I refer to the article “‘Home for annuity’ scheme for single, aged Taiwanese” (Straits Times, Mar 18).
Taiwan life annuity
It states that “A 70-year-old man whose home is assessed to be worth NT$10 million (S$420,000) will receive up to NT$34,800 (S$1,460) a month until he breathes his last.”
Singapore – $926 – $977 life annuity?
Comparing the above with the HDB Lease Buyback Scheme, I estimate that a similar 70-year-old man who has a 3-room HDB flat valued at $323,000, may get a CPF Life Scheme monthly life annuity of about $926 to $977 (assuming that the retiree qualifies for the LBS Bonus of $20,000), according to the CPF Life Estimator calculator.
Taiwan – $1,123 life annuity?
The equivalent life annuity for this example in Taiwan for a $323,000 flat instead of the Taiwan example’s $420,000 is $1,123 ($323,000 divided by $420,000 times $1,460).
It would appear that Taiwan’s scheme pays about 18 per cent more a month than Singapore’s HDB Lease Buyback Scheme – $1,123 versus $926 – $977.
Rate pegged to 10-year government bonds?
Singapore’s CPF Life scheme is also subject to the uncertainity as to what the average yield of 10-year government bonds plus 1 per cent may be in the future. All CPF Life annuity payout projections are based on the assumption of 4 per cent, which is based on an average yield of 3 per cent on 10-year government bonds plus 1 per cent. Currently, the average yield of 10-year government bonds plus 1 per cent is less than the 2.5 per cent floor rate (which is the lowest rate payable on CPF Life and the CPF Retirement Account).
In fact, since the former 4 per cent rate was pegged to the average yield of 10-year government bonds plus 1 per cent, from 1 January 2008, the rate has always been below 4 per cent.
There is no guarantee that the current minimum rate of 4 per cent, which has already been extended a few times, will continue to be extended from 1 January 2014 and beyond.
“This is in line with the Government’s announcement made in September 2012 to maintain the 4 per cent per annum floor rate for interest earned on all SMA monies and Retirement Account monies until the end of 2013.” (“Interest rate for CPF Special and Medisave Accounts to stay at 4% from April to June” (Straits Times, Mar 18)
Stay until death vs 30 years?
Also Taiwan’s scheme allows the retiree to stay until death, whereas the HDB Lease Buyback Scheme is only for 30 years.
Nobody alive after 30 years will be homeless?
In this regard, according to the HDB’s web site – “There may be cases where the flat owner outlives the 30-year lease. Such cases will be dealt with on an individual basis and appropriate housing arrangements will be provided to those flat owners who are not in a position to pay for the lease extension.
No elderly flat owner will be left homeless if he/she outlives the 30-year lease of the LBS flat.”
In this connection, of course the probability of living beyond 30 years is very low for the subject media article which used the example of a 70-year-old man.
If the retiree is younger, at say 63, as in the HDB web site’s example, the probability of living beyond 30 years may be higher.
So, unlike Taiwanese retirees who can stay until they die, Singaporean retirees have the uncertainity of “Such cases will be dealt with on an individual basis and appropriate housing arrangements will be provided to those flat owners who are not in a position to pay for the lease extension”.
Lifetime Reverse Mortgage?
I understand that in the typical Lifetime Reverse Mortgage schemes in other countries, the residual marker value of the home less annuity withdrawals and accrued interest, is also returned to the deceased retiree’s estate.
Leong Sze Hian
