HAVE YOU GOT YOUR LONGEVITY RISK COVERED?
Singapore is experiencing a situation similar to those of many developed nations – a fast ageing population with decreasing fertility rate. The average lifespan of men and women have increased to 82.1 and 84.4 respectively, according to the Singapore Government's Department of Statistics in 2006.
A longer lifespan means that Singaporeans will need a larger pool of savings to last them through their post-retirement lives. However, in a study that Manulife Singapore conducted in May 2007, Singaporeans on average anticipate surviving for only another 9 to 12 years after retiring when in actual fact, they could expect to live on for at least another 17 years, thereby running the risk of outliving their resources.
Having noticed this, the Singapore government has been encouraging Singaporeans to plan for their retirement. Besides taking steps to educate and institute retirement planning and financial responsibility for each individual, initiatives have kicked in since January 1, 2008 to help Singaporeans stretch their retirement dollars are as illustrated in the table below.
Besides just relying on the government's initiatives, individuals should take a more proactive approach towards planning for a financially secure retirement. A retirement tool that they might consider is the annuity.
It is beneficial to purchase an annuity as early as possible. This is because the principal amount has a longer time to grow before the first payout, hence translating into a higher amount per payout. Annuitants will be able to enjoy their golden years even if they are not working, as they will receive an income stream. Hence, it will help them to manage longevity risk (1 in 2 persons are likely to live beyond 85 years) and they wont have to worry about running short of money as they advance in age.
There are three types of annuities in Singapore – deferred, immediate and variable. The deferred annuity is the most common type of annuity. CPF members are allowed to use all or part of the minimum sum to purchase one or more annuities with a single lump sum at age 55 for income stream payment to begin at age 62. Immediate annuities on the other hand can only be purchased with a single lump sum of cash.
| Ordinary Account (OA) | Up to $20,000 in OA and first $60,000 of combined Central Provident Fund (CPF) balances gets extra 1% |
| Special, Medisave and Retirement Accounts | Pegged to 10-year Singapore Government Securities plus 1%. The extra 1% from OA goes into SMRA |
| Special, Medisave and Retirement Accounts Guaranteed Interest Rate | At least 2.5% for all CPF accounts. 4% guaranteed for SMRA in first 2 years |
| Later Draw-Down Age (DDA) | By 2012. Minimum Sum Draw-Down Age will be raised to 65 years |
| Deferment Bonus (D-Bonus) | D-Bonuses will be given to those 55 and above from 1 May 2008 |
| Voluntary Deferment Bohus (V-Songs) | Members whose age falls between 54 and 63 in 2007 shall receive a V-Bonus for each year they delay their CPF drawn down up to age 65 |
However, in spite of all these benefits, fixed annuities like deferred and immediate annuities are not popular in the market. Their payouts are lower than the CPF's and people in general do not believe that they have the gift of longevity. They also underestimate their retirement needs due to a low awareness of longevity risk.
Variable Annuities (VA) are very popular in North America but new in Singapore. Manulife is the only insurer that provides VA in Singapore. Known as the Secure Retirement Plus (US$), it is a timely addition and a first in the market. It provides an innovative retirement solution with a predictable, sustainable and potentially growing income. Unlike fixed annuities, Secure Retirement Plus (US$) captures the upside from investment growth to give potentially higher returns, while providing guaranteed withdrawal for life from age 65.
With Secure Retirement Plus (US$), policyholders can start retirement planning as early as age 30 and have the flexibility to choose to receive 
income now, income later or income for life.
Income Now – Policyholders can receive a guranteed income stream payable immediately, meaning they can gain access to their subscription through a regular and guaranteed income stream over a period of 20 years by receiving five per cent of the Guaranteed Withdrawal Benefit (GWB) per annum immediately. The GWB is the amount guaranteed to be available to you for future withdrawals and is equal to your total subscription adjusted for any withdrawal, step-up or loyalty bonus.
Income Later – Policyholders can leverage on market growth with no downside risk, achieve continual growth for their retirement savings and enjoy a loyalty bonus when they elect to receive income later. The loyalty bonus works in such a way that when policyholders defer withdrawals for the first five policy years, their GWB will increase by 25 per cent. If they defer their withdrawals for 10 years, their GWB will automatically increase by 50 per cent. Hence. the initial GWB will increase to 150 per cent.
Income for Life – Starting at age 65, policyholders can choose to receive guaranteed income for life (five per cent of GWB at time of election). This income stream will never go down, will never run out, and has the potential to grow. They get certainty of income, regardless of how long they live.
Growing Income – Policyholders do not have to worry about risking their retirement money in all market conditions. In a rising market. the automatic step-up feature locks in market gains for GWB on every fifth policy anniversary up to age 80. In a declining market, their initial capital is secure and the level of their guaranteed retirement income will never go down. Even in a flat market, the loyalty bonus can increase the GWB to 150 per cent.
The Secure Retirement Plus (US$) offers a choice of three lifestyle portfolios for your investment. Each portfolio is specially designed with a blend of risk and potential reward characteristics that are consistent with your investment risk appetite and financial goals. Every dollar subscribed will be 100 per cent invested.
For further information on Secure Retirement Plus (US$), speak to your Financial Planner or call customer service at 6833 8188.