New CPF Life Plan & GIC's 20-year annualized real rate of return
During the ASEAN's People's Forum 2016, I asked: Is Singapore’s model of not spending a single cent on public housing, public healthcare, pension fund and violating our rights to freedom of expression, assembly and rights to legal representation, a model they should follow?
Recently, the CPF Advisory Panel is proposing to introduce a new CPF Life Plan that will feature monthly payments that increase by 2 per cent every year.
However, those who opt for the CPF Life plan with “escalating payouts” will start with payments that are about 20 per cent lower compared to the current default plan.
Under the current CPF Standard Plan, a CPF member with about $80,500 on his accounts can expect to receive $720 a month for the rest of his life.
If the member chooses the new plan, he gets just $560 at the start. But this will increase every year.
By the time he is 75, his monthly payments will reach $680. And nine years after that, when he is 87, his monthly payments will grow to $860 a month.
This means that the increasing monthly payouts will reach the original $720 under the fixed annuity, at around age 78.
To take into the consideration of the time value of money (a dollar today is worth more than a dollar in the future) how long should one live in order to get a better deal out of the new plan?
GIC also released a 20-year annualized real rate of return, it was 4 per cent for the financial year ended March 31, down from the 4.9 per cent in the previous year.
This means that GIC enhanced its portfolio by an average return of 4 per cent per year, over and above the global inflation rate between April 1996 and March this year.
According to GIC’s annual report – “In nominal USD terms, the portfolio generated an annualized return of 5.7% over the 20 years that ended 31 March 2016.”
Does it mean that global inflation for the last 20 years was 1.7 per cent
(5.7% – 4.0% = 1.7%)?
Since GIC has released the 20-year annualized real rate of return and CPF is managed by GIC, why can’t the government be transparent and report the CPF interest rate in real terms too?
The CPF Ordinary Account interest rate has been at 2.5 per cent since 1999.
Now that the GIC said that their annualized return of 5.7% over the 20 years 4% year above the global inflation rate.
Doesn’t it mean that the real rate of return for our CPF is a mere 0.8 per cent
(2.5% – 1.7% = 0.8%)?
Is such a return by the Singapore government on our CPF fair to Singaporeans?
Recently, the CPF Advisory Panel is proposing to introduce a new CPF Life Plan that will feature monthly payments that increase by 2 per cent every year.
However, those who opt for the CPF Life plan with “escalating payouts” will start with payments that are about 20 per cent lower compared to the current default plan.
Under the current CPF Standard Plan, a CPF member with about $80,500 on his accounts can expect to receive $720 a month for the rest of his life.
If the member chooses the new plan, he gets just $560 at the start. But this will increase every year.
By the time he is 75, his monthly payments will reach $680. And nine years after that, when he is 87, his monthly payments will grow to $860 a month.
This means that the increasing monthly payouts will reach the original $720 under the fixed annuity, at around age 78.
To take into the consideration of the time value of money (a dollar today is worth more than a dollar in the future) how long should one live in order to get a better deal out of the new plan?
GIC also released a 20-year annualized real rate of return, it was 4 per cent for the financial year ended March 31, down from the 4.9 per cent in the previous year.
This means that GIC enhanced its portfolio by an average return of 4 per cent per year, over and above the global inflation rate between April 1996 and March this year.
According to GIC’s annual report – “In nominal USD terms, the portfolio generated an annualized return of 5.7% over the 20 years that ended 31 March 2016.”
Does it mean that global inflation for the last 20 years was 1.7 per cent
(5.7% – 4.0% = 1.7%)?
Since GIC has released the 20-year annualized real rate of return and CPF is managed by GIC, why can’t the government be transparent and report the CPF interest rate in real terms too?
The CPF Ordinary Account interest rate has been at 2.5 per cent since 1999.
Now that the GIC said that their annualized return of 5.7% over the 20 years 4% year above the global inflation rate.
Doesn’t it mean that the real rate of return for our CPF is a mere 0.8 per cent
(2.5% – 1.7% = 0.8%)?
Is such a return by the Singapore government on our CPF fair to Singaporeans?
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