Buying an annuity is a good option!

12 October 2005

Editor
Forum Page
Straits Times

I refer to the letter "Buying an annuity may not be the best option" by Dennis Ng Kah Wan (St Times, 7 Oct
2005).

Mr Ng said that if he keeps the minimum sum of $90,000 with the CPF Board, he will get a monthly payout of about $711 at the age of 62 for 20 years. He said that if this sum is invested in a life annuity, the payout will be between $398 and $483, depending on which annuity plan you choose and whether you are male or female.

Under the annuity plan now offered by NTUC Income, we pay a guaranteed monthly sum plus bonus. The bonus is determined yearly based on the average yield earned on the investments in recent years. Over the long term, we expect the bonus to vary from 1% to 3% per year, but this is not guaranteed.

If the $90,000 is used to buy a life annuity at age 55, we expect to pay a monthly sum of $543 from age 62, comprising of a guaranteed sum of $473 and an estimated bonus of $70. The monthly annuity will continue to increase each year based on the bonus declared for that year. Assuming an average bonus of 2% per year, the
monthly payment is expected to reach $662 at 72, $807 at age 82 and $984 at age 92.

The life annuity offers two attractions:

- it is payable for the lifetime of the annuitant
- the payment will increase with bonus in most years, providing a cushion against inflation.

From actuarial statistics, about 30% of male and 40% of female are expected to live beyond age 82. This proportion is expected to increase in the future, due to longer life expectancy.

Over 25,000 people have bought a life annuity from NTUC Income. A large proportion of them invested their CPF minimum sum with us. They do not wish to take the risk of living beyond age 82 and running out of money. We have a market share of 65% of all life annuities sold in Singapore. The remaining 35% are shared among 5 other
life insurers.

Tan Kin Lian
Chief Executive Officer
NTUC Income