Central Provident Fund (CPF) members will be able to opt to receive escalating payouts under the CPF Life national annuity scheme from January next year.
Manpower Minister Lim Swee Say outlined the timing for the changes to the scheme in Parliament yesterday.
The option of getting payouts that grow 2 per cent larger each year for life was unveiled last year to address the concerns of some members about rising living costs.
The other two CPF Life payout options - Standard and Basic - pay fixed monthly amounts for life. CPF members who are already on these two plans will have one year from January next year to switch to the new plan if they want to.
CPF Advisory Panel member Christopher Tan, who is the chief executive of financial advisory firm Providend, said CPF members choosing the escalating plan should be prepared for a lower monthly payout at the start. This is because payouts would be about 20 per cent lower compared with those under the fixed-payment Standard plan.
"So who should choose the plan? A member who is concerned with the rising cost of living and is able to cope with a lower starting payout," he said.
Financial experts said those wanting higher initial payouts under the new escalating plan can either top up their CPF Life premiums or delay the payout starting age up to the age of 70.
On the review of the CPF Investment Scheme (CPFIS), Mr Lim said there is "nothing wrong" with the scheme. However, it may not be the right scheme for those who lack the time and knowledge to manage their investments.
"They could be better off leaving their CPF money to earn risk-free CPF interest rates," he said.
Ms Foo Mee Har (West Coast GRC) noted that $24 billion has already been invested through the CPFIS. While 84 per cent of CPFIS- Ordinary Account investors did not achieve returns above the risk-free 2.5 per cent interest rate offered by the Ordinary Account, a substantial number suffered losses, she said.
To help members, plans are afoot to introduce a self-assessment tool to help them determine for themselves if CPFIS is suitable, as well as to lower the cap on the sales charge to discourage intermediaries from actively selling products.
"This is because investment churning could erode investment returns," said Mr Lim.
In addition, a review of asset classes offered under CPFIS will be held to see if they are appropriate for growing retirement savings.
"This is to encourage members to invest for the long term and provide them with a diversified portfolio," Mr Lim said, adding that more details will be announced later this year.
Those who prefer a simpler investment option can wait for the new CPF Lifetime Retirement Investment Scheme, which will feature low fees, offer simple investment choices, and be passively managed investments.
After a successful pilot exercise last year, a new CPF Retirement Planning Service will be offered to all CPF members who turn 54 this year. These one-on-one sessions aim to help members understand the CPF schemes and the options available to them.
Mr Lim estimated that 20,000 members who turn 54 this year will be invited for these sessions.
Meanwhile, CPF members have benefited from recent enhancements, through making CPF savings transfers to their spouses, and cash top-ups to their own and their family members' accounts. In fact, 49,000 members (up 27 per cent from 2015) received cash top-ups of $860 million in total last year.
Last year, about 900 CPF Life members took up the option of deferring the starting age of their payouts, which means they will receive higher payouts later.
"The Government has and will continue to strengthen our CPF system to help members improve their retirement adequacy," Mr Lim said.
"We hope that members will make good use of options available to better meet their retirement needs as well as that of their loved ones."