Last Updated on 8, June 2016
The following letter was published in Straits Times Forum page on 13 August 2014 regarding CPF Life solvency:
Guarantee CPF Life solvency for peace of mind
THERE is merit in removing the Central Provident Fund Minimum Sum cap ("Call to remove cap on CPF Life top-ups"; last Wednesday).
There are those who have met their Minimum Sum but wish the cap can be removed, so they can get bigger payouts from CPF Life.
However, what will deter many people from contributing more to CPF Life is that the scheme's solvency is not guaranteed by the Government. This is spelt out under the CPF Act Section 27N(7), which states that no payment shall be made unless the fund remains solvent.
Under Singapore's Policy Owners' Protection Scheme, annuities purchased from Singapore-registered private insurers are protected, subject to an aggregate cap of $100,000 per life assured per insurer. Yet there is no such protection for CPF Life.
In any annuity scheme like CPF Life, it is possible for liabilities to exceed the value of assets. This is called underfunded status - another word for insolvent. It is caused by longer-than-expected life expectancies, insufficient investment returns and duration mismatch.
There are pension schemes in other countries that are underfunded and on the brink of collapse.
Although CPF Life's investments in Special Singapore Government Securities are safe, this does not mean its returns will always be sufficient to meet its long-term liabilities.
Guaranteeing the solvency of CPF Life will provide CPF members with peace of mind. It will also be in line with market practices.
By the way, I recall a few years ago, Parliament did debate about this and decided not to guarantee CPF Life solvency. However, I cannot find the Straits Times article or any parliamentary Q&A on the Internet. Can someone point to me the URL link of that debate?
On 18 August 2014, Ministry of Manpower replied to my Forum letter. The following was published on the Forum page of Straits Times:
CPF Life is sustainable
MR WILFRED Ling wrote about the solvency of CPF Life ("Guarantee CPF Life solvency for peace of mind"; last Wednesday).
We assure him that the CPF Life scheme is designed to be fully sustainable.
First, monies in the CPF Lifelong Income Fund and interest paid on the monies are already fully guaranteed by the Government.
Second, if interest rates or life expectancies change significantly from what is expected, payouts can be adjusted to keep the fund solvent. This is in line with the best practices of well-run and sustainable pension schemes.
For these reasons, CPF Life does not need to be covered by the Policy Owners' Protection Scheme in Singapore, which covers insurance policies written by private insurers.
CPF Life members can be assured that they will receive payouts for as long as they live.
Income Security Policy Division
Ministry of Manpower
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