Number of CPF Members who have Opted out of CPF Life and Placed Savings in Commercial Products Instead
Ministry of ManpowerSpeakers
Summary
This question concerns the number of CPF members opting out of CPF LIFE for private annuities and the criteria for verifying such products. Ms Foo Mee Har asked about the volume of members choosing commercial alternatives and how the CPF Board assesses the veracity of their claims. Minister Mrs Josephine Teo stated that as of November 2020, 129 members were fully exempted, provided their annuities offer guaranteed lifelong payouts equal to the Full Retirement Sum. She explained that exemptions are rare because private providers cannot match the high interest rates of 4% to 6% per annum offered by CPF LIFE. Policy safeguards require providers to be MAS-registered and undergo regular audits to ensure terms remain unchanged and surrender values are protected.
Transcript
72 Ms Foo Mee Har asked the Minister for Manpower given that CPF Board has provided its members the option of being exempted from CPF Life participation if they can find a comparable commercial annuity product (a) how many CPF members have already withdrawn their CPF retirement savings and chosen a commercial product that pays out the same or a higher monthly payout for life; and (b) how does CPF Board assess the veracity of claims made by such commercial products.
Mrs Josephine Teo: CPF members can apply to the CPF Board to be exempted from setting aside their CPF Retirement Sum from age 55 if they are receiving lifelong monthly payouts from qualifying private annuities bought using cash. The Board approves such exemptions if they result in the members being no worse off in terms of their retirement adequacy. As at November 2020, 129 CPF members are fully exempted from setting aside their retirement sum on such grounds.
The criteria for a qualifying private annuity are as follows:
(a) First, the annuity must be issued by MAS-registered providers and satisfy the stringent requirements under the Insurance Act.
(b) Second, for full exemption, the payouts must be for life and at least equal to the member’s cohort Full Retirement Sum (FRS) payouts under the CPF LIFE Standard Plan. For this purpose, only the guaranteed component of the private annuity payouts is considered.
(c) Third, if the private annuity is subsequently terminated, surrendered or revoked, the surrender value of the annuity must be refunded to the CPF Retirement Account, up to the member’s cohort FRS with accrued interest. The refunded monies will then be streamed out to the member either through the Retirement Sum Scheme or CPF LIFE.
Under CPF LIFE, members enjoy the current floor interest rate of 4% per annum which is reviewed annually. With extra interest, members can earn up to 6% interest per annum. Private annuity providers are unlikely to be able to match such returns, and thus will not be able to offer as high a payout for the same premium. This explains why the number of members who have applied for exemptions, and the number whose applications were approved, are very low. Qualifying annuity providers are subject to regular audit to ensure the terms of the products used for exemption have not been altered. Nonetheless, for members who have concerns about the certainty of payouts, they may wish to avoid such commercial products.