BT: Lifelong Income scheme comes with array of choices

Business Times - 13 Feb 2008

Lifelong Income scheme comes with array of choices

Permutations reflect diverse situations of Singaporeans

By CHEN HUIFEN

(SINGAPORE) With 12 possible permutations that one can opt into, Singaporeans turning 55 years old in 2013 and after are set to face a mind-boggling array of options on their participation in the CPF-backed Lifelong Income (LI) scheme.

But the National Longevity Insurance committee, which came up with the recommendations for the scheme, said that the feature of letting members choose their own plans reflects the diverse situation of Singaporeans.

There will be six choices on when the payouts can begin, with the earliest start date set at the age of 65 and the latest at 90. Singaporeans on the scheme can also decide whether or not they want to leave any unused payouts to their beneficiaries upon death.

'It's administratively burdensome but it's something that we have to live with in order to trade off choices,' said committee member Zulkifli Baharudin, who is also managing director of Global Business Integrators Pte Ltd.

The LI scheme works by apportioning part of the cash balance of a Singaporean's Minimum Sum into what is called the Refundable Premium (RP). This happens at age 55. The rest will remain in his Retirement Account (RA).

Assuming that a Singaporean chooses to get his LI payout at 80, his RA will start paying him a monthly income from 65 until he reaches 80 years old. At this point, the RP kicks in to pay him the same monthly income until his death.

Should he choose the refund option upon death, his beneficiaries will get the balance in his RA, if any, and any remaining unpaid amounts from his RP. But if he opts for no refund, then his beneficiaries will only get the balance in his RA, if there is any, and none from his RP.

Premiums and payouts will vary in accordance with the age that members choose to kickstart their LI and whether they want a refund in the event of death. The earlier their LI starts, the more money they will receive each month, but they will also have to carve out a bigger portion of their Minimum Sum at 55 for the RP to fund the plan. Hence, less RA balance would go to their beneficiaries if they pass away before their LI begins.

Conversely, if they receive their LI later, say at 90, their RA portion is stretched to last longer and the premium for LI will be less. All other things being equal, there will be more RA left for beneficiaries upon their early demise.

At the extreme end of the spectrum, should a CPF member choose not to receive any refund and to start his LI at 65, all his Minimum Sum will go into the RP. This permutation will lead to the highest payout among all options, but there would be nothing for beneficiaries should death come before 65.

Once members decide on their choice of LI scheme at 55, they will not be able to change their minds. However, additional CPF contributions - either from property sales, continued employment or proceeds from the CPF Investment Scheme - after the age of 55 may be included in the LI to raise the payout sum.

To be implemented in 2013, the scheme will auto-include those who have at least $40,000 in Minimum Sum when they are 55 years old. Committee chairman Lim Pin said the threshold sum balances the need to have the maximum possible number of people on board, with a reasonable payout level. About 75 per cent of active CPF members in the first cohort of the scheme will have at least $40,000.

Older members and those with less than $40,000 are encouraged to opt into the scheme as well. The government is expected to facilitate this through incentives.

Actual premiums and payouts will be determined by an independent actuarial consultant and reviewed periodically to reflect changes in mortality rates, as well as the social and economic situation of Singapore.

'The caveat in all this is that the scheme is not cast in iron,' said Prof Lim. 'We are prepared to change and to modify if events show that we have to do so.'