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The Issue of Annuities August 31, 2007

Posted by Ned Stark in Uncategorized.

There has been much buzz regarding the issue of annuities. Unfortunately because I was involved in other projects I did not have the time to do something on it; despite having wanted to do so.

The debate on annuities has moved on, with many bloggers having said their piece. There are those like Aaron who find the idea of being forced into buying annuities a tad distasteful, then there are those like Teh Si who believe that annuities are a viable solution.

Nevertheless, while my economics knowledge is very rusty (the last time i touched the subject was way back in my JC days) I must say that i find the idea of pay outs after 85 rather baffling. This is because the current life expectancy of Singaporeans is said to be around 82. Thus it seems that most Singaporeans may not live long enough to be able to catch a whiff of the pay out for their annuities. And I do not think annuities can be passed down from parent to child through a will or the intestate succession act.

Mr Wang however contends that the age is not that great a factor. This is because the life expectancy would be rising as the years go by. In fact he believes that advancements in medical technology could raise the life expectancy.

However, there is a slight catch to that view. While it is undeniably that new medical technology can increase the life expectancies of people, there is no guarantee that this technology would be accessible to the general public. If the cost of this technology is high, then the, for lack of a better word, “consumers” will mostly be those who are rich or rich enough to be able to afford it. Thus if the aforesaid is true then it will be the rich who will have a higher life expectancy and thus the rich who on reaching the age of 85 could be the ones benefitting from it. Of course the rich may be locked out of the annuity fund. But that still does not change the fact the poor may not benefit if they cannot reach the age of 85.

Perhaps a better alternative would be to lower the age to 75. This would allow the pay outs to reach a larger number of people. It will also reduce the scenes of the elderly collecting cans and digging through dustbins. (Ned was walking after midnight and was shocked to see an elderly woman walking around the HDB void deck with a large bag; she was actually collecting cans after midnight.) Indeed one elderly person forced to dig through garbage is one too many; it is hoped that concrete steps be taken to help these people.



1. mr wang says so - August 31, 2007

Life expectancy at 82 means that a fair % of persons will live past 82 years. 82 years is just average.

Lowering the age to 75 serves no purpose because those between (a) 62 or 65 years) and (b) 82 years already get their monthly payout from their minimum sum.

The life annuity is meant to provide a monthly payout for those who live past 82.

The point about medical technology is often misunderstood. We are not talking about “cutting edge” technology today. We are simply talking about the technology that will be available 10 or 20 years from now. What is expensive today will become cheap, standard and usual technology tomorrow.

One must not be so quick to equate poor to old, or even rich to longevity. The participation of all Singaporeans (rich or poor) in the annuity scheme is in fact beneficial to the poor, since this massive participation greatly lowers the cost of the annuity.

2. Ned Stark - September 1, 2007

Mr Wang,

I see what you mean. If that is the case then perhaps this annuity is not so bad as perceived. However the idea that the payout age is 85 while our life expectancy is lower doesn’t seem or feel right.

3. guojun - September 2, 2007

no, it is not right. Of course, advances in medical technology have been considered as well, and a rise in retirement age is definitely a trend we will see around the world as life expectancy rises. However, annuity payouts after most of us are supposed to be dead? And a compulsory one at that! So the money which we can’t draw if we unfortunately die 1 day before our 85th birthday will go to the government?

I wonder why we let ourselves get semi-swindled in the name of it being good for us time and time again. Like you, i agree that annuities may be viable, if the payout age is, say, 75 or 80. At least then, people wouldn’t grouse so much. Like i am grousing now.

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