Do anyone have any idea how is the CPF Life Payout amount computed? I understand there is a CPF Life Estimator available, however it does not explain how the value is derived. Any advice? - Seedly

Anonymous

21 Aug 2020

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Insurance

# Do anyone have any idea how is the CPF Life Payout amount computed? I understand there is a CPF Life Estimator available, however it does not explain how the value is derived. Any advice?

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Lena Teng

21 Aug 2020

Lead, Solutions & Investment at Moneyowl

CPF LIFE payouts are determined based on four parameters depending on 1. gender, 2. DOB 3. RA balances at age 65 4. expected returns on your CPF savings.

1. Gender - straightforward. Male get higher payouts compared to female because female live longer.

2. Date of Birth - these have implications on one's life expectancy. As CPF LIFE is essentially a longevity insurance, if each successive cohort of people starting payouts are expected to live longer, you can expect that their annuity payout rate would be adjusted downwards

3. RA Balances at age 65 - this is likened to the premium paid to join CPF LIFE. The more you have, the higher your payouts will be.

4. Expected returns on CPF savings - currently you earn up to 6% interest on your RA savings and/or CPF LIFE premiums. (Tiered interest - first \$30k earn 6%, next \$30k 5% and anything above is 4%). The projections on the estimator assumes a range of returns between 3.75% and 4.25% for the base layer. CPF LIFE payouts are assumed to keep paying at these rates.

Using these parameters into a formula determines the annuity payout rate for each CPF member turning 65, and thus how much payout they can expect to receive.

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Wow its very technical, and from what I learned myself.

Core concepts:
A) when you turn 55, your retirement account RA is setup using sums from your OA and SA. The general choices to set aside for the RA are either the BRS, FRS or ERS.

B) The amount set aside in RA grows for 10-15 years with a blend of interest rates from 4 to 6% (first 30k at 6%, next 30k at 5%, and remainder at 4%).

C) most important assumption to know - the cpf life payout now estimated to pay till age 90 (I think the previous assumption was 95).

D) one last variable to take note is when you assume payout happens, it can start when you are 65, or now latest it will start at 70 (cannot be deferred further).

If you take all the four points together, what cpf life tries to do is to recalculate how much payment the amount set aside in RA can be paid out to you from the 65-70 (you elected this - point D) to when you turn 90, considering the additional interest paid on the first 60k.

Choosing ERS plan further complicates the payout as it adds 2% additional payment each year, so you get paid less in the starting years, but a lot more as time goes by considering 2% yearly increment.

Once you gather the answers to the four points, it will just be a maths question..

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Duane Cheng

18 Jul 2020

Financial Consultant at Prudential Assurance Company Singapore

Hi there,

With regards to how your CPF life payout is computed, the baseline is always based on the...

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