A re-think of CPF Life

From 2013, the Government will be offering
only two plans under CPF Life, instead of the
four plans that are available now. 

There are still a lot of doubts about the two plans, i.e. the diminishing amount of the bequest as the years go by, and the question of who bears the subsidy given to people with lower savings (i.e. they get a higher rate of payout for each $1,000 of saving, compared to those with higher savings). 

Some people are still unhappy with the compulsory nature, as they are forced to use their CPF savings to buy an annuity that they do not like and may incur a financial loss if they should die at an earlier age.

I suggest that the Government consider the following approach.

• Allow all CPF members the option to keep their minimum sum in the retirement account, i.e. do not make it compulsory for those borne after 1957 to buy CPF Life
  
• Offer a new annuity plan, which is voluntary, for people to get a payout from age 85, after the savings in the retirement account has run out
  
• Make the new annuity plan attractive, e.g. the Government subsidise 50% of the cost of this annuity.

I estimate that the cost of the post-85 annuity that pays $500 a month to be less than $10,000 at age 65. The cost to the Government of a 50% subsidy is only $5,000 and is incurred only for people who buy this annuity. If 20,000 people buy this annuity each year, the cost to the Government is only $100 million. 

It should be made clear to the purchasers of the annuity that they are participating in a risk pooling arrangement. The members who die before 85 will be leaving behind their savings to pay the annuity for those who survive beyond age 85. 

If this arrangement is acceptable to most people, it would be possible for the Government to discontinue the CPF Life and to offer an option for those who bought these confusing plans to change back to the retirement accounts and, if they wish, to buy the post-85 annuity plan.

Tan Kin Lian