CPF Life plans to be simplified from 4 to 2

Members finding it hard to choose from four plans: Tharman

By Cai Haoxiang, The Straits Times, 6 Mar 2012

THE national annuity scheme to provide Singaporeans with a retirement income for as long as they live will be simplified next year.

Instead of four CPF Life plans to choose from, they will have just two.

One, a Standard plan that gives them higher monthly payouts for their living expenses, but bequeaths a smaller sum to dependents upon death.

Two, a Basic plan that will have lower payouts, but a larger bequest.

The change was announced yesterday by Deputy Prime Minister Tharman Shanmugaratnam, who said it was prompted by feedback from Central Provident Fund members that they found it difficult to choose from the four plans. This is especially since the payouts are not significantly different.

So the change will 'provide simplicity, but retain the best features of the existing plans', he said.

It will kick in just as CPF Life becomes compulsory next January.

Then, all CPF members who turn 55, with at least $40,000 in their Retirement Accounts (RAs), will be automatically included. In return for premiums paid from their Minimum Sum, they will get payouts from age 65. Currently, the annuity scheme is optional.

Yesterday, Mr Tharman revealed that some 73,000 members have signed up thus far.

About 90 per cent opted for two of the four plans: Plus and Balanced. These two plans provide relatively high payouts, while leaving something behind for family members.

But the difference in payouts between them was only 4 per cent on average, or $30, said Mr Tharman.

So, they will be combined into the new Standard plan, which is also the default choice. It will also give members flexibility to use their RA monies for housing until age 65.

Meanwhile, the third-most popular plan was Basic; one in 10 opted for it. This will remain for those who want lower payouts and a bigger bequest.

The fourth plan, Income, which gives the highest payouts but leaves nothing for family members, will be scrapped. It was chosen by only 3 per cent of members. A third of those who plumped for it had cold feet after being reminded by the CPF Board that nothing would be left for family members - so they signed up for another scheme instead.

Whichever option one chooses is permanent after a 30-day period.

Looking ahead, Mr Tharman said the Government will help CPF members better understand the annuity scheme and its upcoming two options.

Those turning 55 next year will get individualised letters a few months before their birthdays.

Those on the existing four plans will also get letters explaining the changes. If they wish to switch to the new Standard plan, they have until the end of next year to do so.

Another change is that Singaporeans who work after age 55 will see their CPF savings in the Ordinary and Special accounts automatically transferred to the RA at age 65. This allows for higher CPF Life payouts.

Mr Tharman also tackled misconceptions of CPF Life, introduced in 2009 to replace the Minimum Sum Scheme that dispensed payouts for 20 years.

Some grumble that the CPF Life payouts are lower. But the reductions are 'minimal', said Mr Tharman, in exchange for payouts 'for life'.

This is especially crucial given that half of Singaporeans aged 65 today are expected to outlive the 20-year period. One-third would live beyond 90 - a proportion set to expand.

Others believe they will end up losing their CPF savings if they do not live long enough.

Not true, said Mr Tharman.

'The bequest goes to your loved ones, not to other CPF members, and not to the Government. You will get all of your capital back, either through your monthly payouts, or in a bequest left to your loved ones.'