Dear Mr Tan,
I am a student and I am researching on annuities in Singapore. It appears to me that the CPF LIFE plan is a combination of various features from different types of annuities. I would like to know, in your opinion, is the annuity portion of the CPF LIFE plan more like (A) a variable annuity but the underlying asset is a portfolio of Special Singapore Government Securities and its return is quite stable so its benefit payouts are quite stable too, or is it (B) more like a participating annuity but there is no explicit guaranteed minimum benefit, but there is a guaranteed minimum of 2.5% rate of return from the underlying asset?
REPLY
CPF Life fits more closely to (A) as the underlying assets are government securities that give a yield of 4% per annum. There is some "participating" feature, as the mortality experience of the annuitants will affect the eventual payout, e.g. if people live longer than the actuarial estimate, the payout may be reduced in the future, or if they live shorter, the payout may be increased. However, the decision on adjusting the payout depends on CPF Life and is not transparent to the annuitants.
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