Choosing the right CPF Life plan

Choosing the right CPF Life plan
PHOTO: The Straits Times

If you are looking at retirement planning, then the national annuity CPF Life (Lifelong Income For the Elderly) scheme is as good a starting point as any.

After all, as life expectancies continue to increase, having an income throughout our old age that can help support a basic level of retirement is more important than ever.

Launched in 2008, the CPF Life scheme offered 12 different plans back then but these were pared to four and again to just two - the Standard and Basic Plans.

A recent change to the scheme gives the option to choose our CPF Life plans only when we wish to start our monthly payouts. We can do so any time between age 65 (payout eligibility age) and 70. This applies to CPF members who turned 55 on or after July 1 this year.

Before this change, the decision on the Life plan had to be made at age 55 for those born on or after 1958 until June 30 this year.

To recap, each Life plan provides different trade-offs between the monthly payout amounts and the bequest you would leave your beneficiaries. Simply put, the Standard Plan provides a higher monthly payout and a lower bequest; it's the reverse for the Basic Plan.

Currently, you will be put on CPF Life if you have at least $40,000 in your Retirement Account when you reach 55 or $60,000 when you hit 65.

The Retirement Account is created at age 55 using the savings in your Special and Ordinary Accounts. If you are not placed on the CPF Life scheme, you can choose to join it any time before age 80.

CPF Life starts paying your monthly payouts on your eligibility start age, currently age 65 although this changes in January.

You will then have the option to start the payouts later, up to age 70. For every year of deferred payouts, your monthly payouts will grow by about 6 per cent to 7 per cent.

CPF members will be able to top up their Retirement Accounts to the current Enhanced Retirement Sum of $241,500 from next January. This option will be available only to those aged 55 and above.

Note that cash top-ups beyond the current Full Retirement Sum ($161,000) will not attract tax relief.

The CPF Board says more than 140,000 people have joined the CPF Life scheme, 62,000 of those since 2013. That was the year it became compulsory for Singaporeans or permanent residents who reached 55.

About 70 per cent of this 62,000 are on the Standard Plan while the rest are on the Basic Plan. The Standard Plan is the default if you do not opt for either one.

About 60,000 people will turn 55 each year.

Let's see how the two plans work.

CPF LIFE STANDARD PLAN

Members who join this plan at age 55 will have the Retirement Account deducted for their CPF Life annuity premiums in two instalments - at age 55 and near 65.

The first deduction is up to the current Basic Retirement Sum of $80,500. The premium goes into the Lifelong Income Fund.

Two months before you reach 65, the balance Retirement Account savings will be deducted as the second instalment of your annuity premium and channelled into the Lifelong Income Fund. This will include any new money, including interest earned or refunds from sale of property or investments that you have built up between your 55th birthday and 65.

For members who join the Standard Plan on their payout eligibility age or after, there will be only one annuity premium deduction, which is all the sum in their Retirement Account,made at the time of joining.

You will get monthly payouts from the Lifelong Income Fund for the rest of your life once you reach the eligible age.

CPF LIFE BASIC PLAN

For those who join this plan at age 55, there will be two instalments deducted as annuity premiums - like the Standard Plan - but the percentage of deductions differs.

At 55, the first deduction is about 10 per cent of the Retirement Account savings, to be paid into the Lifelong Income Fund. The exact amount will be made known to you when your CPF Basic Plan is issued.

The rest - about 90 per cent - of the Retirement Account savings is untouched and can continue to grow and compound with interest.

Two months before you reach 65, there will be a second deduction. This time, it will be approximately 10 per cent of the new money that has built up between your 55th and 65th birthday. The rest of your Retirement Account savings will stay put until your payout eligibility age.

For members who sign up for the Basic Plan at their payout eligibility age or after, there will be only one annuity premium deduction at the point of joining the scheme.

You will receive monthly payouts from your Retirement Account savings until one month before you reach 90. By then, the Retirement Account money would have been depleted and your monthly payouts will be from the Lifelong Income Fund for as long as you live.

MONTHLY PAYOUT AND BEQUEST

Financial advisory firm Providend computed three tables using the CPF Life Payout Estimator (available on the CPF website) to illustrate the estimated monthly payout and bequest under the two plans based on three different retirement sums (Basic, Full and Enhanced).

The figures are based on a male who turned 55 on July 1 this year.

It shows that while the difference in estimated monthly payouts between the two plans is in a narrow range, from $77 to $163, the bequest left for beneficiaries differs significantly, up to about $174,000, depending on the age that death occurs. Both plans offer zero bequest for those who live beyond 95.

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