To explain in layman terms, an annuity is something like a form of insurance, where you payout a lump sum of money and get back small amounts every month until the day you die – and this is something that the Singapore government is thinking of implementing in an attempt to cope with the ageing population and their possible increased cost of living and loss of income as they grow older.

There were 2 things that people were generally concerned about:

  1. what happens to the remains of the annuities when they die?
  2. is there a back out option?

The general feel is that the remains of the annuities should be returned to their next-of-kin should they pass on before the annuity runs out and that they should have an option to back out of the whole thing should there be a sudden need of cash from their side. It is after all their hard earned money and people are generally not willing to just give up a lump sum of money.

However, the common practice is for the insurance company to withhold whatever that remains after an annuity is paid upfront – meaning, if the insured were to pass on 1 month after having paid up, say, $100,000, the rest of the money would belong to the insurance company. This, in the view of the people, is generally not acceptable.

In view of this, the Singapore government is set to look at possible tweaks of this annuity concept to see if there is still room for improvement. After all, there are already plans to make annuities compulsory for Singaporeans, so it is naturally that the people would want the best for themselves.

SINGAPOREANS who fear they will lose the original sum they put into the impending compulsory annuities scheme could have a way out.

The committee studying the scheme is considering letting people have the remainder of their capital payment returned to their families if they died before it ran out. This will effectively remove one of the biggest sticking points over the compulsory annuity.

The idea is one of four suggestions emerging from the committee tasked by the Government to design a basic compulsory annuity plan.

Another idea is to rename the scheme from Longevity Insurance to something more positive sounding such as Long-Life Income.

Yet another suggestion is to get independent actuaries – financial experts who calculate risks and insurance rates – to verify the Government’s data on longer lifespans.

The fourth idea is to let people choose when they want to start receiving their payouts.

Manpower Minister Ng Eng Hen and the committee’s chairman, Professor Lim Pin, revealed these ideas in separate interviews with The Straits Times.

On the idea of getting back capital, Dr Ng said: ‘People don’t like the idea of others getting their money…So we are going to consider that they get whatever unused money back.

‘Of course, the interest can never come back because this is locked – the interest is pooled – but the sum that you put in at a particular age, if you don’t use it, it goes back to you.’

It will come with a trade-off though, noted Prof Lim. ‘You will have to pay higher premiums. It will be more expensive.’

An annuity is an insurance product in which a person invests a lump sum in return for a monthly payout for life.

The committee was formed after Prime Minister Lee Hsien Loong announced at this year’s National Day Rally that Singaporeans must buy an annuity so that they have an income for life.

Under the initial proposal, those below 50 will use part of their Central Provident Fund money to buy the annuity and start getting payouts at age 85.

But the committee will weigh all options and present its final recommendations by March.

On changing the name of the scheme, Dr Ng said the committee told him that people were uncomfortable with the thought of insuring against a good outcome, which is a long life. Usually, people take out insurance against illnesses, accidents, or death.

The Government has said that the annuities scheme is necessary, as more than half of those who make it to age 62 will live beyond 85 and they need to have money then.

But the committee found that some still need to be convinced of this data and hence, the independent actuaries.

Singaporeans are ‘quite trusting and the Government has never lied’, said Prof Lim. But as this is an issue involving their money, ‘the trust, maybe, needs to be enhanced’, he added.

Agreeing, Dr Ng said: ‘There’s no harm in appointing an independent actuary to have a second look.’

On when people can opt to receive their payouts, he noted that they wanted flexibility.

‘So we’re trying to consider, okay, you choose, any age from 65, 70, 75, 80, 85, 90.’

Singaporeans like trade officer Janagi Somu, 45, liked the idea of getting back his annuity capital.

He said: ‘It’s only right that the money goes back to our next-of-kin, since it’s our hard-earned money.’

Article obtained from on 8th December 2007

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