Reason why CPF Life so mean?

In CPF, Financial competency on 01/11/2017 at 1:13 pm

Many moons ago after one Chris K wrote this about the meanness of CPF life because of the triple redundancy, I emailed his piece to an actuary and asked him if the piece made sense (there were some things that I couldn’t quite follow). He said it did, but added “Nothing wrong in being prudent”.

This PAPpy answer got me and, when I told him, Chris K annoyed.

But reading this one can understand the logic even if one disagrees with it.

IN 1965 ANDRÉ-FRANÇOIS RAFFRAY, a 47-year-old lawyer in southern France, made the deal of a lifetime. Charmed by an apartment in Arles, he persuaded the widow living there that if he paid her 2,500 francs (then about $500) a month until she died, she would leave it to him in her will. Since she was already 90, it seemed like a safe bet. Thirty years later Mr Raffray was dead and the widow, Jeanne Louise Calment, was still going strong. When she eventually passed away at 122, having become the world’s oldest person, the Raffray family had paid her more than twice the value of the house.

Underestimating how long someone will live can be costly, as overgenerous governments and indebted private pension schemes have been discovering. They are struggling to meet promises made in easier times. Public pensions are still the main source of income for the over-65s across the OECD, but there are big differences between countries (see chart). In both America and Britain public provision replaces around 40% of previous earnings, but in some European countries it can be 80% or more. Where it makes up a big share of total pension income, as in Italy, Portugal and Greece, a shrinking workforce will increasingly struggle to finance a bulging group of pensioners.

When it comes to the future, it’s all about probabilities i.e. throwing dice. Even with all with the help of AI, data and acturial science, the future is still guess-work, not certainity.

The more “certainity” is asked for, the higher the cost. Here’s something I wrote in 2009: What price income protection? Or the cost of an annuity

So if one wants “certainty”, there’s a price to be paid. CPF Standard Plan offers that “certainity”. As I told someone sometime back, if you know you are going to live to 150, then opt for the Standard Plan , even if by conventional wisdom yardsticks it “sucks”. But remember even then if the plan dies, you also die: Diabetes: The real reason PM is worried?

  1. Andre made a bet of Jeanne voluntarily. Not so with CPF Life.

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