Saturday, September 15, 2007

Annuity Chicken and Egg

Great, now we hear something sensible - that those people with chronic illnesses should be exempt from having to buy into the 'compulsory' annuity scheme announced by the Prime Minister in his National Day Rally speech. The reason is very simple. These people will definitely not live until 85, and thus forcing them to put aside their money for a life-long income stream, starting at 85, which they will never enjoy, is manifestly unjust.

Of course the Minister who suggested this, Mr Lim Boon Heng, has just opened a can of worms. If we want to be transparent about the whole thing, as this government trumpets a lot about, we raise the question of who else, or which group of people, would definitely not live until age 85. I see a scramble for various claims for this. In my case, I have a condition that insurance companies found necessary to 'load' my premiums for ANY insurance policy that I bought. This is a statement from them that my life expectancy is not considered, on probability, to be longer than most people. Since a professional actuary has made that decision about me, can I then be exempt from the 'compulsory' annuity scheme? If yes, then the pool of contributors to this annuity scheme will be reduced further by the number of people in a similar situation, calling into question the eventual attractiveness of the returns. If not, then, why not? You can't get any better advice from a professional actuary or doctor, can you?

Already, we are hearing that those who have already bought annuities will be exempt. Quite sensibly, why would anyone be forced to buy another annuity? My point really is that compelling people to buy into annuities is not a good idea at all. Instead, improving the attractiveness of annuity and then pursuading people to buy into annuities seems more sensible. But buying annuity remains a chicken and egg question. The way the Singapore government works is to slaughter the chicken first and create the egg, however that is going to be realised. But Singapore has been described as a miracle from day one. I suppose it intends to continue performing miracles, this time at the expense of its citizens.


George said...

There is only one way to go about it IMO.
And that is to create an annuity scheme and provide ALL the details for people to decide whether they want it or not.

This is the 21st Century and we are supposed to be a 1st world country. Yet, we are constantly asked to swallow patently questionable schemes and policies by the govt.

$350, per month is a pittance even now, what of it 30 years down the road? Looks like the planning is only limited to ensuring that senior citizens who live to 85 and beyond have the money to pay for their PUB charges?

One is hard put to believe that many would live to that age -the stressful pace of life here guaranteed by the govt itself guarantees that 50% and more would never see even 80 years- and of those who do, how many more years beyond that? Very hard to swallow that a significant number would ever approach 90.

Instead, the annuity scheme should provide for the money plus interest be RETURNED to the NOK on an member's demise before 85.

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