SINGAPORE - A new CPF retirement plan to help Singaporeans cater for the rising costs of living in their golden years is in the works.

The CPF Advisory Panel is proposing to introduce a new CPF Life Plan that will feature monthly payments that increase by 2 per cent every year.

But it will come with a cost: Those who opt for the CPF Life plan - the national annuity scheme - with "escalating payouts" will start with payments that are about 20 per cent lower compared to the current default plan.

CPF Advisory Panel chairman Tan Chorh Chuan said on Wednesday (Aug 3) that the plan was configured this way to ensure that the system remains sustainable.

Panel member and actuarial consultant Colin Pakshong added that the panel is "constrained by simple mathematics".

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"Anyone who chooses the escalating payouts plan will have to decide if the trade-off in lower payouts at the start is worth the escalating payouts in the future," he said.

Under the current CPF Standard Plan - the default option - a CPF member with about $80,500 on his accounts can expect to receive $720 a month for the rest of his life.

If the member chooses the new plan, he gets just $560 at the start. But this will increase every year.

By the time he is 75, his monthly payments will reach $680. And nine years after that, when he is 87, his monthly payments will grow to $860 a month.

The new option is aimed at people who are worried about the rising costs of living late into their lives, especially with inflation eating into their purchasing power, added Prof Tan.

For those who want higher initial payouts, they can top up their CPF Life premiums, or delay the starting age for payouts up to age 70.

This recommendation, along with others including a new, simplified retirement investment scheme, came up on Wednesday at a press conference.

The 13-member panel, appointed in September 2014 after Prime Minister Lee Hsien Loong announced the CPF system review in his National Day Rally speech, first made suggestions to give members more say and greater retirement adequacy last February.

Recommendations then included letting members set aside three different sums at age 55 - a basic sum of $80,500, a higher sum of $161,000 or an enhanced sum of $241,500 - giving them monthly payouts of between $650 and $1,900 from age 65. It also recommended a lump-sum withdrawal at age 65 of up to 20 per cent of CPF savings.

The Government has implemented the changes and has accepted the latest suggestions.

In a letter to Prof Tan, Manpower Minister Lim Swee Say accepted the recommendations on behalf of the Government and thanked the panel for its work.

Noting the panel had been given a complex task, he described its recommendations as "both elegant in their simplicity and far-sighted".

He added: "The Government will work to implement the panel's recommendations and will proactively promote awareness and understanding of these new CPF options so that members can make informed decisions to better meet their retirement needs."