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Annuity

The issue of annuity has floated back up as the Lim Pin committee has made certain recommendations, in particular the idea that those who die early should get back the "unused" part of their initial sum; in other words, the scheme is no longer an annuity at all, since the idea of that is those who die early should subsidize those who live long, with each receive a steady income for life. The proposed scheme is just a gradual withdrawal of one's final saving with CPF.

I provide some crude arithmetic of how this might; suppose you have a minimum sum of 100K with CPF (right now the prescribed sum is less, but close, and I assume it will be further increased so 100K is a realistic approximation), and interest rate is 4%; each year you withdraw the interest earned plus an additional amount, say $2000, giving a monthly income of $500; so we have the following tabulation:

amount      interest        withdrawal         remainder

100000        4000            2000                98000

 98000         3920            2080                95920

 95920         3837            2163                93757

 95357         3750            2250                91507

 91507         3660            2340                89167

 89167         3567            2433                86734

....

Because each year less interest is earned, the reduction in the principle accelerates as time goes, and I guess the total would last about 40 years. (Maybe you would write a little program to produce a complete table? I am too lazy) If payments start at age 80 and in the rare case of someone living to 120, I guess the government could continue paying him/her (more likely her, as women live longer) till death, subsidizing them from general tax revenue, or CPF could subsize them, meaning that the burden is born by CPF contributors generally.

However, I think part of the minimum sum will be paid out for the period 65-80, possibly at a different monthly output, so you actually should assume a starting age of 65, not 80; now the chance of living to 105 is still small, but not negligible, and the need for subsidy, and who should pay, is something to be faced.

 

13 Feb 2007

at last we have concrete information about the annuity scheme; I now understand why it is possible to make the scheme "refundable" and provide an adequate payout without subsidy:

if you commit 100% of the minimum sum (now specified at $67K) at age 50, a male is entitled to $640 per month till death from age 65 onward; now over 15 years at 4% interest, the amount would have grow about 80%; hence, you are in effect paying 120K into the scheme

further, I am not sure what "refund" means: maybe

a. if you die before reaching 65, you get back the $67K, or

b. you get back $67K plus interest accumulated so far;

and if you die after reaching 65, say age 66, do you get back a portion of the $67K? - if you do, then the scheme is not really an annuity, but a gradual withdrawal, but I suspect the answer is no, and the scheme is indeed an annuity, with money forfeited from those who die early going to fund those who live long

 

 

If you live to 65, there is 50% chance you will still be alive at 85 - this was used to argue for the need to obtain annuity that starts a payout at 85; but actually, what matters is not whether you survie to 85, but how long you live after that, i.e., the duration in which you get paid your annuity. Here some tables from the Singapore statistics dept is very useful

http://www.singstat.gov.sg/pubn/reference/yos/statsT-demography.pdf

in particular the following numbers

       
  

There were were 28800 men 75 years or older in 1996, 42600 women, and 10 years later the same people were 85 or older, and the numbers were 8300 men and 16300 women. (Some of the 1996 people may have moved elsewhere, and some of the 2006 people may have come from elsewhere, but I would think the numbers involved would be very small.) You can also see that, of the approximately 80K people in the 65-69 age group in 1996, only 57K were alive in 2006. However, the age 65-9 group has grown much larger in the mean time, and more of them will be alive in 10 or 20 years.

With a more detailed table, you can get a good idea of survival rate and the number of people around to draw annuities in a particular year.

By re-organizing the table layout, the following figure directly compares the same population group across 10 years; the younger groups show increase because of immigration - not sure why so many more girls than boys are coming in; and why are there significantly more small boys than girls? have people been using selective abortion like in China and India? but girl numbers got greater as you go to older groups, presumably more girls are coming in with their parents, maybe some as students on their own. Note in the middle age groups men out number women again, presumably because of single men migrating here while single women migrating are much fewer.

while I am at it, the latest birth chart, showing that the fertility situation has remained the same as 2003 when new measures to encourage population increase were introduced by the government- the bars show the no. of live births per year for 45 years, while the black line shows the no. of babies per resident female.

Note the recent fashion to have more babies in the dragon years, fewer in tiger years.

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Obituaries

Why so few of the oblituaries involve people daying after 85? The fact this was discussed by a cabinet minister in a public session again shows how involved the Singapore government is in every aspect of the people's life. The issue comes up because of the compulsory post-85 annuity purchase proposal.

When a person dies after 85, he/she probably has few surviving friends, and those still alive would be inactive. In fact, some of his/her children may be already retired, or even dead.

When my father passed away at the age of 88, we did not bother to put out an newspaper oblituary, and expected no one to turn up at the wake besides ourselves, and no one did.