FAQ

Get answers to questions about the Lifetime Retirement Investment Scheme and CPF LIFE plan with escalating payouts.

Lifetime Retirement Investment Scheme

Why did the Panel recommend a new Lifetime Retirement Investment Scheme?

The Panel recognised that a significant number of CPF members, especially younger members who have higher expectations of their retirement lifestyles, prefer greater flexibility to take some investment risks in the hope of higher expected returns, so as to increase their savings for retirement. However, the current CPF Investment Scheme (CPFIS) has limitations for such CPF members. The current CPFIS offers a wide range of investment products to cater to a broad range of investor expertise and experience. However, it is not specifically designed to meet the needs of CPF members who wish to invest but feel they lack the financial expertise and/or time and resources to actively manage their investments.

There is a significant number of such CPF members. These members would benefit from an investment scheme that is simpler to choose from, and has significantly lower fees compared to the CPFIS.

What are the Panel’s recommendations on the broad features of the new Lifetime Retirement Investment Scheme?

Only CPF savings above $20,000 in the Ordinary Account (OA) and above $40,000 in the Special Account (SA) can be invested in the LRIS, similar to the current investment thresholds for the CPFIS.

The Panel’s has recommended that the Lifetime Retirement Investment Scheme have the following design features:

  1. Keep it simple: Comprise a small number of well-diversified funds, which are simple for CPF members to choose from. These funds should not rely on CPF members to actively rebalance their portfolios, and should help them enjoy the benefits of long-term investing. For example, for members with a sufficiently long investment runway, a fund with a life-cycle investment approach could be considered.
  2. Keep fees low: Low fees are achieved by reaping economies of scale through pooling investments in bulk, and adopting a passive management approach. Passive management also removes the risk of under-performing the market due to poor active fund manager selection.

What is the difference between CPFIS and Lifetime Retirement Investment Scheme?

The current CPFIS offers a wide range of investment products to cater to a broad range of investor expertise and experience. It is not specifically designed to meet the needs of CPF members who wish to invest but feel they lack the financial expertise and/or time and resources to actively manage their investments.

There are a significant number of such CPF members, and these members would benefit from an investment scheme that provides economies of scale and significantly lower fees compared to CPFIS, which currently operates on a retail model where funds are marketed and sold to CPFIS investors.

Financially savvy CPF members who prefer the greater flexibility of managing their own investments can continue to do so through the CPFIS.

The Lifetime Retirement Investment Scheme is meant to simplify the investment choices for those who are too busy to manage their investments or find the current CPFIS too complex.

Why did the Panel recommend that the Lifetime Retirement Investment Scheme contain a small number of well-diversified funds which help CPF members enjoy the benefits of long-term investing?

The Panel’s view is that a small number of well-diversified funds would be simpler for CPF members to choose from.

In addition, the Panel feels that investing for the long-term is an approach that CPF members should be encouraged to adopt when investing their CPF savings for retirement. CPF members who stay invested in the Lifetime Retirement Investment Scheme for the long-term have a better chance of riding out the market cycles and earning an expected return higher than the CPF interest rates.

Why did the Panel recommend only allowing CPF savings above $20,000 in the Ordinary Account (OA) and above $40,000 in the Special Account (SA) be allowed to be invested, similar to the current investment thresholds for the CPFIS?

The Panel recommended maintaining the current CPF investment limits for several reasons:

  1. The first $20,000 in the Ordinary Account (OA) provides a useful buffer for members who may need such funds for their housing needs. For example, members who fall into unemployment for a short period would have no fresh OA contributions and may need to access these funds to service their mortgage payments.
  2. The first $60,000 of CPF balances, including the first $20,000 in the OA and the first $40,000 in the Special Account (SA), earns an Extra Interest of 1%.

Today, 6 in 10 active CPF members aged 45 have SA savings in excess of $40,000, and this proportion is estimated to increase to 9 in 10 active CPF members aged 45 in 2030. If these CPF members participate in the Lifetime Retirement Investment Scheme and stay invested for the long-term, they would have an investment runway of at least 20 years before retirement which would allow them to ride out the market cycles and have a better chance of earning an expected return higher than the CPF interest rates.

When will the Lifetime Retirement Investment Scheme be available to me?

The Government will review the Panel’s recommendation and will provide more details to CPF members when ready.

CPF LIFE plan with escalating payouts

How did the Panel arrive at the rate of a 2% increase in payouts per year?

The 2% rate of escalation is in line with the historical 20- and 30-year average inflation rate, which is a reasonable estimate of future cost of living increases over the long term.

Why would a new CPF LIFE plan with escalating payouts have lower starting payouts than other CPF LIFE plans with level payouts?

The introduction of an additional CPF LIFE plan with escalating payouts provides members with the flexibility to choose different ways to spread out their payouts across their retirement years based on their needs. For the same annuity premium and payout start age, a CPF LIFE plan with payouts that increase over time would necessarily have starting payouts that are lower compared to a CPF LIFE plan with level payouts that do not increase over time.

Members who wish to opt for the CPF LIFE plan with escalating payouts, but also wish to receive a higher starting payout can consider two options:

  1. Top-up your CPF LIFE premiums and/or
  2. Delay your Payout Start Age, up to age 70. For every year that the Payout Start Age is deferred, CPF LIFE payouts will be permanently higher by approximately up to 7%.

For example, deferring payouts by about 4 years will ensure that members can receive the same starting payout as under the other CPF LIFE plans, and their payouts will increase by 2% every year thereafter. Alternatively members could also choose to do a combination of topping up their CPF LIFE premium and deferring Payout Start Age to achieve the same outcome.

Why did the Panel not recommend a new CPF LIFE plan that is fully indexed to inflation?

The Panel studied the possibility of introducing a CPF LIFE plan that was fully indexed to inflation, and decided against it for several reasons:

First, an inflation-indexed CPF LIFE plan provides less certainty on the actual level of future payouts as the rate of annual increases will fluctuate from year to year.

Second, if the cost of living goes down, an inflation-indexed CPF LIFE plan’s payouts would drop, and this may not be acceptable to members.

Third, the Panel was concerned with operational feasibility. An inflation-indexed CPF LIFE plan would be more complex to implement as it would require a new inflation-indexed asset class to enable CPF Board to hedge against its liabilities of monthly payouts in real terms.

On balance, the Panel felt that a CPF LIFE plan with payouts that escalate at a set rate of 2% would give members greater assurance and certainty and help with planning for their retirement.

When will the new CPF LIFE plan option be available to me?

The Government will review the Panel’s recommendations and will provide more details to CPF members at a later date.

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