By Leong Sze Hian
Public forum on CPF Life
As I am being invited to be one of the two speakers at a public forum, “The Unofficial Guide to CPF Life & Retirement Planning”, on 31 July, 3 pm to 6 pm.
I visited the Central Provident Fund (CPF) web site to gather materials for my presentation,
CPF Life Information Booklet’s case study
According to the CPF Life Information Booklet (page 29), there is a case study of a Mr Tan, age 55 with $100,000 in his Retirement Account where he opts for the default CPF Life Standard Plan.
His monthly life annuity payout from age 65 is projected to be from $816 to $901. This means that the projected average payout is $859 ($816 + $901 divided by 2).
According to my calculations, I estimate that his $100,000 at age 55 till increase to about $156,446 at age 65 (4% interest plus an extra 1% on the first $60,000).
CPF Life bequest
The bequest to his beneficiaries upon his death, according to the booklet’s case study is as follows:-
at age 65 – $111,036 to $112,806 (average is $111,922)
age 75 – $12,742 to $16,684 (average is $16,198)
age 85 – 0
(A bequest is money that you leave to your beneficiaries after your death.)
Compared to normal account drawdown?
If he withdraws $859 a month, I estimate that his account balance (from the starting balance $156,446 at age 65 and using the same assumptions of 4% plus an extra 1% on the first $60,000), to be about $113,528 and $46,942 at age 75 and 85, respectively.
So, why is the average bequest so much lower at $111,922, $16,198 and 0 at age 65, 75 and 85, compared to the above computed account balances of $156,446, $113,528 and $46,942, respectively.
For example, the difference upon death at age 75 is a whopping $97,330 ($113,528 – $16,198).
Over-compensating for those who may live beyond 90?
Where does this difference in the bequest go to? Well, it goes into the pooled CPF Life annuity fund.
Why? – In order to compensate for some annuitants who may live very long.
How long is very long I’m sure you may be asking now?
Withdrawing $859 monthly from the starting balance of $156,446 is estimated to deplete the account after about 25 years, i.e. when Mr Tan is 90 years old.
Life expectancy at 90?
So, what is the life expectancy of Singaporean males at age 55, for the age of 90?
In other words, what is the statistical probability of a Singaporean male at age 55 living beyond age 90?
Are we compensating for the projection of Singaporean males who may live beyond 90 years old, by too much, by giving out such “very low” bequests (as illustrated above)?
How many in absolute numbers beyond 90? State pension?
How many male Singaporeans are projected in absolute numbers to live beyond age 90 in future years? Why not consider a state funded pension from age 90 on a means-tested basis to cater for those who may not be in a financial position to support themselves, instead of giving such “very low” bequests?
We can afford it?
With healthy Budget surpluses in about 9 out of every 10 years, $3.9 billion in the last year ($36 billion if IMF reporting standards are used) and estimated Reserves of over $900 billion, why not consider state funding of the above suggested means-tested pension for those who live beyond 90, instead of squeezing it out literally from every CPF Life scheme member vide “very low” bequests.
Such low bequests may be financially stressful or cause hardship, particularly for lower-income Singaporean families with dependents upon the demise of the CPF Life member.
Make studies public?
In this connection, calls over the years for the actuarial studies on the CPF Life scheme to be made public have been met with a deafening silence.
In view of the above, perhaps its time to review the CPF Life scheme.
Refund from CPF Life?
Page 26 of the booklet talks about a discounted refund (unused annuity premium less a fee (how is this fee calculated?)), if a CPF Life member has a “medical condition which is likely to reduce your life expectancy” or “permanently leave Singapore and West Malaysia and have no intention of return to either country”, etc.
No case study example?
Instead of just saying “For information on the discounted refund, please email us at [email protected]”, why not give an example like the case study of Mr Tan?
For those who may like to attend the 31 July (3 pm to 6 pm) public forum on “The Unofficial Guide to CPF Life & Retirement Planning”, please register through this link.
P.S. My calculations and estimates may be a bit off as my only resource and tools are a Financial Calculator App on my Samsung S4 phone and a financial calculator