Home  My Blog Show All Blog CPF Life 2 (Anti Selection)
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CPF Life 2 (Anti Selection) |
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Written by Wilfred Ling
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Friday, 15 February 2008 |
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The flexibility of allowing 12 options (specifying the deferred period) in the CPF Life annuity scheme seemingly provides choices for CPF Members. However, this opens up an anti-selection.
The scheme is already disadvantaged from the onset through official anti-selection by excluding certain members of the community. For those who are not exempted from the scheme, a person who is very unhealthy (or has a family history of short life expectancy) will be least interested in an annuity. From the announced structure, the only way to pay the least for the annuity is the Refund 90. On the other hand, those who is very healthy (or has a family history of long life) will be most keen to hedge against longetivity risk and thus will select the No-Refund 65. The No-Refund 65 will offer the highest monthly payout among all possible permutation. For any insurance scheme to work, the insurer must be careful of anti-selection. The CPF Board, being an inexperience insurer, must be careful when adminstrating the scheme as we do not want the tax payer to foot the cost of anti-selection. Perhaps it may want to consider farming out certain portion of its risks to re-insurers. |
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