CPF LIFE: Your Retirement Payouts May Reduce Despite Accumulating More
 
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CPF LIFE: Your Retirement Payouts May Reduce Despite Accumulating More

Cherie Tan
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Your CPF LIFE projected payouts may reduce as years go by and it is something you have no control of. Nope, you did not read that wrong.

Do not look away if CPF is a cornerstone in your retirement planning.

This article echoes the recent news “More clarity needed on CPF LIFE payouts” published in the Straits Times on 14th August with sentiments from the #SeedlyCommunity.

You may read the original article and CPF’s response to the situation as of 21 Aug 2018.


Source: The Straits Times

14 Aug 2018, Summary Of What Happened:

  • In January, Lim Tong Wah had requested a copy of the estimated payout for his CPF LIFE scheme from the age of 65 to 70
  • Lim wrote in again last month to request the same thing knowing that interest would have accrued from January, he was curious to know what the new increased payout would be
  • Instead, the new estimated payout was lower than that in January

21 Aug 2018, Summary Of CPF’s Response:

  • CPF LIFE payouts are determined by an independent actuarial consultant
  • Why did his RA balance remain the same from January?
    Because the interest accrued will only be credited into your account in January next year. According to CPF, interest is compounded monthly, but it will only be credited into your account yearly.
  • Why did his CPF LIFE projection decrease?
    When he first asked CPF for his projection in January, his projections from January would include accrued interest for Jan to Dec. However, when he asked CPF again for his projection in July, his projections would only consist of interest accrued from July to December, resulting in a lower CPF LIFE projection.
  • Improvements to be made by CPF: Projections for CPF LIFE will be revised to include all interest earned, as is the case for actual CPF LIFE payouts today

For the benefit of those who are not sure what CPF LIFE is,

What is CPF LIFE?

Just a quick introduction, CPF LIFE is a life annuity scheme that provides a monthly payout from retirement age for as long as you live for all Singaporeans and Singapore Permanent Residents (PR).

Basically, CPF LIFE provides you with your monthly retirement income from your CPF.

Fun fact: Something I never knew either, the ‘Life’ in CPF LIFE stands for Lifelong Income For the Elderly.

3 CPF LIFE Plans Available: Standard, Basic and Escalating Plans

PlansStandardBasicEscalating
BenefitsMore for selfMore for loved onesMore for future
​Full Retirement Sum
(FRS)
$171,000
S$1,320 - S$1,410S$1,240 - S$1,290S$1,010 - S$1,110​
(initial amount)
Monthly PayoutsHigher level monthly payoutsLower level monthly payoutsMonthly payouts that start lower
but increase by 2% yearly
Upon DeathAny unused annuity premium (without interest) and Retirement Account savings, will be paid to your beneficiaries upon your death.

*Note: There are 3 different monthly payouts for different retirement sum (Basic, Full and Enhanced). More information on the CPF website.


Back to the story of Lim and the different projected payout calculated,

Different Computation Method was used

Source: The Straits Times

It was explained to Lim that a different computation method was used to calculate his new estimated payout. The service staff was unable to explain further as the computation was done by another department.

How Are CPF LIFE Payouts Like?

As at 2018, if you choose to start receiving your payouts at age 65, here are the estimated payouts for Basic Retirement Sum.

Amount in Your Retirement Account (RA) at age 55Your Estimated Monthly Payout
Basic Retirement Sum
S$85,500
S$720 - S$770
Full Retirement Sum
S$171,000
S$1,320 - S$1,410
Enhanced Retirement Sum
S$256,500
S$1,910 - S$2,060

Note: The above figures are computed by CPF on 16 March 2018.

A Quick Cross Check

Don’t know if I am being very particular here but using the CPF LIFE Payout Calculator, here are the payout figures computed for Basic Retirement Sum.

 Male, 55Female, 55
Basic Retirement Sum
S$85,500
S$706 - S$772S$658 - S$721
Full Retirement Sum
S$171,000
S$1,294 - S$1,422S$1,204 - S$1,326
Enhanced Retirement Sum
S$256,500
S$1,880 - S$2,070S$1,747 - S$1,929

Computed as at 16 Aug 2018

Nothing tallies! The lowest payout isn’t reflected in their calculation, neither was the highest payout.

In fact, all of the estimated payouts decreased from March 2018 and like what Christopher, a Seedly Community member, said.

Christopher How, “Calculator formula also can change.?

More Transparency and Consistency in CPF Life Processes

Lim went on to say he hopes that there would be more transparency and consistency in CPF LIFE payouts. As of right now, it does not make sense to him how a higher amount in his RA would result in a lower payout.

This sentiment is strongly echoed in our Community as well,

Calvin Yong, “Yes, indeed, CPF must be transparent and consistent with their calculations / projections.”

Has It Always Been Like This? Why Are We Only Finding Out Now?

Gabriel Tham, “People are more educated now and more financially aware to bother about these things. You can ask the senior folks around, I think most don’t even know or care.”

Calvin Yong, “No, these errors are common in organizations, but because of social media, we get to know them faster. But is good because the organization got to improve their performance. If no errors, there would be little work for their customer services.”


According to CPF Website, It Explains…

1. There will be a yearly review of your CPF LIFE payouts

  • It takes place every July to review the payout and adjust accordingly
  • Some things that they would look out for are our life expectancies, changes in mortality experience, interest rates, additional top-ups in your RA, a refund of money from the sale of your property – these might increase or decrease your payout

It is said that they will inform us two to three months before they make any adjustments to your monthly payout. (I am assuming only if you are already receiving the payouts)

2. Why not have guaranteed minimum payouts for CPF LIFE

CPF LIFE payouts are designed to sustain us for our lifetime. In order for the scheme to be sustainable, they would have to adjust payouts periodically.

At least, we still know they are trying to sustain CPF LIFE.

A bigger worry for me right now would be not being able to hit the retirement sum when my time comes if they continue progressively increase it by 2.5% annually, approximately S$380,000 that is.

Might consider topping up my CPF as part of my retirement plan.

If you have more questions, we have an open community for you to get your questions answered and to hear from different perspectives. Check out our blog for more unbiased opinions on your personal finance journey.

I’ll see you in the next one, and until then, may the Personal Finance force be with you!

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About Cherie Tan
Turning finance into boba-sized pieces. One iced milk boba tea, please!
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