By Chuin Ting Weber, CFP, CFA, CAIA 
CEO & Chief Investment Officer, MoneyOwl 

The lack of annuitisation options – instruments that transform a lump sum into regular, monthly pension payouts – in the otherwise “widely celebrated” Australia pension system is the topic of this Bloomberg article – link. 

Once retirees in Australia get their lump sum pension (invested during accumulation phase in portfolios of stocks and bonds which returns are passed through) they are at a loss. 

Contrast this with CPF LIFE.  

Here in Singapore, we have a very attractive annuity, provided by no less than a AAA-rated government.  

From this year, this annuitisation facility is upsized, with the change in the Enhanced Retirement Sum (ERS). 

Alas, no one is paid to “sell” this very good annuity.  

I always say that if there was a fee, or commission, and we put a commercial label on it (black and gold private banking colours, maybe?) CPF LIFE would sell like hotcakes.  

Instead, the more common topic is the closure of the Special Account at age 55, which for the more CPF affluent had functioned as a short-term bank account with 4% p.a. interest for some time.  

MAS actually sent out a sales circular recently to caution advisers not to misrepresent the changes in a bid to sell “replacements” to the Special Account.  

Since MoneyOwl under Temasek Trust doesn’t do direct selling — let us recommend firmly that Singaporeans achieve at least Full Retirement Sum (FRS) in their CPF, to get a CPF LIFE payout that forms your safe retirement income floor.  

For a handle on the numbers: for the cohort that turns 55 this year, the FRS is $213k, and the estimates corresponding payout at age 65 is around $1.7k per month for as long as you live.  

This may not give you a luxurious lifestyle, but that’s no reason not to capture it as a base.  

Whether you want to go further to ERS, there may be other considerations.  

We have a “CPFA” framework (Consistency, Probability, Flexibility, Accessibility) on considering additional income options mentioned in our Owlrubrics and expanded in Owlphilosophies Retirement ebook.  

Let’s make good use of the good stuff we have in Singapore. Not every country has this. We may not like everything in Singapore, but we’ve got some very good things others don’t! 

Let’s make a right, objective and unbiased judgement, and be more discerning about what we’re being sold.  

P.S. For info – in the latest Mercer-CFA Institute Global Pension Index for 2023, Singapore overtook Australia to be ranked 5th. 

Subscribe here for our soon-to-come and free OwlHoots on financial planning insights and analysis.

Disclaimer:
While every reasonable care is taken to ensure the accuracy of information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information and opinions expressed herein are made in good faith and are based on sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.