Straits Times Singapore, 18 Aug, 2010, Wednesday
CPF Life: Some want to be given a choice
Not everyone is keen on auto-inclusion, say MPs and financial advisers
By Kor Kian Beng
PART-TIME preschool teacher Nirmala Padnanabhan, 49, has slightly over $40,000 in her Central Provident Fund (CPF) Ordinary and Special accounts.
This means she will be automatically included in the CPF Life annuity scheme when she turns 55 in 2016.
Under the scheme, those turning 55 from 2013 onwards with at least $40,000 in their Retirement Account – set up with monies from the Ordinary Account and Special Account – will be automatically included in CPF Life.
But Ms Nirmala is thinking of drawing down on her CPF savings before age 55 – by using funds in her Special Account to invest in stocks and shares; or by partially redeeming her outstanding housing loan with funds in her Ordinary Account.
Why? It is because she wants to avoid being automatically included.
That way, she can decide on her own whether to opt for CPF Life, which provides retirement income for the rest of her life; or for the CPF Minimum Sum Scheme, which will still be in place and offers higher monthly retirement payouts, but only for about 20 years.
‘It’s our hard-earned money. It’s only fair that we are allowed to make our own decision instead of being auto-included,’ she explained.
A similar dilemma could await other CPF members who face auto-inclusion in CPF Life – but at a later age.
This follows amendments to the CPF Act passed in Parliament on Monday.
The changes apply to those who do not get included in CPF Life when they turn 55 from 2013 onwards, because they lack the $40,000 trigger amount in their accounts.
What will happen is that they will be automatically included at the next stage – when they turn 65 and if their balances swell to $60,000 by then.
Manpower Minister Gan Kim Yong said in Parliament that 70 per cent of active CPF members who turn 55 in 2013 would have at least $40,000 in their Retirement Accounts.
Of the remainder who do not have that amount, his ministry projects that 10 per cent of them will nevertheless see their accounts grow to $60,000 when they turn 65 in 2023.
This means they will be automatically included in CPF Life at that time.
The change in the law recognises that members’ CPF savings would typically continue to grow between the ages of 55 and 65.
This could be the result of property refunds, CPF top-ups, income from interest earned, and contributions received if they continue to stay employed.
But MPs and financial advisers contacted yesterday said the move, to also have automatic inclusion at age 65, might not be welcomed by all CPF members.
Jurong GRC MP Halimah Yacob said that while some welcomed the change, others would be less receptive as they want the option of deciding between the CPF Life or Minimum Sum Scheme.
‘Giving people a chance to opt in at the age of 65 when they have at least $60,000 in their Retirement Account, instead of a compulsory auto-inclusion, would achieve the same result.’
She surmised that one reason for having auto-inclusion at age 65 could be that it was more convenient administratively. This is because it could be quite a hassle to get members – especially when at age 65 – to sign up for the scheme.
Another reason could be the lacklustre response so far to CPF Life.
It was unveiled in 2008 as a way to protect older Singaporeans from challenges and costs, such as for health care, now that people were living longer.
In September last year, the scheme was also offered to interested Singaporeans and permanent residents who were already aged 55 and above.
About 700,000 such CPF members were eligible to opt in. The CPF’s website showed that as of Aug 10, there were 40,000 who took up CPF Life and committed $2 billion to the scheme.
Mr Leong Sze Hian, immediate past president of the Society of Financial Service Professionals, said one cause for this could be the confusion and lack of understanding caused by changes to the scheme, such as that made on Monday.
Also, lower-income CPF members tend to shun CPF Life in favour of the Minimum Sum Scheme as the latter gives a higher monthly payout.
Madam Halimah called for more public outreach and education efforts by the CPF Board – something Mr Gan said on Monday it was not letting up on.
As Madam Halimah noted: ‘The trouble is that although our life expectancy has increased, most people are still sceptical that they could live that long to enjoy the full benefits of the scheme.’
kianbeng
my comments:
as madam halimah has opined that most people are still sceptical about living longer to enjoy the full benefits of the cpf life scheme. and in many surveys, the double whammy comes in the form of most respondents not having planned for their retirement.
well, i suppose the take up numbers for cpf life speaks for itself with a very low take up rate of over 40,000 versus the total pool of more than 700,000 older singaporeans eligible for the scheme.
and in my 13 years in the financial industry, i count it my greatest challenge to convince the thousands of people that i have met not to continue to put off planning for their retirement (besides wealth protection planning).
and with God's grace, i will soldier on and on and on....... |
