Not quite correct, Tharman

In Financial competency, Financial planning, Political economy, Political governance on 06/03/2012 at 6:32 am

(Or “Wrong, Minister”) (Updated at 9.20 am to explain the “premium”)

“The bequest goes to your loved ones, not to other CPF members and not to the Government. You get all of your capital back either through your monthly payouts or in a bequest that you leave to your family and loved ones.”

Err you don’t. What about the “premium”* that one pays to ensure that one is covered for life? This is “lost” if one dies too early to benefit fully from the annuity. The “premium” amounts to 10% of the amount in the Retirement Account (at age 55) for the Basic Plan and 30% for the old Balanced Plan. Both are not “peanuts”.

BTW1, I was not one of those who criticised or raised an eyebrow at Tharman’s remark that one could earn only $1,000 a month and still buy a HDB flat.

BTW2, I know that Tin Pei Ling is not helping to create sound-bites for Tharman, juz as she isn’t helping Vikram Nair with his jokes, Hri Kumar Nair with his research and MoE with gathering data on FT government scholars. She is focusing on helping the uncles and aunties in her self-styled SMC. By all accounts, she is doing a good job.


*”Premium” is the amount that a CPF holder has to pay from his minimum sum in order to get life-long “assurance” of an annuity till death.I put the word “assurance” within quotation marks because technically if the CPF Plan that one is in goes bust, one’s annuity payments ceases. Taz the law.

  1. Can you elaborate on your “premium” for the plans? I do not see it from cpf. Are they the interest you would have earned ? Thank you.

  2. The 10% premium is just another a new form of TAX on citizens.

  3. TPL learned her lesson and is working hard to do good. The others will follow her footsteps by either shutting up or becoming good doers, or they won’t be around in the next election. No one wants to risk another TPL in the GRC after the scare in the last election.

  4. One question has been bugging me for quite some time :

    If our compulsory CPF life annuity is supposed to benefit us at 65, why don’t our Govt just allow CPF members to start the annuity while they are still young like the minute they start contributing to CPF ?

    For example giving young contributors the option to set aside their monthy contributions in their Special Account to pay for any of those approved annuity plans from NTUC Income, Great Eastern, Prudential, etc,. will definitely pay out a bigger amount than one that start at 55, isn’t it ?

    Maybe our Govt was thinking along their own best interests instead of CPF contributors, no ?

    • You are very dangerous. Now PAP will start deducting your milk powder money for your old age annuity.

  5. Ahh Uncle Cynic, the botak-head is right. Will get back at least the principal**. The premium used to pay for the annuity will also be paid back to beneficiary, less whatever annuity payments already made. This is standard worldwide annuity characteristic and same as for local commercial annuities too e.g. NTUC annuity.

    Premiums for the various Life Plans:-
    Basic — 10% of your Retirement Account.
    Balanced — 30% of RA.
    Plus and Income — 100% of RA.

    Premium for the New Standard plan dunno yet — gotta wait until Sep 2012 to announce.
    Prob 30% to 40% of RA.

    Those who want to know more — CPF website has a 24-page PDF booklet on CPF Life.

    There is also an online CPF Life Payout Estimator which you can use to input in various figures and see the results. Note that there are a couple of useful buttons towards the end which you can use to compare the results and premiums and bequest amounts left for the different Life plans.

    The annuity portion of CPF Life will definitely be outsourced to commercial insurance companies, and mandated to be further re-insured out to international and local re-insurers to further spread the risk.

    CPF will focus on the remaining RA amounts within CPF Life to make sure they have sufficient maturity liquidity to make payouts to those on the Basic, Balanced and New Standard plans (up to their respective age limits when their RA portion runs out).

    The govt is using CPF Life to transfer away risk of social support for old foggies away to insurance companies.


    ** The only Life Plan where you don’t get back your principal at all, if you die before collecting sufficient monthly payouts, is the Income Plan — which is being discarded due to extremely low popularity. Duh…

    • “The govt is using CPF Life to transfer away risk of social support for old foggies away to insurance companies.” This is very misleading.

      PAP is making old people support themselves, and the insurance companies join in for the feed.

  6. Regarding contributing to commercial annuities from the start, instead of to SA–>RA–>CPF Life.

    Not necessarily true that commercial annuities will give better payouts. Depends on how fast and safe the funds of the annuity can grow.

    Over the past 12 years, commercial insurance companies could only grow their funds at average of 3.5%pa.
    While CPF gives 4%, plus now extra 1% for first $60K.

    All things being equal, commercial annuities also start paying much lower monthly payouts compared to CPF Life. But commercial annuities do have (non-guaranteed) annual increase in the payout based on how well the funds are doing. But the annual increments are not fantastic — NTUC has been giving roughly 0.5%-1% increase in their annuity payouts over the last few years.

    If you compare annuity quotations from insurance companies, you will realise that you need to live till 80 or 85 before their payouts equal or exceed the CPF Life payouts that you will get from the start. So if you can live long beyond 85 then you will benefit from commercial annuity. It’s all about probabilities and actuarial science — just like gambling, you’re betting against the house (the insurance companies) that you will win the bet.

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