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CPF LIFE is not commercially viable. (Remove the CPF Annual Limit and...)

Wednesday, October 11, 2017

Read comments section: HERE.

In reply to AK's comment that not having a cap (i.e. CPF annual contribution limit) would be a burden to the system,


全自然 said...
I am not convinced how can more money by contributors in CPF be burdening the system. 

While the return of CPF is higher than fixed deposits or bonds, the money is locked almost permanently, well you get what i meant.

To give a comparison, a whole life insurance can give a compound return of 4%, the insurance company will welcome more money if you are willing to put in.








AK said...
I spoke to a CEO of an insurance agency before and he says that he does not even try to sell private annuities because there isn't any out there that is stronger than CPF LIFE.

The returns from private annuities simply cannot match CPF LIFE's.

What does this suggest?

CPF LIFE is not commercially viable. 




CPF LIFE exists largely because of government intervention.

If a product is not commercially viable, it is a burden to the provider.


For people with more money, once they have maxed out their CPF membership benefits, they can always get private annuities to supplement CPF LIFE if they like.




CPF LIFE is a part of CPF's strategy to help all members achieve a basic level of retirement adequacy.

All CPF members should take full advantage of this.


CPF LIFE is a basic safety net.

CPF LIFE will help in ensuring retirement adequacy for all members and there should be no argument about this.





CPF LIFE aside, paying 4% to 6% interest for savings in the CPF-MA, CPF-SA and CPF-RA is a huge burden. 

Even paying 2.5% per annum for our CPF-OA savings could be considered a burden to the system because our AAA rated Singapore government is probably able to access cheaper funds. 

This could change in future, of course.







If we have more money, we have to look elsewhere to stash it.


I am sure insurance companies will welcome our money but I am not sure they will be able to guarantee a return of 4% per annum. 

These days, such a guarantee would be quite a burden.



-----------------------------------------
Two blogs published earlier today:
1. Is AK right 6x out of 10x?
2. REITs and rights: Good at right price.

Related post:
Would you rather have it or not?

11 comments:

Spur said...

Hoho ... banks & property developers will be very unhappy if allow super rich to stash away unlimited cash in CPF...

We need the rich to oil the machinery of SG economy --- invest in startups, expand businesses, buy more properties, buy more Ferraris, buy yachts, buy helicopters, buy private jets, buy spaceships, Michelin dining, buy more stocks, accelerate the velocity of money...

If the rich all kiam kana like some of us here, don't think there'll be much to discuss about stocks & REITs on SGX sia hahaha!!!

AK71 said...

Hi Spur,

Who are the rich people here who kiam plenty plenty har?

I stay in private condo and have a car. So, not me. I am innocent. ;p

MSAPersonalFinance said...

Hi AK71,

CPF interest is not guaranteed but so far it doesn't really fluctuate.

AK71 said...

Hi MSA,

The CPF interest rates have been affirmed every six months for years. I believe the government is waiting for the 10 year bond's coupon to catch up before allowing the CPF interest rates to float.

Spur said...

Haha AK :) .... OK, ok you're doing your part! Heehee!

Kiam kana like me will surely crash SG's economy for sure (not that I'm rich horr)! I'm just glad that most people are helping to grease the economy! ;) Hoho...

AK71 said...

Hi Spur,

In the last few years, I have become less tight fisted with money. ;)

Bad AK! Bad AK!

AK71 said...

Shirl Wong says...
My own relative from tbe era where one can withdraw all cpf. Lucky he bought a small annuity using the cpf money but because it is a small sum, so what he gets also small. However he at least have a monthly sum to tie him over otherwise he will have no income now. People dont realise how important to hv annuity after retirement. Another friend have about few hundred thousands which he took out at age 55. All money gone and now have to depend on handout from children

AK says...
Many overestimate their ability to fund their retirement for a prolonged period.
This is what longevity risk means.
This is the risk which annuities are meant to address.

Resistor said...

My parents are retired, have RA and drawing a little from it each month. Can I top it up and increase the payout? does it make sense? thanks!

AK71 said...

Hi Resistor,

Yes, you can top up your parents' CPF-RA.

More in the CPF-RA means more interest income.

6% on the first $30K.

5% on the second $30K.

4% for the rest. :)

Your parents will have more retirement savings to draw upon. :)

AK71 said...

See:
Boost elderly parents' RA or MA?

AK71 said...

Jimmy Ng says...

many look at their kids for financial support, in a very traditional view.

but times & tides changes.

Remember the airline safety demo before each flight : take care ownself 1st, before helping others

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