By Leong Sze Hian

The default life annuity is expected to be implemented in about two years’ time, from the date of the announcement in October 2005.

A default life annuity uses the prevailing CPF Minimum Sum at age 55 to purchase a fixed guaranteed life annuity payable monthly from age 62, for as long as a retiree lives.

One can choose to opt out of a default life annuity, and leave the Minimum Sum, currently $99,600, with the CPF Board at 4 per cent interest, and withdraw, from age 62, $790 monthly for 20 years.

I would like to make the following suggestions to the Government:

I understand that at age 82, the life-expectancy survival probability is around 20 per cent for males and more than 30 per cent for females.

Currently, those who withdraw $790 when they still have other sources of income or assets to liquidate for retirement, may just deposit the money in a bank account paying about 1 to 2 per cent interest.

It would be better to leave the amount with the CPF Board at 4 per cent interest.

Have a retirement calculator on CPF Board’s website to enable retirees to compute how long their withdrawals will last if they choose to withdraw a lower amount than $790, and the survival probability at the withdrawal-ending age.

This option may be particularly useful for retirees who are concerned about providing an income for their dependants for a period which is longer than 20 years.

This may be the case because of the longer life expectancy of their spouse, or infant dependants. This will help retirees to make discerning decisions, depending on their individual circumstances, needs and concerns.

Consider allowing flexibility to change the amount and timing of withdrawals.

For example, if a retiree elects to draw less than $790, but lands in unexpected financial difficulty some years later, allow him to withdraw more, as long as the withdrawals are such that they do not deplete his retirement account before age 82.

Where a retiree dies before age 82, allow the monthly $790 to be paid to the nominees until the end of the 20 years, as if the retiree had lived till age 82.

This is because the retirement-account balance is paid in a lump sum to the nominees. Some nominees may not know what to do with the lump sum, and may just leave it in a fixed deposit earning around 2 per cent interest, or, worse, invest the sum, which may result in losses.

Allow those who have more than the Minimum Sum, and who are not financially savvy to invest the money, to leave larger sums with the CPF Board at 4 per cent interest, so that they can withdraw more than $790 monthly from age 62.

Many of retirees’ concerns, like living too long, not having enough income when they need it most, and providing for dependants if they die early, may be minimised if there is more flexibility in the CPF rules.

Visit Sze Hian’s website here.

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