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Can CPF LIFE really last you for life?
Will you get payouts for as long as you live and is interest earned haram? Here's a lowdown on how the national longevity insurance annuity scheme can benefit you
Planning for retirement is top of mind among Singaporeans these days.
With life expectancy on the rise and the cost of living steadily increasing, many are taking on a more proactive approach to planning their finances for retirement.
However, a recent study revealed that eight in 10 Singaporeans are still not on track with their retirement plans.
While there are many ways to grow your nest egg, longevity insurance annuity schemes like the CPF Lifelong Income For the Elderly (CPF LIFE) can serve as a reliable foundation that provides you with a lifelong stream of payouts throughout your golden years.
Read on to learn how CPF LIFE works and dispel common myths about the scheme.
Click on the speech and thought bubbles below to uncover facts about CPF LIFE.
Myth: Planning for retirement is complicated
You’ve worked hard your whole life to save up for your golden years. But how much is enough? And what happens if you live past your projected lifespan and your savings have run dry?
With CPF LIFE, you can age with peace of mind as you will receive monthly payouts from the age of 65 for as long as you live.
You are automatically included in CPF LIFE if you are a Singapore citizen or permanent resident born in 1958 or after, with at least $60,000 in retirement savings when you wish to start your payout. Those who were born before 1958 can opt in to CPF LIFE if they are not older than 80 years old.
As soon as you join CPF LIFE, your premiums will be deducted from your Retirement Account. The interest earned on these premiums will continue to accrue and is factored into your monthly payouts, enabling you to receive higher payouts right from the start.
A plan that provides payouts for life may sound too good to be true – but in this case, it is true. Lifelong payouts are possible under CPF LIFE because of its risk-pooling mechanism. Just like how healthcare insurance premiums are pooled to protect against unexpected medical costs, interest earned on CPF LIFE premiums are pooled to protect against unexpected longevity.
With risk-pooling, the unused interest left behind after a member has passed on will go towards the monthly payouts of surviving CPF LIFE members. This enables members to continue receiving payouts, even after their own premium and interest have been used up.
Every member has a chance of outliving their savings. According to a study by the Department of Statistics Singapore, one in two Singaporeans at age 65 may live beyond 85 years old. The pooled interest allows everyone to enjoy lifelong payouts.
As for the interest earned on your premiums, it will continue to accrue to you while you are alive.
Myth: CPF interest is ‘haram’
There may be some concerns from the Muslim community that interest paid by CPF Board to members is “haram”. It isn’t. The interest paid from the scheme has been ruled by the Legal (Fatwa) Committee to be not riba – which refers to unjust, exploitative gains made in trade or business – and therefore, not "haram". This is because it is not a gain from a loan, debt, or pawn transaction. Instead, it is a form of gift with no conditions.
Click on the thought bubbles below to uncover facts about CPF LIFE.
Myth: CPF LIFE isn’t as good as other products in the market
CPF LIFE is an insurance product that protects individuals against longevity risk, with lifelong payouts as the main feature. Unlike investment products which are meant for wealth growing, insurance annuity products like CPF LIFE help to protect against life’s uncertainties.
Annuity plans are not new and there are plenty of options in the market. However, CPF LIFE provides one of the highest payout for every dollar committed compared to other lifelong private annuities.
Furthermore, unlike private annuity plans, savings under the CPF LIFE scheme are guaranteed by the Singapore Government, which means they are risk-free. Returns from annuity plans offered by private companies, on the other hand, are subjected to market conditions.
You may opt out of CPF LIFE with a private annuity that offers the same or a higher lifelong monthly payout, but no members have opted for this in recent years.
Myth: I lose my all CPF savings when I die
As long as you have made a valid CPF nomination, your CPF savings will be distributed to your nominees after you pass away.
For CPF LIFE members, unused CPF LIFE premium – which refers to the remaining premium after deducting all payouts – together with your remaining CPF savings, will be distributed to your nominees as well. This means that you will get back your CPF LIFE premium in full, either through payouts while you are alive or a lump sum distributed to your nominees upon your passing.
If you do not have a valid CPF nomination, your CPF savings will be transferred to the Public Trustee (PT) for distribution in accordance with the relevant intestacy laws. PT could take up to six months to distribute the CPF savings to your loved ones and a statutory fee will be charged.
The interest on your unused CPF LIFE premium that has not been paid to you will continue to be pooled after you pass on. This is key to ensuring that the scheme remains sustainable, and the remaining CPF LIFE members continue to get lifelong monthly payouts. CPF Board does not retain any of the interest earned from the CPF LIFE scheme, unused CPF LIFE premium or your CPF savings.
Click on the thought bubbles below to uncover facts about CPF LIFE.
Myth: I lose control of my money once I put it in CPF LIFE
Placing your savings in CPF LIFE does not mean you no longer get a say in how it is managed. Everyone has different lifestyle goals and needs, and CPF LIFE is created with that in mind. You can choose a plan that best supports your retirement lifestyle.
If you prefer to maintain your current lifestyle and would like to have a plan that helps you cope with inflation, the Escalating Plan offers payouts that start lower but increase by 2 per cent yearly, for life.
If you can adopt a more prudent lifestyle as prices increase, choose the Standard Plan, which offers a steady monthly payout for life. If you plan to reduce your spendings as you age, consider the Basic Plan, which offers payouts that reduce over time.
Regardless of the plan you choose, you will enjoy lifelong monthly payouts. Any unused CPF LIFE premium will also be distributed to your loved ones, along with your CPF savings.
The different plans give you flexibility in tailoring your retirement income based on your lifestyle needs. When it comes to growing your life savings, there are ways to leverage the high interest rates and compounding effect as well.
If you have more savings in your Ordinary Account, whether it's from years of hard work or right-sizing to a smaller flat, consider transferring them to your Special or Retirement Account to enjoy the higher interest rates of 4 per cent to 6 per cent per annum. For those with idle cash savings, you may also consider making a top-up to your Retirement Account.
Being a part of the CPF LIFE scheme does not mean you have to stop working in order to receive the monthly payouts. The payouts can begin as early as at 65, but you can also start receiving them later, up to 70, if you plan to continue working after retirement.
Those who chose to take this route will enjoy an additional bonus – for every year you defer your payouts, your payouts will increase by up to 7 per cent. This means that by choosing to receive payouts after 65 and by 70, you might gain up to 35 per cent more than by choosing to receive them at 65.
Planning for retirement doesn’t have to be daunting. Use the CPF Planner to get started today.
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