if you are using IRR,
the calculation should start at the age of 55 since that's when you put in capital.
So Year 0 = - $166,000
Year 1 - 10 = 0 cashflow
Year 11 to X = $ 1,330*12.
The return would be about 2% to 4% depending on how long you live when I was playing with Excel.
That excludes bequest.
Not a great return but are there any better pension system or annuity out there? (I'm asking coz I don't know. I'm not saying this is the best)
No, because from Age 55 to Age 65, your money is like in CPF SA, earning the same kind of return as in SA, and not part of annuity.
Furthermore, we want to know what kind of return we getting from Age 65 onward, so we don't want to include the period from 55-65 whose return is already known. What we want is to calculate the return for the period that is hidden, and I bet many people don't know that it is not good though.
CPF Life as an annuity scheme is supposed to have higher returns than private pension/annuity scheme for following reasons:
1) Private annuity scheme need to pay insurance premiums to buy annuity cover (while CPF Life don't need because of the large critical mass - enforced on everybody over 55).
2) Private annuity scheme are for profit and want a big cut of the profits from managing the annuity. (CPF Life is supposed to be non-profit).
3) Private annuity scheme want fat management salaries. (Does CPF Life deduct a lot of money for fat management salaries?)
Minus the above, there should be a lot less costs and hence the return should be much higher than private pension annuity scheme and if CPF really still pays about 4% interest for your money withheld in CPF Life, a person should get close to 4% return if they live till average age (about 80 for men and 85 for women). Obviously, those who live less than average age get <4% to compensate those who live more than average age.
As of now, CPF Life's return for men who lives till men's ave age of 80 is -1.0%, that is why I question about the "annuity premium", why is it so high that resulted in low CPF Life's return?
The best would be to have full detail financial statements for CPF Life. Don't understand why CPF cannot provide? They don't have financial statements for CPF Life or they don't want to provide? Since CPF Life is a national scheme being enforced against people's will, obviously transparency of its financial statements is of utmost important (if they want people to have full trust in them).
Originally Posted by gentlemanofleisure