Best CPF Life Plan?

In CPF, Financial competency, Financial planning on 03/12/2011 at 6:36 am

 CPF Life Plans

CPF LIFE Plans (With Refund) Monthly Payout Bequest
LIFE Basic Low High
LIFE Balanced Medium Medium
LIFE Plus High Low
CPF LIFE Plans (Without Refund) Monthly Payout Bequest
LIFE Income Highest No bequest

Source: CPF Board

From 1 January 2013, those turning 55 will have to opt for one of the CPF Life Plans. They will no longer have the choice between the Minimum Sum scheme (payouts for about 20 years from age 65) or the CPF Life Plans. “With rising life expectancy, 1 in 5 Singaporeans is expected to be aged 65 and above by 2030. Out of which half can expect to live beyond 85. Therefore, an income for life to help you meet your basic retirement needsis very important,” is what the CPF Board says.

Various people (self included, a retired senior bank executive, and a scholar working in a GLC ) who have the choice of choosing between the CPF Life Plans and the MS scheme, have opted for the latter because the CPF Life Plans’ calculations are in a black-box. As a financial planner pointed out, “The CPF Life Plans come without a benefits illustration, something the law requires insurance agents and financial planners to show life insurance buyers”. The plans could be better, but we just don’t know.

The CPF Life Plans are also more risky.  There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the MS scheme, where account holders are legally entitled to the monies in their CPF accounts. Though accessing the monies in one lump sum after 55 is an issue.

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it?

Of course those who opt for the MS assume that in the event they are still alive in their late 80s and even 90s, they can support themselves financially, or have children and grandchildren that will support them


— longevity* runs in your family and you think you can live well past 80; and

— ‘you think you will run out of money in your 80s,

you are probably better off with a CPF Life Plan.

If you choose a plan, or have no choice to choose a plan, you may want to opt for the “Basic” plan. This is the closest to the MS scheme. In fact, Doctor Money, Larry Haverkamp (whose views I respect) thinks it is superior to the MS scheme.

 Remember, if you don’t opt, the default is the “Balanced” plan. In this, the annuity element starts from age 80, while in the “Basic” plan the annuity starts from age 90. Hence one of the reasons why your beneficiaries should get more under the latter plan. Another is that the latter attracts a smaller premium, 10% versus the former’s 30%.


*Some useful statistics (from a 2008 Department of Statistics paper based on 2006 preliminary data) on how long you have live:

— If male aged 65 – can expect to live another 17.2 years – 82.2

— If female aged 65 – can expect to live another 20.6 years. — 85.6

— Proportion of Singaporeans aged 65 expected to be alive at age 85 is

      — Male 39%

      — Female 55%

  1. For retirement, just save & invest more take-home pay. If you need to depend on CPF for retirement then you die liao, confirm no retirement, must work until you drop dead. CPF money just max as much as possible into property and let it rot or appreciate, whichever you don’t care.

    To take out Medisave, just check yourself into hospital a few days each year for some TLC. If you got no as-charge all-expense paid private Shield plan, then too bad. You die your business.

    For Special a/c, forget about it. Just let it go into your Retirement a/c and rot.

  2. @ Atans1: The bee is in the interest accrual from age 55-65 as 50% of RA is deducted for annuity premium at age 55 for LIFE Standard and 10% for LIFE Basic. If you distill CPF LIFE to the nth degree, you may agree with me that there is an inherent moral hazard that LIFE works against those who met their Age 55 cohort’s CPF Min Sum in full cash which should give them more retirement security at a very basic level than those who use up to 50% Prop Pledge.

    CPF LIFE Pay-out depends on (i) market interest rate and (ii) mortality rate of fellow CPF Members! Hence, fellow CPF members are saddled to pay for those who, say, have only $5,000 in RA and apply to join CPF Life for a paltry pay-out until death – and this group may well live longer as they walk more and eat less and very little meat.

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