Interest Earned Under CPF LIFE Cannot Be Bequeathed

Mr Png Eng Huat asked the Minister for Manpower since the inception of CPF LIFE (a) how many CPF members have foregone their earned interest upon their demise; (b) what is the total amount of forgone interest deposited into the Lifelong Income Fund to date; and (c) whether members are made aware that the interest earned under CPF LIFE does not come under their estate and cannot be bequeathed should there be any unused annuity premium to be refunded.

CPF LIFE has become a key pillar of our retirement system since it was introduced a decade ago in 2009. CPF LIFE protects Singaporeans against longevity risk, by providing them with a monthly retirement payout for life. This ensures that CPF members will not outlive their savings, even as life expectancy increases. Let me explain how it works.

Members join CPF LIFE today when they are ready to start their monthly payouts. They do so by committing a sum of CPF savings to a CPF LIFE plan. This sum is known as a 'premium', similar to how one would purchase an insurance cover. The interest that is earned on CPF LIFE premiums is pooled into the Lifelong Income Fund. This interest is up to 6% per year, comprising the base interest of 4% and 1% each from Extra Interest and Additional Extra Interest.

Each member's premium is used to provide him with monthly CPF LIFE payouts. However, when the premium is exhausted, the member will continue to receive monthly payouts by drawing on the pooled interest. For example, if a member commits $60,000 to CPF LIFE under the Standard plan and starts payouts at 65, his premium will be exhausted at the age of 79 and he will then continue to receive payouts from the pooled interest for as long as he lives.

In other words, through the pooling of interest, the member is effectively shielded from the risk that he will outlive his savings. In fact, Mr Png recognised this when he told this House in 2014 that CPF LIFE was a better scheme as it guaranteed payouts for life. But Mr Png is incorrect to describe the pooled interest as "forgone" because as I explained, every CPF LIFE member has a chance to draw on it once his own premiums have been fully paid out. He could even draw more from the interest pool than he put into it.

The pooled interest ultimately benefits the members of CPF LIFE. Moreover, because the interest earned is risk-free and the membership pool is very large, CPF LIFE members receive one of the highest payout per dollar of premium, compared to similar annuity products in the market.

A member and his loved ones will also always get back his CPF LIFE premium in full, in the form of monthly payouts and/or bequest, no matter what age he lives to. When a CPF LIFE member passes on, any unused premium will be distributed to the deceased member’s nominees. This is clearly communicated to members in the CPF LIFE application form and the yearly CPF LIFE payout statement.

CPF LIFE is a relatively young scheme. Members who currently receive CPF LIFE payouts have voluntarily opted into CPF LIFE at various ages. The first mandatory cohort of CPF LIFE members will only reach their payout eligibility age in 2023. However, in the long run, we expect a large majority of CPF LIFE members to draw payouts from the pooled interest. In any case, all members can be assured that their premiums are fully safeguarded for them and their loved ones. And what interest remains in the pool ultimately benefits members through lifelong payouts.

CPF Board has stepped up its efforts to help members make informed choices on their CPF LIFE plans. For example, the CPF LIFE estimator on the CPF website allows members to estimate their payouts and bequest amounts at different ages. The Board also offers a CPF Retirement Planning Service to all members reaching 55 years old, and their Payout Eligibility Age. This is a one-to-one session whereby a CPFB officer provides personalised guidance to the member, such as the various CPF LIFE plans they can choose from and the estimated payouts depending on the amount set aside. I hope that Members can encourage their residents to make full use of this Service and to approach CPF Board if they have queries about CPF LIFE.