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Compare and Contrast: The New CPF LIFE schemes

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Ryan Ong

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The Singapore government has announced changes to the CPF LIFE annuity scheme. Instead of four options, it’s been trimmed to two: the Standard Plan, and the Basic Plan. Apparently, someone upstairs thinks Singaporeans can’t cope with too many choices. Or with using more than two brain cells at a time. At any rate, we’ve only got two options now, so let’s take a look at difference:

 

What is the CPF LIFE Annuity Scheme?

It’s expected that, by 2030, one in five Singaporeans will be aged 65 or above. Of that batch, half will probably live beyond 85 (or a third, if they challenge me for a seat in the retirement home TV room).

The Low Income For Eternity Lifelong Income For the Elderly (LIFE) annuity scheme is meant to provide lifelong payment to elderly Singaporeans, drawn from their CPF savings. From the designated draw down age (DDA), participants in the scheme will get monthly payments via giro.

The size of the payout? We’ll have more information in the fourth quarter of the year. But in DPM Tharman Shanmugaratnam’s example, a 55 year old with $90,000 in CPF would be getting $780 a month. That’s on the Standard Plan.

 

Man on a Trishaw
“Huh? Retirement? Is that the new mall at Bedok?”

 

The Standard Plan

The Standard Plan is the default scheme. Singaporeans who don’t make a choice are automatically under this scheme, from the age of 55. It combines features of the previous Plus and Balance plans. The features are:

  • Higher monthly payouts
  • Option to use CPF for housing
  • Bequest to beneficiaries

 

Higher Monthly Payouts

The Standard Plan gives a higher pay out than the Basic Plan. With rising inflation, it’s not surprising this is the default option; I suspect that come 2030, a $780 payout will buy me one satay stick.

I honestly don’t believe that, even with the higher payouts, many Singaporeans will be retiring at 65. I’m expecting the LIFE payout to act as a sort of subsidy, like an enhanced senior citizens’ discount program. Here’s my frank opinion: If you’re fully expecting to work past 65, or have investments of your own, the higher monthly payouts do nothing to make this plan attractive.

 

Calculator and glasses on the table
“It’s not your eyesight grandpa. That payout really IS tiny.”

 

Option to Use CPF For Housing

When Singaporeans hit 55 years of age, a portion of their CPF goes into a Retirement Account (RA). Under the new Standard Plan, the money in the RA can now be used for housing.

I think that, combined with the Silver Housing Bonus, this actually does more for retirement than the higher monthly payout. When a senior citizen downgrades to a smaller flat, the government is adding $20,000 on top of the proceeds for the sale.

If said senior citizen is also able to tap the RA for money, getting a new two or three room flat is a non-issue. Furthermore, the downgrade is sure to result in a massive lump sum payment. That can be invested in other schemes, with a higher payout than the CPF. Then we’re really talking retirement.

 

Laundry outside HDB Flat
A hint, HDB: Those clothes aren’t the only things hung out to dry.

 

Bequest to Beneficiaries

The Standard Plan has a bequest to beneficiaries. Upon death, whatever hasn’t been spent gets paid to whoever you named (I promise I’ll make good use of it).

Previously, there was a scheme called the Income Plan, which gave the highest payout but left no bequest. The government says this was dropped due to a lack of popularity. I find that presumptuous. What if I raise brats, and don’t want to leave anything to my vermin offspring?

Anyway, we can at least alter our wills accordingly. No matter what we do, we’ll be leaving something for loved ones.

 

The Basic Plan

(Why is not Basic and Advanced Plan? Or Standard and Non-Standard Plan? The logic kills me.)

The Basic Plan is only available if you specifically opt in. The features are:

  • Lower monthly payout
  • Higher bequest to beneficiaries

 

Another trishaw
“Don’t worry son, I am going to bequeath you a vehicle of your own.”

 

Lower Monthly Payout

The Basic Plan means a lower monthly payout. But until I get more information, it isn’t clear how much lower. At any rate, I don’t believe it makes a difference.

I pointed out that, even under the higher payout of the Standard Plan, this money is more of a subsidy than a full blown retirement fund. I predict a difference of a few hundred dollars, which doesn’t drastically change the spending power of a senior citizen.

If not for the housing options under the Standard Plan, I dare say most Singaporeans would opt for the Basic Plan instead. It certainly stretches the balance of their CPF, and it leads to a…

 

Bubble Tea in a plastic bag
There goes the monthly income.

 

Higher Bequest for Beneficiaries

It makes sense that, with less being drawn from the CPF, beneficiaries will get more. It’s not hard to predict that Singaporeans with good financial support will choose this option: They are less reliant on the monthly payout, and a higher bequest is a way to extend their legacy.

Image Credits:
Sashomasho, echiner1, Images_of_Money, Ulftomas, williamcho,

Which of the two new plans would you opt for? Comment and tell us why!

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.