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THE National Longevity Insurance Committee has submitted its full report to the Government outlining a life-long insurance scheme that's said to be 'fair and flexible'.
Called CPF Life, the scheme is to be administered by the CPF Board.
Those directly affected will be the first cohort of CPF members to go on the scheme that will kick off in 2013. These will be members who turn 50 this year and will be 55 years old when the scheme is launched.
This group of CPF members will be automatically covered under the longevity insurance scheme that'll ensure they receive cash payouts for the entire duration of their lives, upon retirement.
Currently, under the Minimum Sum scheme, members get monthly payouts for only 20 years, from age 65.
This is inadequate says the Government, because Singaporeans are living longer.
For those not automatically covered by CPF Life, such as those aged 56 and above in 2013 and those with insufficient cash in their Minimum Sum, there's an opt-in coverage.
Some groups are exempted from the scheme. These include those who are physically or mentally incapacitated and those who receive a pension, annuity or other benefit equivalent to the longevity insurance scheme.
Manpower Minister Ng Eng Hen is expected to announce an incentive scheme on Wednesday, to encourage more to opt-into the longevity scheme.
Here's how CPF Life works :
When participants join the scheme at age 55, their Minimum Sum (MS) cash balances will be split into two parts - a larger part that remains in the Retirement Account (RA) and a smaller part, called the Refundable Premium (RP).
The RP is where money will be drawn down and paid out to a CPF member each month for as long as he lives.
To ensure the scheme's flexible, participants can choose when their Longevity insurance starts.
That is, they can choose for the payouts to start either at age 65, 70, 75, 80, 85 or 90. If they do not do so, they will be placed into the default 'Refund 80' plan with the payout starting at age 80.
The committee says the earlier the longevity insurance starts, the higher the payout.
And to address concerns that hard earned savings will be lost, should a member die before their longevity insurance starts, the committee has proposed a 'refund' feature.
This means the CPF Life will be fully refunded as monthly insurance payouts to members when they are alive.
When they die, any remaining unpaid amounts will be refunded to their beneficiaries.
This refund feature will also be flexible - members can choose to start their longevity insurance at a later age, which means more money goes to their beneficiaries or opt not to receive any refunds in the event of their early death.
The committee says a member who chooses longevity insurance payouts at the earliest age of 65, with no refunds to their beneficiaries, will enjoy the highest payout per month.
So how much does one stand to gain? Here's an example :
Under the current scheme, a CPF member in the first co-hort with $67,000 in cash, in his Minimum Sum at age 55 will get $600 for 20 years from age 65.
Under the new CPF Life scheme, the same member can expect to get $610 a month, for as long as he lives, given an assumed interest rate of 5 per cent.
60 per cent of the 35,000 or so active CPF members in the first cohort are expected to get this amount under the Default 'Refund 80' plan.
That's because they will have at least $67,000 in their Retirement Accounts by age 55.
The committee explains 'the member is able to get as much compared to the old scheme because of the extra 1 per cent on the first $60,000 (in his Minimum Sum) and the benefit of pooling'.
Those with lower cash amounts in their Minimum Sum will receive less monthly payouts.
The proposals were drawn from a six-month-long consultation involving some 600 people.
The CPF Board will launch a public education campaign to explain the new longevity insurance scheme to its members.
The Government has accepted the committee's recommendations and will respond to the proposals on Wednesday.
For more information, you can call the CPF hotline at 1800 Life CPF (1800 5433 273). This line will be activated from Wednesday.
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