Think carefully before opting for ‘no refund’

The following is a letter written by Leong Sze Hian and published by The New Paper on 17 February.

I REFER to media reports about the changes to the CPF Life scheme.

 Changing CPF Life's original 12 options to four, is not just making it less confusing for Singaporeans to choose. There is a rather fundamental change from the National Longevity Insurance Committee's recommendations accepted by the Government.

 In the original 'no refund' option, there was still a refund, based on the unused portion of the CPF retiree's Retirement Account balance.

 Now, the new Life Income Plan (non-refundable), which pays the highest monthly income, will have no refund at all when the retiree dies.

 Given the choice of receiving the most income against receiving less with a higher refund for beneficiaries, I think some Singaporeans, particularly those who don't have much in their CPF and do not have other funds, may choose the Life Income Plan as every dollar counts for them.

 But what will happen to widows and dependent children, if such retirees die shortly after starting to receive their CPF Life annuity payout at age 65?

 When the Compulsory Annuity Scheme was announced in August 2007, there was widespread unhappiness about requiring all Singaporeans to buy a life annuity, which we can benefit from only if we live beyond 85.

 Now, with the Life Income Plan, I think it is equally hard to accept that you may lose your entire CPF minimum sum of up to $134,000 by 2013 plus accrued interest, if you choose the option that gives you the maximum monthly payout.

 The committee's original recommendation is still a better 'middle of the road' solution.

 I would like to urge Singaporeans to think carefully before choosing the no-refund option, as it may mean losing your CPF life savings if you die early.