Get it. It is the most important policy statement for your financial planning.
http://www.straitstimes.com/print/Latest%2BNews/Singapore/STIStory_202070.html
To sum 5 recommendations + 1
1 Refunds. Families of those who die before reaping the full sum of what they had paid in premiums, get back the remainder
2 Flexibility. The choice of deciding at what age they want to start getting money from their annuity.
3 Payout. Default from 85 to 80
4 CPF Board to administer it.
5 New Name. Rename Longevity Insurance as Life-Long Income
6 Exemptions. Not compulsory for People who do not have enough in their CPF Minimum Sum, the medically unfit, people with private annuity plans and civil servants with pensions.
The last may be the best. This is the one that is not included in the publised summary of 5 recommendations. The one they hope that you missed in the fine print.
What do you think?
Hi KT,
Nice of you to summarise the Annuity report. Makes easy reading and understanding.
If there is one new factor that I like about the latest report, it’s the refund of the balance, assuming I die before 80.
I guess that, at 55, it now boils down to whether one lets CPF manage the minumum sum or leave it to Great Eastern or NTUC Income.
I hope to hear from feedback from those who have crossed 55. To declare my interest, I am now 52 (oops Goat year).
Terence Seah
Terence
There are two separate items/issues:
1. Minimum Sum Scheme where you have S$105,000 (todate) set aside from your CPF account to fund either an annuity or CPF monthly withdrawal at age 62(?)
2. The new National Lifelong Income Scheme where a smaller portion of your CPF will be directed to fund an annuity when you reach 80.
At present, because of the low interest rate environment, annuities yields are not attractive. And, at our present close to 5% inflation, fixed annuities would only be a very poor option for retirement funds.
Terence, as you’re now only 52 with 3 more years to go before 55 (the minumum sum set-aside age) the Minimum Sum will increase by another $15,000 ($5,000 a year). The payout age will probably be around 65 years old. The new Lifelong Income scheme will be fully operational and may cost $120 per year from age 40.
“What do you think?”
I think of batman & Robin cleaning up gotham city, I think of superman rescuing the world; I think of ultraman killing monsters…………
But where are they? I dont need catwoman purring up my laps or the penguin messing up my nest-eggs.
Sigh, but this is life………….
Refund of the balance? I dont need SGD 6 feet under where everything is free…….education, medical-care, food, public housing……..
So the SGD goes to my nominees and spoil them with money they hv never worked for it. Well, like that huh, even 2 casinos arent enough for our nominees…………….
If given a choice, would request to invest own capital ….. $100k is no small sum.
Long term (more than 5 years) bonds can fetch more than 5% pa, of course, must able to manage/handle other risks exposure.
I presume the recommendations KT brought out refer to the annuity premium is paid from the CPF Minimum Sum Scheme.
1. The Refund: Need no recommendation from the committee. Most, if not all, the annuity policy does pay back the remainder sum to the beneficiary.
2. The flexibility is already applied with those annuity premiums paid by cash, but not by the CPF Minimum Sum Scheme. At present, if the premium is paid by the CPF MSS at the age of 55, the withdrawing age is from 62.
3. I not sure what it means. Anyway, choose a plan (from any insurance company) that you can afford to pay and the terms and conditions are suitable to you.
4. The Board does administer it (in a different way), but the terms are not as good as those from the insurance companies.
5. The name is unimportant, what we want is a steady life-long income.
6. If you already have a private annuity plan with the premium no less than your Minimum Sum, you need not buy another annuity with the your MS.
My points to #4.
It can be a good choice if you are still under the payroll. You can afford to lose 100 or 200 K, because when the payday comes, you have something to live on. But if you are a retiree without income, (same as our age), you cannot afford to fall. Once you fall you are unable to turn around.
Great contributions all. Congratulate yourselves.
You have shown how great politics are made at its most opaque. Different people read different things in the same policy statement.
Let’s try dissect the truth from the fluff.
First there is nothing new. We already heard most of it one year back. Read the speech in Aug 07.
http://app.mfa.gov.sg/pr/read_content.asp?View,8033,
And the recent 31 Jan 08 report after exhaustive feedback, debate and countless committee special cocktails and coffee drinks.
http://www.straitstimes.com/Latest%2BNews/Singapore/STIStory_202070.html
We could have saved ewverybody’s money, time and effort if we stop playing charade and just cut to the chase back then in 2007. All should have just stood together singing “Que Sera, Sera” and get on with the inevitable then.
Case in point. The question you raised on the default age was answered a year back
“… it forces CPF members to lock up part of their CPF savings in an annuity that their families will not get back if they do not live to see 85. ” So now it is 80. Big deal. Are you impressed?
If we already have the answers, why do we waste time asking the question again?
In SHC, the older members will remember we picked up the annuity story in early 2007. We have been saying since that people should plan for their own retirement planning rather let the planning be done for them. Otherwise, they may get the short end of the stick.
Of course few understood then. And perphaps fewer understood it even now.
The more enlightened ones may have at last got a hint. Now some know how short is short.
If you didn’t get on to Plan A, try to get on to Plan B. If not, you still have Plan C.
Plan C is to die before you are 80.
What! With so many options, you still complain. Not patriotic like this, you know. Must all stand together, die together. Same year, same day, same time if possible-lah.
Part 1 of 4
Here’s the good news and bad news. The bad news is that you’re on your own as CPF is effectively being privatised over the next few years. The good news is that you don’t have to sink with inflation. You can at last have the freedom to shrug off the yoke of sub-par yields and have a chance of making a real life for yourself for many years AC (After CPF).
Thanks to CPF, most of us have become financially challenged through years of blind dependency on its scheme. Many people do not even know how it is mapped as a financial instrument.
There is nothing unique about CPF. It is the most primitive form of Fixed Annuity that favours the vendor because of its lack of innovation.
Now that CPF has turned its back on its own scheme and tell us to DIY (Do Investments Yourself), it is almost sure to drive many to despondency. They are like being turned to the wild knowing nothing but domestication since birth. “Who is going to set the rates on my savings?” “Who’s going to hold my ______”
Part 2 of 4
Here’s a back-to-basics survival guide. We’ll take you on a Startrek journey to “where few S’poreans has gone before”.
Annuities, which allow you to convert a payment into a monthly income for life, come in many varieties.
1. Fixed annuities (FA) establish an income stream at the time of purchase. This is the basic form of CPF. CPF let you borrow your own money back for investment into, say, properties and stocks. You are on your own. If you lose money, you still have to pay CPF back when you close out that unprofitable transaction. You are required to hold the unutilised money in CPF until you can officially withdraw. There is nothing very smart or innovative about CPF except that in Spore the scheme is backed by comprehensive and draconian legislation.
2. Variable annuity (VA) – you won’t know exactly what you’ll end up getting, since your account value will fluctuate with the markets. These allow you to invest in stocks, while deferring taxes on gains. Of course, VAs also give you the option of turning the pot of accumulated money into a stream of payments for life—in other words, into an annuity. The investments you can make are normally tied to managed funds by the insurer in question.
Part 3 of 4
The basic transaction is simple. You give the insurer money in a lump sum or installments and choose between an array of stock and bond funds. You can transform whatever has built up into an annuity, or, after a certain age, say, 62 withdraw it without penalty. Of course, if the market tanks, the value of your assets—along with the payment stream you’ll derive—will, too.
Living benefits promise to protect against that. The insurer guarantees your account won’t fall below the sum you invested. Often, these contracts deliver more—a 5% annual return is typical, plus an inheritance for heirs. And if stocks soar, you won’t miss out: Under certain circumstances, the insurer will base your payments on your account’s actual appreciated value, instead of your investment.
In the context of Spore, the main difference between CPF’s FA and VA is the guaranteed options. CPF does not provide any form of guarantee for the money that you take out from CPF to invest. Given that it is suppose to be a mandatory public fund, you would have thought that they should provide more guarantees than what the private sector is prepared to do. But based on their recent investment record versus inflation, thank your lucky stars they didn’t insist to the bitter end. Instead they now let you DIY (Do Investments Yourself).
Perphaps they knew it all this time. They can’t trade to beat the market and deliver; and up to just now couldn’t bear to see us beat them to it.
You have your shot now. Take it.
Part 4 of 4
Unfortunately, this doesn’t leave the masses in much a better position especially if they don’t know what to do themselves. IMO, the standard offerings will impoverish everyone who participates in the standard offerings given to us by the transition to VA. This is a forward looking statement based on a number of assumptions and is offered with all the usual disclaimers. But if you believe that you can beat inflation and impoverishment on what’s being planned for you then you can believe that man, dressed in a red underwear, can fly. No wonder the current promises promise you no more than that you should work till you die.
Here’s how in a nutshell for the less savvy investor. With baby boomers nearing retirement and corporations scaling back defined-benefit pension plans, the insurance industry is adding guarantees called living benefits to the plain old variable annuity.
Go for such Market-Proof Annuities (MPA). Tie your best long term investment portfolio using a popular retirement savings vehicle and, for an extra layer of fees, you’ll get protection from market declines and a guaranteed pension-like income for life. And you won’t give up the ability to profit when stocks recover.
For the more savvy, create your own MPA program. Yes, you can. There are many advantages to be in control of your own fate. You save the fees to the insurer, typically, 3% pa. You also have much more options to design a higher growth invesment portfolio. With a little skill you can even strive to do much better for yourself.
You’re the pilot now to where “no man has gone before”. This can be the paradise or the shithole of the universe.
Our Govt should allow each and every Singaporean a choice to do if he/she knows to take care of him/herself, esp with hard-earned money.
2) Believe there comes a time when some would thank them for their “parental” instinct to provide a mandate/policy.
3) The promotion of healthy silver-hairs living ought to continue in personal responsibility and education in better investing in advanced gracious senior years. As we advance with time, this is no means to suggest we are not getting wiser graciously.
4) Personally, like to take a leaf to manage own hard-earned money with little institutional mandate unless I opt in.
#8 to #11
The one real step forward is to allow a free construct of the annuity product in Singapore.
Financial Institutions should not be in any way restricted to issue innovative products in line with the conventions and best practises around the world.
The best way to do this is to allow the purchase of instruments of qualified institutions around the world. Eg. if Citibank in Singapore is approved then investors can also use their CPF in the same way to purchase the same products from Citibank, Caymen or New York if they choose.
If an institution is good enough here, it should be good enough everywhere.
Confused? What’s the difference. Maybe a lot. Simply put. The made-in-Singapore product for Singaporeans may not necessary be the same or better product compared to elsewhere. And even it is, the point is that we should have the right to choose.
When I was managing TC funds as Finance Chairman, I put into three portions : one portion to Fund Mgrs, one portion internally managed and one portion in FDs (with good return rates)
Our internally managed portion’s returns surpassed those managed by Fund Managers throughout my five terms of service.
When one is focus, disciplined, passionate and constantly learning, one can be his/her own money “institutional” manager. Even so, if we are to grow graciously (and wiser) into our 80s.
Look at the global sub-prime CDOs…who are the people that cause the issues of assets impairment write-downs?
Item 14 above by Andrew made sense.
I think the authorities should not be bothered at all with our money.
Their job should be safeguarding the value of our money against humongus inflation created intentionally or otherwise.
They should seriously look into approving euthanasia for those who has run out or are running out of money.
How about COE for human beings here in our 1st world country?
Age 65 to 85 pays $120,000 for 20 years.
Age 85 to 95 pays $120,000 for 10 years.
Age 95 to 100 pays $120,000 for 5 years.
Terence should help out in this area by starting one for SHC.
Hi KC,
Haven’t heard from you for a long time. I guess this is your favourite subject. Tell me how does your COE for human being works? In your mind, who pays for the COE and when does one pays for it?
If it is interesting and workable, why not? We have a lot of brilliant people in the group.
Terence Seah
#14 to #16
KC’s COE sounds like a tax or CPF. Note : There is very little difference between tax and CPF to an individual before withdrawal date in its current version.
Collection, free or forced, is not the point. The important question is what is the rate in which money can make money for us in our feeble and foggy days.
Let’s say you can live the next 20 years. I know. The way you have been eating this CNY, you are lucky if you make it through. It’s tough but try….
Minimum sum of $120,000 compounded at 10% per annum for 20 years is $672,750 !!!
If a fund that packs $600 billion of market muscle (6 million population at $100K each) cannot pull in 10% pa return, then something is seriously wrong. By paying you 2.5%, they keep at least 75% of the market risk-return on your money. Transfer all the fund managers responsible to sell chicken rice and learn from the experts how to make a decent and honest return; and let us invest our own money.
In the early days, they dared people to take their CPF out to invest themselves in qualified vehicles. Now, the situation is reversed. They seem to be trying to keep the money in as a source of cheap fund for their big bets.
Now see this
http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_12December2007.ht
(Unfortunately, you may have to type the above by hand. This is a problem with SHC forum’s text input box. It introduces control codes like line breaks in the midst of long URL’s. I found this problem with the keitai thread.)
They have already told you. Very few listened. Even fewer understood what it really meant.
The floor rate of 4% will only be held for 2 years. Floating rates means that we taking their risks on such risky bets that they cannot guarantee even our floor return.
This should be normal for high risk, high return investments. Is it?
If, say, the United Banks of Singapore tank for $60 billion, who will be there to bail us out? Or will it be just another bad debt serviced by more gantries and raising the withdrawal hurdles. Still fine. Let’s all agree bet the house for a much better tomorrow. If the high risk bets return 200% pa, do you think that you will get more than 10% pa? Or do you think everybody is going to get a golden-pat-on-shoulder, obscene pay rises and bonuses fit for royalty. Everybody except you and me. On track record alone, what you think-leh?
Everybody have different risk appetites. With our escalating cost of living, One is forced to risk to return sufficient to defend our existing way of life. Or “Ohmmmm…” somewhere else because there’s not a cave left here that has not gone en-bloc. Point is whether and where we want to “Ohmmmm,,,” should be our choice. It should not be forced on anyone. And definitely why should someone else “Ohmmmm,,,” for us, when we be jolly well “Ohmmmm,,,” for ourselves.
Terence @ #16
You are playing with the wrong organ.
It is not the brain that people should use more. The writing is on the walls and practically every where else. To be fair they even shout it in your ears.
What to do? People read but they don’t see. People hear but they don’t listen.
The most important organ is … Yes!…
THE EAR
All it takes is to keep yur ear close to the ground. Ask questions until you get the answers. Then act on what you have learned.
So how brilliant can this be?
Terence @ #16
You should know how the COE system works for vehicle, the same principle applies.
Something like Solent Green story, start one such factory or retirement village in Thailand your chosen land of smiles.
Collect that sum of monies from members and provide them a place to finish off their last lap with plenty of activities like what SHC members are organising.
In other words, money buys your length of stay in the RV. You will be sent to the factory for processing once your length of stay expires.
I think Korat in Thailand is a nice place for that factory.
KC Lau @ #19
Para 2 above should read as Soylent Green and the link to its overview is listed as below:-
http://imdb.com/title/tt0070723/plotsummary
The long awaited CPF Life or Annuity report is at last out.
In tomorrow’s meeting SHC Investment Club, we will discuss the profound impact of this on our lives.
Venue: Scorebot, 18 Bali Lane (Nearest MRT: Bugis Junction. Opposite Raffles hospital.)
http://www.streetdirectory.com/asia_travel/travel/travel_id_4479/travel_site_14813/
Time: 7 pm
Let’s take a light hearted look at the program from Mr. Brown.
CPF (You Won’t See For) Life: Compulsorily Flexible
http://www.mrbrown.com/blog/2008/02/cpf-you-wont-se.html
Sing this every morning. To reassure yourself. And find the courage to wake up to face the new day.
http://mrbrownnetwork.com/media/mb/tmbs-070927-u_cant_touch_this.mp3
We can always hope for divine intervention to help us in our times of inflation?
http://mrbrownnetwork.com/media/mb/tmbs-080211-the_bread_and_butter_sermon.mp3
Don’t worry. We can always drive and balance the budget.
http://mrbrownnetwork.com/media/mb/tmbs-080204-2many2count_erp_drift.mp3
Yes, and truly, I can only join you to ask for divine intervention cos if it’s gonna be intervention by folks aggrieved & unhappy, the damage will be more than graffitti of our famous people drawn on toilet walls……….and I wont hv any more of my daily charity to do……..