New CPF Life Plan: Is a 20 Percent “Pay Cut” for a 2 Percent Annual Increase Worth It?

Posted on Aug 4 2016 - 7:35pm by Redwire Singapore

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“The CPF Advisory Panel is proposing to introduce a new CPF Life Plan, one that will see rising levels of payments that will help keep pace with inflation.”

That’s what The Straits Times has been trumpeting about a new CPF Life plan recommended by a committee commissioned years back to improve the scheme.

What’s buried is the fact that if you choose to adopt this annuity scheme, you’re going to take a 20 percent pay cut in order to earn 2 percent more on your payouts every year.

As always, the devil is in the details.

Now, the recommended “Escalating” annuity scheme isn’t compulsory – you can choose one of 3 plans.

Notice anything peculiar from this ST illustration of how the “Escalating” scheme works?

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Yes, a monthly lower payout at 65 years old – that’s the 20 percent “pay cut” compared to the “Standard” plan.

So, it’s only when you hit about 78 years old that you’ll get the S$720 starting payout from the “Standard” plan if you opt for the recommended “Escalating” plan.

That’s when the benefits really kick in.

Going by the example, you’ll be receiving about S$10,000 less across the 13 years from 65 to 78 (or simply leaving that amount in your CPF and not taking it our across the time period).

Thereafter, you’ll expect to break even by around the grand old age of 84, with the “Escalating” plan’s 2 percent increase per year.

So if you’re planning to live long long and prosper a little, then the “Escalating” plan is an excellent recommendation.

Or, if you don’t think you can last that long, at least the CPF money still goes to your next of kin (no, the gahmen doesn’t steal your CPF money and use it to build sheltered walkways).

But if you want to use your money to enjoy your retirement, and think that living till 90 plus to 100 is a stretch, stick to the “Standard” plan.

Like Desmond Lim would say, “You have a choi” so use that wisely.

If you’re the James Dean kind, then don’t say the gahmen, even Kong Hee also cannot help you lah.

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