Proposed Compulsory Annuity vs MediShield

I love to link things up which I find similar. Now I see a very close pattern between the proposed annuity and MediShield, and I think the government would like to link both of them together as an example. Why the linkage? Because like MediShield, the proposed annuity is suppose to be low-cost, and provide a basic level of service. There will be additional "riders" which will increase the level of service. However, that's where the comparison ends.

Insurance is always treated as an expense. Why? Because you're buying something to offset a risk of something happening. Therefore, in the Medishield case, the base premium is very low, with a base level of "service", and therefore it worked.

For the proposed annuity, its a different ball game altogether. Annuity is NOT treated as an expense. It's like an endowment policy. You buy into the product, with the expectation that you will get something back in return, regardless of any conditions. In all the annuity and endowment products you see in the market (at least in Singapore), you will get something back. Sometimes you might not get back all your principal (that's another matter) but the key point is that you get something back. According to the bits and pieces announced, it seems like this is NOT the case for this proposed annuity.

This is definitely a big no no. Annuities, although offered by insurers, are not treated by the general public as an expense. It's treated as in investment product offered by insurers. In the case of annuity, every product that I know of will at least give back the principal to the buyer. Therefore, no matter how much you tweak it, this basic condition should still be there!

How to address the issue of longevity? I have another solution outside of annuities. Why not inflation-linked bonds?? The Singapore government can always issue special inflation-linked bonds designed just for the CPF-SA account (Should rename to the longevity account). Therefore, the payouts will increase in proportion to the inflation. This inflation-linked bonds can even be "linked" to GIC/Temasek returns.

This will silenced the critics in a few ways:

1. The purchasing power will not be reduced since the bonds are inflation-linked
2. In some way, the government is channeling the returns of the investments back to Singaporeans, instead of locking it away in some mysterious place, causing so much resentment.
   
3. Since its inflation-linked, the power of compound interests will increase our retirement funds substantially, therefore increasing the chance that our funds will not run out.
   

After which, the owner of the funds could have some options on withdrawal. They can spread it out to maybe 85 years old, 90 years old, 95 years old, etc etc. This will depend on the individual.
I hope some good will come out of this. If they really force us to buy an annuity where we are not guaranteed our principal, I will find some way to remove almost everything from my CPF. With the government changing the CPF rules every now and then, it is no more risk free.