CPF Life Designed to Provide Stable, Lifelong Returns

CPF Life Designed to Provide Stable, Lifelong Returns
- Straits Times, 25 November 2009

     We thank Mr David Lok for his feedback last Saturday, 'Raise comfort level regarding payout guarantee'. As a national annuity scheme, CPF Life is designed to provide members with a lifelong income.

2.   To ensure the long-term financial sustainability of the scheme, CPF Life is designed to be self-funding - premiums and payouts must be adjusted periodically to reflect actual mortality experience and investment returns.

3.   It is also designed to have less volatile payouts as CPF Life monies are invested in a basket of long-term fixed coupon government bonds to yield stable returns.

4.   In designing CPF Life, the National Longevity Insurance Committee consulted widely and recommended against joint annuities as they add complexity to the scheme.

5.   The committee also recommended level payouts, as inflation-linked payouts would mean significantly lower payouts in the initial period for the same premium.

CPF Life: Raise Comfort Level Regarding Payout Guarantee
- Straits Times, 21 November 2009

Wednesday's report, '30,000 sign up for CPF Life', while encouraging, also begs the question of whether many more members would have enrolled in the annuity scheme if there were greater comfort about the sustainability and stability of payouts.

Although the scheme guarantees payouts for life, the amount received may fall if the lifespans of CPF Life members increase by more than expected, if Central Provident Fund (CPF) interest rates shrink, and if the Lifelong Income Fund becomes insolvent.

While we may have faith in the Government of today, who is to say that future politicians and civil servants will be equally competent?

To me, signing up as it stands now is akin to taking a bet that the status quo does not change over several decades.

If I were about to retire, I would rather purchase an annuity from reputable financial institutions such as NTUC Income or United Overseas Bank, which offer payouts that are not only legally guaranteed not to fall below clearly stated minimums, but may also be inflation-linked.

Spurred by competition, financial institutions have created innovative annuities, such as one for married couples that provides payouts as long as either husband or wife is alive.

Perhaps the CPF Board could outsource its scheme to trusted and financially sound private operators to offer a wider range of attractive annuity schemes. Above all, give retirees what they are looking for: payouts that carry iron-clad guarantees.