Thanks for the clarification.
I am going to try to explain this whole CPF Life thing and how
it links to the current Minimum Sum Scheme. The examples I use DO
NOT apply to everyone and are quite generic in nature. Information
I provide is for general education only. DO NOT take anything here
as a professional recommendation or professional advice. If in
doubt, do counsult a financial advisor.
All of us (working professionals or have worked before) have a
CPF account. This CPF account consists of 3 major components,
namely CPF-OA (Ordinary Account), CPF-SA (Special Account) and
CPF-MS (Medisave Account). During our working years, our CPF will
look something like this:-
CPF-OA
CPF-SA
CPF-MS
$100
000 $50
000
$30 000
Say you turn 55 years this year (2009), and the above is your
CPF Account Statement. What happens now? When you turn 55, a new
CPF component will be set up for you. This account is called the
Retirement Account - aka CPF-RA. When your CPF-RA is set up, funds
from your CPF-OA and CPF-SA will be transferred over to make up
what is known as the Minimum Sum. The Minimum Sum is an amount
dictated by the Government and increases every year ($117 000 in
Year 2009). Using the above example, your CPF account will now look
like this:-
CPF-OA
CPF-SA
CPF-MS
CPF-RA
$33
000
$0
$30
000
$117 000
Remember: CPF Board will clear out your CPF-SA first, then
followed by your CPF-OA to make up the Minimum Sum. If there is any
balance left in your CPF-OA or CPF-SA after making up the Minimum
Sum, you can withdraw it as cash (REMEMBER: this scenario only
happens when you turn 55 this year, 2009).
Now that this is explained, i shall move on to explain what the
MSS and CPF Life is. When you reach 62 years old, you will attain
what is known as the Drawdown Age (DDA). This is when your monthly
payouts begin.
The current Minimum Sum Scheme (MSS) is a 20 year insurance plan
also known as an annuity. An annuity is an insurance plan. What
happens is all the money in your CPF-RA ($117 000) will be taken to
pay you a monthly payout for the next 20 years, compounding at 4%
p.a. (till Dec 31 2009).
Then the Govt realised that people are living longer, and there
is a pertinent danger that they might outlive their savings (20
years of MSS payouts). So they decided to come out with CPF
Life,
CPF Life is VERY SIMILAR to the current MSS - the only
difference being CPF Life pays out monthly payouts FOR LIFE. The
current MSS only pays out for 20 years whereas CPF Life pays out
for life.Also, with CPF Life you can choose to receive a higher
monthly payout or a lower monthly payout, depending on which plan
you choose (there are 4 of them). With the MSS your payouts are
fixed and you cannot choose.
The above example used is very generic and does not apply to
everyone. In my next post I will elaborate on other aspects of
CPF.
Hope I've been of some help.
Thank you. This is very informative.
But back to my previous question - is there an admin fee / or
any other fee (?) that you need to pay to the government / CPF
Board from the CPF RA of $117,000 in your example since it is now
an annuity program?
Someone mentioned to me that there was - though exact details
could not be ascertained. 