Friday, July 24, 2009

CPF Life : Annuity without guarantee....

"The annuity provides a kind of retirement-income insurance: you contribute funds to the annuity in exchange for the guaranteed income stream of your choosing later in life."
- Investopedia [Link]
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The basic idea of life annuity is it serves as a form of insurance where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients[Link]. What good is an annuity if income stream from it is not guaranteed? If you can't depend on it, you will need something else to insure against the uncertainty!
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This week the govt passed amendments to the CPF Act that allows the govt to vary the payout on CPF Life at the Government's discretion. [Link]. The reason given was that they may have to cut down the payout to ensure the solvency of the CPF Life scheme (due to incompetent management?). What is happening is this : in a life annuity risk is transferred from individual to the insurance company. However, with CPF Life, the govt passed the risk right back to the individuals. So ordinary Singaporeans are forced buy an annuity that we can't count on for a guaranteed income stream. Even with a guaranteed income stream, we are already forced to bear the risk of inflation ...like I said in earlier post, the basic scheme may not even provide enough for McDonald's Happy Meals[Link] due to inflation. However, with the guarantee on the income stream removed, the basic scheme may not even be enough for maggIe mee! ...all to protect the govt's own scheme from insolvency....(hmm....protecting itself from its own lack of competence?)
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The CPF scheme and its never-ending tweaks that always end up locking up our money longer and longer but never provide any more in the way of financial security for old age and protection against inflation. The whole CPF should be reformed. We should do what other competent govts do instead of locking up the minimum at a low fixed return. Hire the best managers to manage the money properly so that it will be adequate for retirement later on - that is what almost what every other major pension fund in the world does including Malaysia's EPF, Chilean Pension Fund etc etc. Contrary to what the govt tells us, locking money up at a fix rate is completely unsafe and makes us all vulnerable to inflation. The PAP govt endangers us so that the GIC can borrow the money for investments from the CPF. It is very unkind, unjust and ultimately unfair to the ordinary folks who are now asked to work until they are frail and old.

59 comments:

Anonymous said...

that's why the ministar said this is a "life long payout scheme" but not an annuity:

1. you can't choose
2. they can't guarantee

Anonymous said...

Can we use CPF money to buy annuity from private insurers?

Like that, I think it is more guaranteed, as there is more transparency from a reputable insurer.

Anonymous said...

yes, that's a good idea, Anon 12:18, take the money and put into private insurers.

I havent looked at it yet, but the cynical me tells me they wont allow for it. The idea is to keep your hard-earned money in CPF and govt's coffers longer, so THEY can make more money out of it for themselves.

Anonymous said...

Look at least you've been told. Now you can start making alternative plans for old age rather than relying on CPF which may be insolvent when you retire. We don't know what the government has done with all the contributions over the decades. Suffice to say that, a subtantial amount has been lost and there is the possibility it may not be able to meet all its obligations in the future. We will never know the truth. Even if PAP is voted out in the next election, what is lost is lost. It will only serve to punish those who have bungled up despite the high salaries. A new government will not be able to get back what is lost. Strange that the government always justify the high salaries for the fantastic job they do. If the bleak outlook for CPF is any measure, the average citizen couldn't have done any worse without the big price tag.

Anonymous said...

"It is very unkind, unjust and ultimate unfair to the ordinary folks..."

The ordinary folks voted for this kind of treatment. Can't say that they didn't went in with their eyes open.

Anonymous said...

How can Parliament pass a law that compel the citizen to hand over substantial amount of their CPF money to participate in a scheme where the government cannot guarantee the payout ?

Is our govt being responsible in this instance for proposing such a scheme ?

For those MPs who have voted for this bill, did they discharge their reposnibilities to the electorate responsibly ?

Please don't compare with any commercial annuity plans available. For commercial plans, it is I who choose to participate. I decided to so, and so I bear the risk if the insurance become insolvent.

With CPF Life, I don't have a choice because I'm compelled by law to do so. Therefore, I should not be bearing such risks.

How can a responsible govt and parliament passed such a law that expose the citizens to such risk.

Anonymous said...

It just hidden ponzi scheme whereby you are not given any choice to decide. Even if you use the CPF money buy from insurer there no guarantee, you won't face issue like AIG despite it transparency.

I would preferred the money goes back to the people and let us decide if we want to invest it in commodities, stock or futures or put in FD. Even we squandered it away, there is no one to blame if you consider MAS or CPF don't even care a hoot protect to people.

furrybrowndog said...

Good post there Lucky,

Personally I don't mind a fixed return rate so long as its indexed for inflation. The American Social Security plan is indexed for inflation and the combined contribution rate is 12%, only a third of CPF's 34.5%.

The mandatory contribution rate of 34.5% is clearly too much. My Hong Kong friend did a double take when I told him about it.

I wouldn't mind a pension scheme like Hong Kong's MPF either.

LuckySingaporean said...

furrybrowndog,

The rule of thumb is 10% of income set aside for retirement purposes that is also what they do in Chile and many other pension funds. However, pick up any book on personal finance...not a single one will tell to lock that 10% in a fixed rate instrument. Because a typical worker works for a period of 30-40 years....and the sum has to prudently invested to beat inflation. You take on more risk (thus higher return) in the beginning and throttle down the risk as you head towards retirment.

Trying to do it by brute force savings (without investing it properly) which we are forced to do with the minimum sum is a horrendous plan - for a start we have to contribute 34% instead of 10% and this turned out to be still insufficient! Tweak, tweak, tweak still no good!!

What can we have our retirement money managed properly and professionaly JUST LIKE EVERYONE ELSE?!!! ....we don't deserve it??

Anonymous said...

problem here is, the average person CPF is rather paltry(after all the deductions) to even talk about investing it for "healthy returns".

for the, it makes no difference whether you up the risks or you fix the risks.

maybe some flexibility should be given to those with excess CPF to take higher risks on their own rather than a one size fit all rule

Anonymous said...

PAP won't let you vote them out so easily.

If they got voted out, we may find out that they might have many skeletons in their closets.

It's the real reason why dictators have to stay in power till the very day they die.

Anonymous said...

"Annuity without guarantee"...hmm...

What is to stop a minister from delcaring a monthly payout of $1, if the law or the "annunity" contract isn't broken?

Anonymous said...

@Lucky

You are comparing pension funds with CPF(which is basically a form of taxation)?

think of CPF Life as tax refunds lah.

LuckySingaporean said...

anon 14:40,

You're right in that the bigger problem is a large number of people are low income.

However, the minimum sum is not too small. Managing it better so that the return over a 30 yr period is 2% higher than the fixed rate will almost double the amount the person have to retire on.

Anonymous said...

I cannot imagine the MPs allow the government let this pass in parliament...!

Shocked.

It sounds too much like Minibond and Govt's light touch.

Anonymous said...

I always thought "You Die Your Business" is PAP's motto.

Now there is a caveat:

"YOU DIE YOUR BUSINESS
But lock all your money in the CPF before you die"

is what they want for all Singaporeans. I figure studying overseas and then working overseas is the only way out of their grasp and while at it, the PAP entertains you with Singapore Day too. Finally to use overseas land as a firing base to attack the PAP. That should be the only way for local born Singaporeans. The foreigners/PR would have figured out to run before their sons turn 11 years old.

Ghost said...

They have to change the name. If you can't guarantee the payout, then you can't call it a life annuity. It's logic

Anonymous said...

IN the spirit of Uniquely Singapore, we have now Uniquely Annuity. It is Annuity but it is not like one, really damn unique of Singapore.

Anonymous said...

The writer of this article has always moan and bitch about the system. Well if you don't like the system or the way your CPF has been managed, what are you going to do about it? Don't just moan, rant and bitch - do something positive for Christ's sake.

Anonymous said...

Many people have spoken up for the oppressed, but they were ridiculed, sued and jailed and had their reputations tarnished by the media. And Singaporeans hardly cared or bothered.

Over time, people learn that it doesn't pay to speak up for the masses.

At the end of the day, the oppressed masses will still vote for the ruling party.

Anonymous said...

To Anon 24/7/09 20:38

If you don't like the writer,
don't just moan and bitch.
If you don't like what he said,
don't just moan, rant and bitch -
do something positive for Christ's sake. Your moan, rant and bitch is extremely negative!

Anonymous said...

I read a comment in Mr. Tan Kin Lian's blog that I thought it is relevant to your topic. It would be great if you can help us understand the scheme better.

Quote
"Dear Mr. Tan,

I have heard people talked about CPF Life. Some guessed that it is ok and some don't. The way the government put it is that if your are "eligible" then you will benefit from the program "automatically"! Without the numbers I have no idea under what circumstances that I would benefit from it. I understand that it is a zero-sum program, i.e not subsidized. I suppose if someone "benefit" from it, some others would have to pay for it. It would be great if you can give us an analysis that is understandable by laymen like me.

unquote

Here's the link to TKL's article: http://tankinlian.blogspot.com/2009/07/gathering-in-hong-lim-park-on-22-aug-09.html

buyapension said...

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Anonymous said...

wonder why property market appears to be "hot" recently despite the poor economic outlook?

I believe part of the reasons is more Singaporeans are becoming aware of the risk of CPF. The idea is to zerorize their CPF accounts as much as they can.

What better way than using it to purchase property?

Anonymous said...

problem in Japan's pension scheme is going to drag down the LDP government which has ruled Japan essentially for close to 50 years.

hope the same thing happen to the f**king pap regime.

Rialce said...

to annon at 24/7/09 22:37

you gotta be kidding? drag the pap down? with cpf life, they are getting richer

Anonymous said...

"The writer of this article has always moan and bitch about the system. Well if you don't like the system or the way your CPF has been managed, what are you going to do about it? Don't just moan, rant and bitch - do something positive for Christ's sake."

Where is your brain ? Don't you know what is the role of Lucky Tan in the blogosphere ? That is exposed the regime and give us insight on what happened. This is the greatest contribution of Lucky Tan to Singaporean. Do something positive ? Why not you do something positive and show your positive face in the newspaper so that you can lead by example ? You can't write a decent comment, let alone do something positive.

Whatever your definition of positive is, we surely wouldn't want Lucky Tan to disappear out of fear because his blog is the positive contribution to the society not your fucking complain about his posts been whining and ranting.

If you don't like this blog, please get out and fart off. No one ask you to read and comment anyway.

Anonymous said...

To Anon 24/7/09 20:38:

"The writer of this article has always moan and bitch about the system. Well if you don't like the system or the way your CPF has been managed, what are you going to do about it? Don't just moan, rant and bitch - do something positive for Christ's sake."

You are a bloody idiot for not seeing that the writer is creating awareness for the good of all. If you don't like to read what is in the Blog you can always go elsewhere where they are singing praises of the ruling elites.

Anonymous said...

The writer of this article has always moan and bitch about the system. Well if you don't like the system or the way your CPF has been managed, what are you going to do about it? Don't just moan, rant and bitch - do something positive for Christ's sake.

24/7/09 20:38



Gahmen people, trying to con lucky tan into coming out and get decimated like the 1997 General Election person.

It is better that Lucky Tan provide the truth, the whole truth and nothing but the truth here.

Anonymous said...

Another con job by the PAP elites to swindle S'poreans of their CPF money.

Anonymous said...

It's OK to " moan, rant and bitch" in blogs to release steam.

It is safe, just like masturbation. Otherwise you may get HIV. It's not worth it, right?

Anonymous said...

To Anon 13:34

Increasing awareness is not passive esp in this information age. I hope more Singaporeans will read this blog. I'll try and share the website with my friends. We are a pitiful 55% now, we must stand together or we'll go down together.

Anonymous said...

i dun understand d people here. Spemd time commenting. Why dun u go use tis time to make more money? Take charge of your own destiny lah. Grow up please

Anonymous said...

To Anon 25/7/09 16:28

SAME TO YOU!

Anonymous said...

Anon 16.28 pm

Money made already lah. Tis is spare time to release steam. How can all the time make money? Must also spend time to eat, shit, sleep and XXX what.

U same what, that's why u read and comment here also. Why don't you spend tis time to make money?

Anonymous said...

SIMPLE

GIC, TEMASEK LOST ALL OUR NATIONAL RESERVES.

THEY ARE NOW BETTING WITH OUR CPF MONIES.

NATURALLY, THEY MUST SAFEGUARD THEIR ASSHOLES IF THEY MAKE ANOTHER BLUNDER.

BLAME YOURSELVES FOR VOTING FOR PAP FOR OPENING YOUR ASSHOLES FOR PAP TO FUCK.

Anonymous said...

"The writer of this article has always moan and bitch about the system. Well if you don't like the system or the way your CPF has been managed, what are you going to do about it? Don't just moan, rant and bitch - do something positive for Christ's sake."

What an irony!

What can be worst than moaning and bitching about the perversion of justice and authority?

Of course, bemoaning and bitching about someone bemoaning and bitching about it.

Someone once said, those who can do, do; those who can't, complain; and those who can't complain, complain about the complainers.

So whoever you are, now you know where you stand in the rank of losers.

Anonymous said...

"i dun understand d people here. Spemd time commenting. Why dun u go use tis time to make more money? Take charge of your own destiny lah. Grow up please

25/7/09 16:28"

hahahaha.... you must be pap! only pap-minded is so money-minded!

make more money indeed. nothing can take the place of freedom, get it?!

Anonymous said...

In HK, funds are managed by professional fund managers, and focused only for retirement. You have the choice, as a foreign worker, to just contribute a minimum of HK$1000 per month or 5% of your salary, and matched by your employer.

i just received my latest MPF (our version of CPF) half-yearly statement.

over the last 9 years, returns has average out to more than 8% p.a.

and i can take out my money when i leave HK. Or till i'm 55.

LuckySingaporean said...

anon 15:40,

By hiring the best people to manage the funds instead of locking it up at a fixed low rate, after 30 years...the difference is not 30% but 200-500%.

Why the govt does not do this when almost every other govt does..and cause many Singaporeans to have a miserable retirement. The govt can borrow the CPF money at a low rate and use it for investments.

Anonymous said...

so the best retirement plan is to give up your citizenship, move to thailand or some other country where you can buy your citizenship with money and retire.

Anonymous said...

"Why the govt does not do this when almost every other govt does..and cause many Singaporeans to have a miserable retirement. The govt can borrow the CPF money at a low rate and use it for investments" - Lucky

Lucky you have answered your own question here but just to add what good are those GIC & Temasek investments when they are performing below par. Even if they were to perform well, it would not be reflected in CPF savings interest.

The true reason might be more scary. PAP is channeling the money away through a web of confusing network be it failed investments - buy crap companies and then declare loss, be it bailing out Western banks and then selling the shares at the bottom price ... so that in the end it is next to impossible to trace the tracks. And all perfectly legal.

Be suspicious be very suspicious. "Fang Ren Zi Xin Bu Ke Wu" as the Chinese saying goes.

They found Marcos had US$1 billion in Swiss bank when he fell, now they have found another US$20 billion in American banks. That regime was decades back; a present wayward regime can surpassed that kind of figures many times that.

Singapore Democrats said...

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Agagooga said...

Migrate lor.

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Daven Thomas said...

With CPF Life, I don't have a choice because I'm compelled by law to do so. Therefore, I should not be bearing such risks.
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Quite strange a annuity without guarantee. Isn't bad for those who earning low money monthly but still no guaranteed future?

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In 2009 the Government passed amendments to the CPF Act. Can we still applicable to use CPF money to buy annuity?