An additional CPF Life Payout option that increases over time and a new optional investment scheme – that was what the 13-member CPF Advisory panel has come up with in its latest round of recommendations.
Release on 3 August 2016 and accepted by the Government, the recommendations were the second part of the panel’s report which studied how a new CPF Life option can address the cost of living and if there can be an additional private investments and annuities scheme to provide more flexibility for members who are prepared to take more risks.
Escalating Payouts
Currently, CPF Life’s Standard Plan ensures that a member will continue to receive a fixed monthly payout for the rest of their lives.
With the new escalating payout option, members can choose to have their payout at an escalating rate of 2 per cent every year.
The panel also noted that the escalating payout option will require members to receive starting payouts that are 20 per cent lower compared to the standard plan. Members can however choose to increase their starting payouts either by topping up their CPF Life premiums further or defer their payout start age, up to the age of 70.
“The rising cost of living is a concern for some workers who are nearing retirement. They worry that the longer they live, the more expensive things will be. This is why I think the panel’s recommendation for a new CPF Life plan with escalating payouts is a good additional plan,” commented NTUC International Affairs Special Duties Director Sylvia Choo, who sits as a member on the CPF Advisory Panel.
CPF Lifetime Retirement Investment Scheme
Meanwhile, the new investment scheme option, called the CPF Lifetime Retirement Investment Scheme (LRIS), will give members an additional and simpler investment option, especially for those who are younger.
The panel said that the current CPF Investment Scheme, which was introduced in 1986, has limitations for CPF members who wish to invest their CPF savings to achieve higher returns but lack the financial expertise, time and resources to actively manage their investments.
According to the panel, the LRIS option will provide a member with a small number of well-diversified funds, which will be simpler to choose from. The panel also recommended that these funds should not need to rely on CPF members to actively rebalance their investment portfolios and should help them enjoy the benefits of long-term investing.
The panel added that with the LRIF option, the cost of investing should be kept as low as possible by pooling CPF savings to purchase investments in bulk and these investments should be passively managed.
Advisory Panel Concludes
The second part of the report concludes the CPF Advisory Panel’s two-year deliberations that sought to provide additional choices to cater to the varying needs in retirement, while maintaining simplicity in the CPF system.
The first part of the report which addressed the minimum sum and the lump sum withdrawals at payout eligibility age was submitted in February last year and implemented in January 2016.
In a statement released after the Government’s acceptance of the recommendations, the Manpower Ministry said that it will work closely with the CPF Board to implement the new recommendations in stages, and will provide more details when they are ready.
