How is CPF annuity payout calculated?

I refer to the Ministry of Manpower’s reply “CPF system constantly enhanced for more retirement assurance” (Aug 19).

My letter “CPF system still flawed despite new proposals” (Aug 11) on CPF Life was pointing out the basic constraints on the CPF Board’s attempts to pay members better returns. I included suggestions as to how yields could be enhanced.

The reply does not address the issues but stated what Singaporeans have read before in news reports. I am unable to tell whether my suggestions were considered seriously.

Also, I derived the 3.5 per cent return using the online CPF Life Payout Estimator.

I am aware that an annuity scheme can apply different interest rates for different stages, such as an accumulation period, or vesting years, when the principal sum is compounded at the annual interest rate until the payout begins.

While the mature sum is much larger than the starting sum, I found the promised monthly payout for the period from withdrawal to end of life to be approximately 3.5 per cent per annum.

Perhaps the ministry would care to show the CPF Life computation, especially for the payout years where I was said to be incorrect.

I also understand that the inflation-protected payout is an added option. But is it an improvement to take away 20 per cent of the net present value and give back 2 per cent of future value annually?

How many years of lower payouts will a member have to accept before breaking even?

When I withdrew my CPF funds in 2001, I opted for a type of inflation-protected annuity that NTUC Income offered, called a participating annuity. After 15 years, my monthly payout has not increased.

From my experience, as far as maximising one’s hard-earned savings is concerned, a bird in the hand is worth two in the bush.