THERE is merit in removing the Central Provident Fund Minimum Sum cap ("Call to remove cap on CPF Life top-ups"; last Wednesday).

There are those who have met their Minimum Sum but wish the cap can be removed, so they can get bigger payouts from CPF Life.

However, what will deter many people from contributing more to CPF Life is that the scheme's solvency is not guaranteed by the Government. This is spelt out under the CPF Act Section 27N(7), which states that no payment shall be made unless the fund remains solvent.

Under Singapore's Policy Owners' Protection Scheme, annuities purchased from Singapore-registered private insurers are protected, subject to an aggregate cap of $100,000 per life assured per insurer. Yet there is no such protection for CPF Life.

In any annuity scheme like CPF Life, it is possible for liabilities to exceed the value of assets. This is called underfunded status - another word for insolvent. It is caused by longer-than-expected life expectancies, insufficient investment returns and duration mismatch.

There are pension schemes in other countries that are underfunded and on the brink of collapse.

Although CPF Life's investments in Special Singapore Government Securities are safe, this does not mean its returns will always be sufficient to meet its long-term liabilities.

Guaranteeing the solvency of CPF Life will provide CPF members with peace of mind. It will also be in line with market practices.