CPF Life will absorb all of a member’s accumulated interest if they die early

According to the Central Provident Fund (CPF) Board’s website, all interest an individual member accumulates on annuity premiums will be absorbed by CPF Life if they pass away early. The interest will not be passed on to the individual member’s beneficiaries, if they pass on early.

CPF LIFE is a life annuity that provides members with a monthly payout from the payout eligibility age (PEA) of 65 years old for as long as they live. The scheme is bought using an individual’s retirement sum that will be deducted as an annuity premium.

All Singapore Citizens and Permanent Residents born in 1958 or later and have at least  S$60,000 in their Retirement Account six months before they reach age 65 are automatically included in the CPF Life scheme. Citizens and PRs who do not meet this requirement can still apply to join the scheme.

A fact-sheet on CPF Board’s website reveals exactly what happens to CPF Life premiums when an individual member passes on. It reveals that the unused annuity premium, remaining Retirement Account savings and other CPF savings will be paid to the individual’s beneficiaries as part of a bequest.

The scheme, however, will not pay out the interest earned on annuity premiums as part of the bequest. The accumulated interest will instead go into a pooled fund that will be used to fund lifelong payouts to other members of CPF Life:

Another clarification elsewhere on CPF Board’s website gives a confusing answer to what would be paid out to an individual member’s beneficiaries when they pass on.

To the question of whether a member will lose all their money if they pass on early, the national pension scheme explained: “You and your loved ones will always get back at least the amount that you have put into CPF LIFE, in the form of payouts and/or bequest, no matter what age you live to.”

The clarification that beneficiaries will get “at least” the amount a CPF member put into CPF Life suggests that they may possibly get more as part of the bequest or other payouts.

Calling this explanation “misleading,” statistician Leong Sze Hian has written in the past that the wording of the explanation “may give the impression that you may get more than what you have put into CPF Life if you pass away early whereas the fact of the matter is that “the interest earned on annuity premiums does not form part of the individual member’s bequest””

He asked: “Are there any national pension schemes in the world that eats up all your accumulated interest when you die early – only pays your beneficiaries the difference between your upfront premium and your total monthly annuity payouts received – and nothing at all if the total payouts exceed the premium?”

Meanwhile, a recent video CPF Board posted on its Facebook page, urging Singaporeans to begin topping up their retirement sum earlier in their 20s, has received criticism.

Urging Singaporeans to join the Retirement Sum Topping-Up Scheme, CPF Board promised: “Don’t underestimate the power of starting your savings early – with compound interest, the amount you save today can translate to huge returns over time!”

Several netizens criticised the agency’s call and asserted that CPF is not a bank and that its advertisement makes it seem as though it is “selling insurance with non-guaranteed returns”:

/TISG