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By Joyce Hooi
THE Central Provident Fund (CPF) Board has been gaining ample understanding of the phrase 'you can't please everyone' since it launched the CPF Life annuity scheme in February 2008 and introduced a variant early this year.
Even after the more streamlined new package of four plans for CPF Life was launched this year, reactions from the public continued to be mixed towards the scheme that will be mandatory for those turning 55 in 2013, with at least $40,000 in their CPF savings.
The primary issue raised by experts has been the variability of the payouts that members will get from the age of 65 for the rest of their lives.
The fluctuation of the fund's payout hinges on interest rates and the mortality rate, according to Benedict Koh, a director of the MSc in Applied Finance Programme at Singapore Management University (SMU).
'There is always this possibility that if the interest rate becomes really low and people live much longer than what insurers have projected, the government will parcel out the risk by lowering the payout because they have to make longer payments to people who live longer,' said Dr Koh.
Don Yeo, the CPF Board's deputy chief executive officer for policy and corporate development, assured industry people that payouts would not be significantly volatile, at an annual longevity conference held by SMU's Sim Kee Boon Institute for Financial Economics' Centre for Silver Security, yesterday.
'While the payouts will vary, the assets under CPF Life are actually invested in special government bonds and they are yielding a very stable rate of return,' said Mr Yeo.
'So, potentially, you are not going to have a situation where the payouts will double in one year but be cut to one quarter the next year.'
Christina Tang, who represented the Association of Banks in Singapore at the panel discussion yesterday, also noted that retirement planning remained the domain of the individual, ultimately.
'It is the CPF member's primary responsibility not to rely on one source,' she said.
While it is theoretically likely that a CPF Life scheme payout might hit zero like an investment- linked fund's might, Mr Yeo stressed that it would be very unlikely.
He also stood by the decision not to link the payouts to inflation.
'If you start off with the same amount of money and inflation-index the payouts, that means that on a nominal basis you're going to have a lower payout from the start so that you can fund the payouts towards the end of the scheme,' said Mr Yeo.
A level payout instead, he said, felt more acceptable to CPF members.
The socio-economic dilemma of the poor subsidising payouts to the rich was also broached by a conference participant yesterday.
As poorer people generally have lower life expectancies than richer people, their contribution to the scheme might end up funding payout to the rich who live longer.
Mr Yeo said that this was not entirely true, according to preliminary evidence. 'There is a large overlap in life expectancies for groups in different bands,' he said.
With 30,000 CPF members having signed up for the scheme in a span of two months compared to the 71,000 private-sector annuities currently held by individuals, it will be crucial for members to understand the full workings of the plan as it gains traction.
'Singaporeans need to have a good idea of what to expect when buying a product that has an incredibly long duration and is variable,' said SMU's Dr Koh.
This article was first published in The Straits Times.
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