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SINGAPORE: The government has studied and accepted the recommendations of the National Longevity Insurance Committee.
In his letter to the committee's chairman, Professor Lim Pin, Manpower Minister Ng Eng Hen described the committee's report as a landmark document which will significantly strengthen the CPF system.
Dr Ng said the government has also accepted the committee's recommendation that the CPF Board administers the scheme as this will give Singaporeans the assurance that the scheme is viable and properly administered.
The minister said the CPF Board will be taking on significant risks and responsibilities as operator, and since life expectancy can change further and interest rates vary over the long term, the CPF Board must ensure the financial sustainability of the scheme.
Dr Ng added in his letter that the Lifelong Income Scheme, which has been named 'CPF Life', will greatly enhance CPF savings for Singaporeans.
This is because under the old system, many would have depleted their savings after 20 years, despite having many more years to live.
With the new scheme, CPF members need not worry that they will outlive their CPF savings as they will receive an income for as long as they live.
CPF Life, which will start in 2013, will automatically cover all CPF members aged 50 and below this year.
According to the report submitted by the committee, 60 percent of the approximately 35,000 active CPF members will have at least S$67,000 in cash in their Retirement Account at age 55.
The committee also recommended that the income scheme be seamlessly integrated with the CPF Minimum Sum Scheme so that both can fulfil the same objective of providing a basic income for retirement.
The NLIC report also suggested that the property pledge, which forms up to half of the full minimum sum, be used to provide a lifelong income when it is redeemed.
How CPF Life will work
When participants join the scheme, their minimum sum balances will be split into two parts. The larger part will remain in the Retirement Account, while the smaller part becomes the refundable premium.
The Retirement Account pays a monthly income from age 65 till the lifelong income payout age chosen by the CPF member.
The refundable premium continues the same payment from the payout age for as long as the member lives.
Participants can choose the "Long Life Income Payout Age" – from 65 to 90 – or be placed into the default "Refund 80" which means their payout age will start from 80.
Once the payout age is chosen, no changes will be allowed.
However, Prof Lim's committee recommended that the government allows and facilitates an opt-in for older members, and those who do not have enough balance in their accounts.
The report also stressed that the premiums to fund the Lifelong Income Scheme will be affordable.
Preliminary calculations indicate that for men, it will be 24 percent of the minimum sum and for women, 28 percent of the minimum sum.
Dr Ng concluded that the committee's recommendations will help Singaporeans retire with a peace of mind.
- CNA/so
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