Explainer: Why is interest on Retirement Accounts not accrued once CPF Life payouts start, and how much will your family get when you die?During the Budget debate earlier in the week, a Member of Parliament highlighted the actual interest yield earned by CPF Special Account and Retirement Account “could not be more different”
This is since the premiums are risk-pooled, a fundamental concept behind annuity schemes that enable members to get regular lifetime payouts, even if they live longer lives than expected. Ahead of the debate on the Ministry of Manpower's budget, TODAY takes a closer look at where the interest yield under the CPF Retirement Account goes to under CPF Life, and how risk-pooling works.CPF Life, also known as the CPF Lifelong Income for the Elderly scheme, is a national longevity insurance annuity plan that provides CPF members with monthly payouts for as long as they live.
There are also various plans under CPF Life that members can choose, which affect the type of payouts based on the members' preferences. Under CPF Life, if this male CPF member applies to receive payouts under the Standard Plan from 65 years old onwards and passes away at age 75, he will receive an estimated S$1,630 a month or S$19,560 a year.
"There is a long-term commitment for all of us if we're members and we take up this CPF Life annuity... then we're covered for life," he said. CPF Life remains a"competitive" product, said co-founder and managing editor of investing website Dollars and Sense Timothy Ho, adding that the Government ultimately provides the basis of assurances that the returns to CPF Life premiums are guaranteed.
The converse is also true, as any annuity product offer fewer benefits to those who live shorter lifespans, he said, adding that this is part of the nature of annuities and why they are considered as a form of risk transfer.If one dies before 65 years old, before they can be enrolled in CPF Life, one's beneficiaries will receive their Retirement Account balance, which would have accrued interest from 55 years old onwards based on the CPF interest rate.
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