CPF Life plans to be simplified

Singaporeans can look forward to a simpler choice between two plans that will provide them with a stream of retirement income for life.

This is because of major changes to the Central Provident Fund (CPF) system announced in Parliament yesterday.

The four existing plans in the CPF Life scheme, which caters to elderly people, will be collapsed into just two.

Individuals who turn 55 after Jan 1 next year and with at least $40,000 in their Retirement Accounts will get to choose between a new Basic Plan and a Standard Plan.

Under the Standard Plan, people will get higher monthly payouts but bequeath a smaller sum to their beneficiaries when they die. The new plan combines features of the existing Plus and Balanced plans.

The Basic plan, which tweaks aspects of another existing plan, offers slightly lower monthly payouts but a bigger bequest.

The current Income plan, which gives the highest monthly payout but leaves no bequest, will be scrapped, as less than 3per cent of CPF members who opted into CPF Life chose the plan.

Moreover, many members who chose this plan - about 30 per cent - later changed their minds about leaving no bequest.

Payouts under the two new plans will start only when the individual reaches age 65, in line with the existing plans.

Deputy Prime Minister Tharman Shanmugaratnam, who announced the changes, cited public feedback showing that it took significant effort to understand and choose between the four existing CPF Life plans.

He added that Singaporeans now live much longer and that a growing proportion of retirees will outlive their CPF savings if they stayed on the Minimum Sum Scheme.

The Minimum Sum Scheme gives payouts for a limited period of just over 20 years.

About half of the Singaporeans aged 65 today are expected to live past 85, with one third of them likely to live beyond 90. In the future, those who reach 65 are expected to live even longer.

"CPF Life is therefore both an important and timely evolution of the Minimum Sum Scheme," said Mr Tharman.

He added that the changes will "provide simplicity, but retain the best features of the existing plans" while giving the public a "meaningful choice".

Mr Seng Han Thong, an MP for Ang Mo Kio GRC, asked about the popularity of the four existing CPF Life schemes.

Mr Tharman said most people chose the Plus and Balanced plans. About 90 per cent of the 73,000 people who have signed up for CPF Life since its launch in September 2009 chose either of those two plans, he added.

The new Standard Plan will be the default CPF Life scheme for individuals who do not make a selection when they hit 55.

Policyholders of the four existing CPF Life plans can stay with their chosen plans. They have until Dec 31 next year to switch to the new plans if they wish.

Men aged 55 with $40,000 of savings in their Retirement Accounts can get $380 a month for life under the Standard Plan, or $350 under the Basic Plan.

Mr Tharman stressed that the CPF system is "principally aimed at serving" the middle- and lower-income groups.

"It is not the purpose of the CPF to cater fully to the needs of better-off Singaporeans."