The compulsory annuity program that the government is thinking of is not a good idea in my opinion. This is simply because I believe by setting aside the money in a saving account for the members will be more feasible and better, as this will allow them to have their money return to them should they fail to live beyond age 85.
I did a quick calculation based on my understanding of the scheme:
1) Assuming that a sum is set aside at age 55, and can only start to withdraw at age 85.
2) Assuming that one live till 100 years old (which is highly unlikely, but for argument sake)
3) Assuming the scheme is to let one withdraw $300 per month.
4) Also assuming an interest rate of 4% (which is the current Special account interest rate)
With the above assumptions, we can calculate the Present value (PV) of the sum required to have for one in age 85. The PV is $40,558.
To achieve an amount of $40,558 from the time a member withdraw his money in age 55 to the age 85 is a thirty-year period. Therefore, by setting aside $12,505 at the age of 55 and compounded it at 4% over 30 years, one can easily meet the objective of having $300 per month.
The good thing about this saving scheme is that the member need not worry about whether he can live beyond 85 as it is just a saving scheme and upon his death, any outstanding sum can be returned to his family member.
I urge the government to consider this alternative instead.