, LIFE Balance, LIFE Plus and LIFE Income. The following table illustrates the different amount of payout for a 55 year old male who have $67,000 in the Retirement Account in 2013 and receiving the first payout at age 65 (source: The Straits Times). The range of payout is for the assumed interest rate of 3.75% and 4.25%. The Straits Times report did not list the assumed interest rate but the CPF website listed them as quoted. I assume that both are assuming the same interesting rate.
Some things to take note of:
- The payout may not stay the same throughout the payout period as it depends on the floating interest rate and also the mortality rate. This means that there may be a situation of getting a higher payout for some years followed by lower payouts the next.
- The illustrated amount left for beneficiaries is for someone who passes away at age 70. There is no illustration for a longer lifespan. The bequest will get smaller as the lifespan increases.
- The payout is not linked to inflation. That means, assuming no changes to the payout, the actual purchasing power will actually decrease over the years due to inflation.
To get a better illustration of the scheme, some of the following data can be released
- As there is a min guaranteed interest rate of 3.5% for the 1st $60,000 in the OA and SMRA and 2.5% for amounts in excess of $60,000, a min monthly payout can be shown for the worst case scenario (in the case of interest rates. It may be hard to assume worst case scenarios for the mortality rate). This may help to avoid the situation of people having too rosy an expectation.
- The bequest amount for other ages should be shown as well. A estimated age whereby the bequest will run out should also be shown.
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