We took quite a few to do this post because there was a lot to read about Private Annuity Plans and a lot of the plans come with different terms and conditions.
We had spent quite some time to simplify and put them in ways comparable to CPF LIFE.
LINKS
What is CPF LIFE? Click HERE
What is a Life Annuity Plan? Click HERE
| Topic | CPF LIFE | Private Annuity Plan |
|---|---|---|
| Interest Returns | Guaranteed 4%+1% for your Special & Retirement Account*. | Potential yield of up to 4.25% upon maturity (AIA). Highest return we found. Potential & non-guaranteed returns. |
| Annuity Payment | Depends on perspectives** | 1) Fixed monthly payment while you work 2) 1 lump-sum payment |
| Money Paid to | Central Provident Fund (CPF) | Insurance Companies |
| Duration | Distribute money till death | 1) Distribute money till death 2) Distribute up to certain years (eg;20 yrs) |
| Early Death | The money that is undistributed to you in your monthly payouts will be given to your beneficiaries upon your death | Some policies will allow you to give the undistributed funds to your beneficiaries. However, not all allow this. |
| Outliving your Funds | CPF will continue to distribute to you your monthly income until death. However, no money will be given to your beneficiaries upon your death | Insurance companies will continue to distribute to you your monthly income until death. However, no money will be given to your beneficiaries upon your death |
*4% interest on Special & Retirement Account, and +1% for first combined $60k of Ordinary Account, Special Account, Medisave Account & Retirement Account.
**Could be 1-lump-sum payment because you are only enrolled into the CPF LIFE plan at age 55.
At age 55, your Retirement Sum is used to pay for your CPF LIFE.
You can also look at it as a monthly payment while you work. Because every month part of your salary is being channelled to the different CPF accounts, and ultimately that money is what forms your CPF LIFE money.
We will be posting about the limitations and disadvantage of using Private Annuity Plans instead of CPF LIFE.
Stay Tune!
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I understand that any interest earned after CPF Life starts the payout goes to a pool and hence the monthly payout remains fixed Is this right? Is it possible that with a private insurance, some, if not all, of interest earned goes to increasding the payout. This leads to an increase in the monthly payout over time. Has anyone had any experience of such policies?
ReplyDeleteHi,
DeleteFor the first qn: yes you are right, the interest earned goes into a pool that funds the future payouts.
If you want to have a CPF LIFE plan that increases its monthly payout every year, there is a new plan: CPF LIFE Escalating Plan - payouts increases 2% per year but starts at a lower monthly payout amount.
CPF LIFE is actually like every other annuity plan provided by insurance - except CPF LIFE is run by the Government. The monthly payout you get actually already factors in all the interests that the principal you put in will earn over the period of time. But, there are annuity plans that provides a "bonus" non-guaranteed payout - ie if the stock market performed well, you might get higher payout for that month compared to other months. But that bonus amount is not guaranteed.