Explain the lower payouts of new CPF Life plans

Straits Times Forum

Mar 8, 2012

TWO of the existing Central Provident Fund (CPF) plans for seniors, Life Plus and Life Income, project similar and higher monthly annuity payouts than those of the current CPF Minimum Sum Scheme (‘CPF Life plans to be simplified from 4 to 2′; Tuesday).

In fact, the most popular plan so far for those who voluntarily opted for CPF Life was Life Plus, probably because the payouts were higher than those for the Minimum Sum Scheme (MSS).

I believe most Singaporeans were persuaded to buy in, in order to support the CPF Life scheme, because of the higher payouts offered by these two plans.

So it may be a disappointment that both the new plans have reduced payouts compared to the MSS’.

The most popular plan gave higher payouts than the MSS, so how is it possible that feedback from CPF members led to the crafting of just two plans, both of which pay less than the MSS?

As the bequest drops rapidly to zero at around age 77 and 83 for Life Plus and Life Balanced, respectively, does combining the two into the new Standard (default) plan mean that the bequest will drop to zero at an earlier age than 83?

This may have implications for lower-income widows as their life expectancies are longer than those of their husbands on CPF Life plans, given that a third are expected to live beyond 90.

Instead of relying merely on the feedback of those who opted in so far to decide on the new plans, the actuarial report on the CPF Life scheme should be made public. In this way, all stakeholders can help to analyse and offer feedback or suggestions on the scheme, including the design, life expectancy and return, as well as the assumptions and computations.

Leong Sze Hian

About the Author

Leong Sze Hian has served as the president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), Hotel Mumbai (associate producer), invited to speak more than 200 times in about 40 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of 2 countries. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.