Annuity & Retirement Plans in Singapore: What are they?
Retirement plans, also known as annuities, are plans that are meant to mitigate the risk of running out of resources when you’re retiring. Most retirement plans pay a regular monthly income for as long as you live. Other types allow you to collect a large lump sum amount upon maturity or have payouts in the last few years of the policy.
Depending on your needs and what you can afford, there are different plans that best suit you. Therefore, it is always best to consult with an independent financial advisor to obtain the best advice.
Some Singaporeans are unaware that by default, they already have retirement plans. In fact, the CPF Retirement Scheme and CPF Life are one of them!
But if you think you will need more than what CPF Life has to offer, read on!
When will you need annuity plans?
As mentioned in our retirement planning guide, most Singaporeans will have an annuity plan called the CPF Retirement Scheme or CPF Life if their Ordinary and Special Accounts have more than $5,000 combined when they turn 55. However, the amount you can withdraw monthly varies depending on how much you have left in your CPF, and also which payout plan you choose.
If you think this amount is insufficient to sustain your retirement years for whatever reasons you have, then private annuity plans are for you. The good thing about these annuity plans is that you can choose to purchase as many as you like, making it better for you to start planning as soon as you can.
Even if you think the payout by CPF Life is sufficient, you should continue reading on to have a better understanding of how getting additional retirement plans could complement CPF Life.
How should I choose the best retirement plans for myself?
Before looking for the best retirement plans in Singapore, you should first know what you should not look out for. Common features you shouldn’t be focused on are listed below.
- Non-Guaranteed Income
- Capital Guarantee
- Insurance Coverage
- Medical Declarations
Generally, retirement plans will promote a projected income which is divided into 2 parts – Guaranteed & Non-Guaranteed. The non-guaranteed income portion depends on the insurer’s participating fund performance. The guaranteed income, in the context of returns per annum, depends on the nature of the annuity plan and the insurer itself.
Do note that for retirement plans with Recurring Single Premiums (RSP), an early surrender of such plans will result in a major to complete financial losses. Therefore it is essential for you to ensure that you have sufficient financial capacity to commit to such plans.
Generally, retirement plans ensure that your capital, or principal sum that you’ve paid, will be guaranteed. Even if you pass on, your next of kin shall receive in equivalence to the premiums paid for the plan.
Some annuity/retirement plans in Singapore provide life insurance for Death, Total Permanent Disability, & Critical Illnesses. This could be an option should you wish to have an option to replace your income and ease any potential financial burden on your family.
Moreover, some plans allow you to attach an additional rider called Premium Waiver, which allows you to stop your premium payments in the event you contract a Critical Illness. This means the insurer will continue to ensure that your retirement policy’s premiums are paid up for as long as you are critically ill.
Retirement plans that provide insurance coverage do require you to go through an underwriting with the insurer. If you currently have any existing conditions, we strongly advise you to declare accordingly. Once it is declared, it is subjected to the insurer’s discretion to: incur an additional loading fee onto your premiums, exclusion of protection for your current condition, or outright reject your application altogether.
Otherwise, retirement plans that do not provide insurance coverage generally offer a Guaranteed Insurability Option (GIO). The guaranteed-insurability option (aka guaranteed purchase option) guarantees that you will be able to purchase the plan without providing evidence of insurability.
Things to look out for in an Annuity / Retirement Plan
There are 3 essential aspects of a retirement/annuity plan that you should look out for: Premium payment, Guaranteed Income, and Payout Period.
The premiums for retirement plans are based on how much retirement income you are planning to get. Before contacting a financial advisor, you should know truly how much retirement income would allow you to retire comfortably. From here, your financial advisor would be able to advise you on how much premiums you would need to pay.
It’s also important to take note that since retirement plans are provided by insurance companies, some of their annuity plans allow you to opt for insurance coverage, which requires a top-up of premiums.
Therefore, you’ll have to do your due diligence when you plan for retirement so that you will receive the desired retirement income.
Some insurers allow you to pay these premiums in “instalments” over a period of time. However, it’s best for you to discuss with a few financial planners to fully understand what types of premium payments would suit your needs.
Once you know what is your desired retirement income and know how much you’ll need to pay, the next thing to look out for is the guaranteed income component of the retirement plan. This number will be the amount that you will confirm be getting based on your premium payments.
The guaranteed returns are per annum are dependent on the nature of the annuity plan and the insurer. An annuity plan will provide you with a fixed yearly/monthly retirement income for your whole life, or for a specified period of time.
On the other hand, you could use investment plans instead to finance your retirement should you possess a greater risk appetite. With higher risks, comes with higher potential returns and therefore you could possibly retire earlier. However, note that investment plans are completely non-guaranteed and are completely reliant on the market performance of the selected external funds.
Depending on the retirement plan purchased, you can start getting payouts as early as 4 years from the date you’ve paid the premiums. There are annuity plans that even allow you to choose the age where you’d like to start receiving your retirement income.
The freedom to receive your payouts earlier could be a viable rationale for purchasing retirement plans. Currently, the CPF Retirement Scheme and CPF Life allow you to receive your payouts once you turn 65 years old. Therefore, retirement plans could be used to complement the CPF Retirement Scheme and CPF Life, should you deem that they are insufficient for your retirement or wish to have greater flexibility and control over your plan for retirement.
Retirement plans are an attractive option for you to increase your monthly retirement income. You put a portion of your salary into it and it comes back to when you retire. If you choose one with a capital guarantee, you’ll get it all back. To top it off, you’ll receive more from the non-guaranteed portion.
We have some articles compiling the various retirement / annuity plans from the different insurers in Singapore. The list is not conclusive as we’re still working on them, but do check out the articles here:
- China Life Retirement Plans
- AXA Retirement Plans
- Manulife Retirement Plans
- Aviva Retirement Plans
- NTUC Income Retirement Plans
Do also take note that the details mentioned in this article are merely guidelines that you should look out for when investing in an annuity plan. It is always best to talk to a trained professional before deciding on what’s best for your needs.