atans1

Achtung: Default Standard CPF Life might be the better one

In CPF, Financial competency, Financial planning on 05/05/2017 at 11:30 am

Not the Basic one.

But really who knows, if the PAP administration decides to make “tweaks” that are not made public?

This blog and others has alwats argued that punters should opt for the Basic not the Standard plan. 

A reader (smart guy, trained as MD) now says that the Standard could now be better given “tweaks” over the yrsthat were not made public. I’ve asked an expert to try to confirm or deny the validity of the claim.

Meanwhile what this doctor (now fat cat rentier) says is the truth, the absolute truth: the PAP can suka suka “tweak” things in private and change the facts:

[Lease Buyback Scheme]  suffers from the same problem as CPF Life — opaque internal workings & computations and subject to unannounced changes in computations & internal assumptions. E.g. CPF Life internal annuity calculations have changed a couple of times since it launched — the monthly payouts as calculated by the CPF Life calculator has changed even with same parameters in just a few short years. Previously, the Basic CPF Life option was the better no-brainer choice. Now the default Standard CPF Life is arguably better with a significantly higher quantum in monthly payouts. Imagine those old folks that took up the Basic plan earlier…

So rather focus on the “Marxist detainees” and their unhappiness, those opposed to the PAP should focus on rice-and-veggies issues. But then they look down on those who can afford only these basic Asian foods.

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  1. Starting points:-

    1. July 2014 analysis showing Basic CPF Life plan is the better option.
    https://www.ifa.sg/cpf-life-standard-is-the-worst/

    2. March 2016 analysis showing a much improved Standard CPF Life plan.
    https://www.ifa.sg/you-should-not-select-your-cpf-life-plan-at-55/

    Future?? Who knows.
    BTW, CPF will be introducing yet another CPF Life plan with inflation-linked payouts; i.e. payouts may increase in line with inflation. However the consensus is that starting payout amounts will be drastically smaller than either Standard or Basic plans.

    The common denominator to compare all these different CPF Life plans is the breakeven age — at what age would the different plans accumulate same total amounts of payout? Then use your own personal situation & family health history to see if it makes sense.

    E.g. for the current Standard & Basic plans, the breakeven age is likely around 80-83. This is basically similar to the typical current expected lifespan for Sinkies, i.e. 50% will die earlier and 50% die later. So the question is whether you think you’re likelier to live past 83? If so then the Standard plan is better from a total returns basis (including bequest for descendants).

    The current annuity computation for CPF Life is much fairer compared to the initial kiasu one in 2014. Back then the breakeven age was around 93. Very difficult to “win” with Standard plan — even LKY with free A-class medical & top professor doctors and surgeons, died at 91.

    More spanners to throw into the works to confuse Sinkies further hahaha!!!

  2. The change in the payout is due to the extra 1% on first 30k on top of the extra 1% on first 60k once the minimum sum is entirely swept into the RA right? Which brings to another matter – the CPF LIFE payout looks attractive based on the minimum sum set aside from age 55 onwards. But that minimum sum continues to accrue the RA rate plus the add-ons so the correct way to look at it is the LIFE payouts over the balance at age 65 not over the minimum sum. It looks a lot less attractive but most people don’t see it that way. The examples in the CPF websites don’t help.

  3. Chris K: “the correct way to look at it is the LIFE payouts over the balance at age 65”

    Yup, that’s what the 2nd link in my previous comment analyzed. It showed that now with the choice of waiting till 65, and then going for the Standard plan makes quite a lot of sense.

    Compared to the previous scenario in 2014 (1st link) where the payouts between Standard & Basic (forced to choose at 55 yrs old) weren’t much different and the Standard plan losing most of the bequest value by 75.

  4. Juz spreadsheet up the present MS of 166k compounding at 4% with 1st 60k extra 1% and 1st 30k additional 1%. Then use the 1.28k per month payout from 65 onwards on a ror of 4.25%. The Standard Plan break even age remains at 89 where it was when I did the same calc a couple of years back. So I was wrong – nothing has changed. The difficulty in assessing the Basic and Standard Plan is while we know that at age 85 there is no more bequest under the Standard Plan and there is under the Basic Plan but what we don’t know is at what age does the bequest actually cease under both plans.

  5. btw the news out of the UK last week is interesting – a slowdown in the rate of increase in longevity wipes out a huge chunk of corporate pension liabilities if the actuaries are to recalibrate. In SG speak, that ought to mean a shortening of the breakeven age resulting in higher payouts. But if the same longevity effect takes place here, I am sure nothing will be done.

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