Can people buy insurance against the risk of high inflation?
My answer is "yes". But it cannot be done by commercial insurance companies. It requires a new way of thinking on the role of governments and the free market system.
I shall give my views on this matter within the next few weeks, either in this blog or in www.theonlinecitizen.com
Wednesday, June 11, 2008
Civil servants and part time jobs
I read a news report that the Malaysian Government now officially allows its civil servants to do part time work to earn a supplemental income to meet the rising cost of living.
There is a risk that the civil servant may abuse their official position for personal advantage. I wonder how they will manage this risk?
But the underlying problem is the need to give higher wages, at a time when the Malaysian Government face a budget constraint.
What is the solution? Can the free market capitalist system find a solution? Financial speculation, which is a key part of this system, appears to be the major source of the problem.
There is a risk that the civil servant may abuse their official position for personal advantage. I wonder how they will manage this risk?
But the underlying problem is the need to give higher wages, at a time when the Malaysian Government face a budget constraint.
What is the solution? Can the free market capitalist system find a solution? Financial speculation, which is a key part of this system, appears to be the major source of the problem.
Terminal bonus lead to Equitable Life's failure
Hi Mr Tan,
Guarantees cost more money. Why does terminal bonus (with less guarantees) contributed to the Equitable Life's failure?
1) Penrose report, chapter 14, para 185 and 186 analysed some financial data :
185. In 1983, the investment reserve was approximately 37% of the long-term liabilities. In 1999, it was approximately 17%. Over the period 1986 to 2000 terminal bonus payments increased by more than 14 times. Further from 1983, the mix of reversionary to terminal bonus shifted in favour of terminal bonus.
186. ...the accelerating growth in terminal bonus payments was fairly consistent over time... Had the Society recognised terminal bonus in its statutory accounts and regulatory returns on any basis consistent with PRE, its financial weakness would have been exposed throughout the 1990s.*
This shows that the Equitable was diverting free assets into terminal bonus payments. More importantly, it implies that reversionary bonus that requires prudent reserving (ie setting aside money) for all generations of policyholders is a fairer approach and helps to avoid misappropriation of funds.
2) Lets see what a policyholder had to say (http://www.emag.org.uk/index.htm?documents/assessment_28112003.html~content) :
.... throughout the 1990s Equitable declared bonuses well in excess of the value of assets to improve its marketing appeal. In consequence it was paying out departing policyholders in excess of their asset value with money from new investors. This pyramid selling left a hole of some £3bn which all policyholders who did not leave before July 2001 have paid for in savage reductions in policy values...
3) How did Equitable declare bonus in excess of the value of assets? My understanding is as follows :
- management was driven by growth (ie new business)
- terminal bonus is not guaranteed and is more flexible to increase/decrease
- so management started to shift more to terminal bonus, projecting high terminal bonus (to attract customers)
- these bonuses were not sustainable, but the terminal bonus had become a marketing tool (decreasing it will lose market share)
- so management misused the investment reserve, using it to pay high bonuses to maturing policyholders at the expense of younger generations
- management thought that since terminal bonus is not guaranteed, they can always decrease it
- management thought that when the investment market booms, all problems will be solved but investment did not boom
- effectively, they had a ponzi scheme running which did not hold up in the courts
4) How reversionary/annual bonus could have prevented the collapse?
- imposes more discipline, ie set aside provisions for bonus, ensure unsustainable bonus are cut, control new business growth
- fairer way to share profits with all generations of policyholders and not just the maturing/claiming ones
5) Why do different actuaries have different opinions?
Quoting a friend : "the one who pays the piper calls the tune".
Yew Ming
Guarantees cost more money. Why does terminal bonus (with less guarantees) contributed to the Equitable Life's failure?
1) Penrose report, chapter 14, para 185 and 186 analysed some financial data :
185. In 1983, the investment reserve was approximately 37% of the long-term liabilities. In 1999, it was approximately 17%. Over the period 1986 to 2000 terminal bonus payments increased by more than 14 times. Further from 1983, the mix of reversionary to terminal bonus shifted in favour of terminal bonus.
186. ...the accelerating growth in terminal bonus payments was fairly consistent over time... Had the Society recognised terminal bonus in its statutory accounts and regulatory returns on any basis consistent with PRE, its financial weakness would have been exposed throughout the 1990s.*
This shows that the Equitable was diverting free assets into terminal bonus payments. More importantly, it implies that reversionary bonus that requires prudent reserving (ie setting aside money) for all generations of policyholders is a fairer approach and helps to avoid misappropriation of funds.
2) Lets see what a policyholder had to say (http://www.emag.org.uk/index.htm?documents/assessment_28112003.html~content) :
.... throughout the 1990s Equitable declared bonuses well in excess of the value of assets to improve its marketing appeal. In consequence it was paying out departing policyholders in excess of their asset value with money from new investors. This pyramid selling left a hole of some £3bn which all policyholders who did not leave before July 2001 have paid for in savage reductions in policy values...
3) How did Equitable declare bonus in excess of the value of assets? My understanding is as follows :
- management was driven by growth (ie new business)
- terminal bonus is not guaranteed and is more flexible to increase/decrease
- so management started to shift more to terminal bonus, projecting high terminal bonus (to attract customers)
- these bonuses were not sustainable, but the terminal bonus had become a marketing tool (decreasing it will lose market share)
- so management misused the investment reserve, using it to pay high bonuses to maturing policyholders at the expense of younger generations
- management thought that since terminal bonus is not guaranteed, they can always decrease it
- management thought that when the investment market booms, all problems will be solved but investment did not boom
- effectively, they had a ponzi scheme running which did not hold up in the courts
4) How reversionary/annual bonus could have prevented the collapse?
- imposes more discipline, ie set aside provisions for bonus, ensure unsustainable bonus are cut, control new business growth
- fairer way to share profits with all generations of policyholders and not just the maturing/claiming ones
5) Why do different actuaries have different opinions?
Quoting a friend : "the one who pays the piper calls the tune".
Yew Ming
Principal Guaranteed, Principal Protected
Hi Mr. Tan,
Let me explain what I know about the difference since I have held some of these products before:
Principal Guaranteed – The issuer (not necessary the bank selling you the notes) guarantees it. As long as the issuer does not go bankrupt you should be safe. However the issuer of such notes are usually special vehicle companies set up by reputable banks such as Merril Lynch. So the vehicle goes bankrupt the bank itself is not affected. Not sure if that is their intention but I read it as so. But generally I think it is quite safe.
Principal Protected – Usually the issuer takes your money and go purchase a zero coupon bond and so get a discount upfront. It is protected as long as the bond issuer do not default. As I understand it the bonds invested are usually rated A+ and above (does not really mean much as Lehman Brother bonds are also rated A+). The money they get from the original discount is then used to “invest” in a risky way , i.e. options, currency and whatever. Once they have lost all your money thru these risky stuff and taken their fees, then they tell you now you are sitting on a zero coupon bond and waiting the next 5 years with zero payment.
Basically my point is that these products are TOTALLY NOT TRANSPARENT and USUALLY DO NOT EVEN give return of FD over the 5 years. If the investor wants to get that 1-2% more than FD, I suggest they go buy bond themselves and invest the rest. Sorry just my 2 cents....I do get quite passionate about this as I have seen many people suckered into such deals.
C
REPLY
Thank you for the explanation. I agree with your explanation.
Let me explain what I know about the difference since I have held some of these products before:
Principal Guaranteed – The issuer (not necessary the bank selling you the notes) guarantees it. As long as the issuer does not go bankrupt you should be safe. However the issuer of such notes are usually special vehicle companies set up by reputable banks such as Merril Lynch. So the vehicle goes bankrupt the bank itself is not affected. Not sure if that is their intention but I read it as so. But generally I think it is quite safe.
Principal Protected – Usually the issuer takes your money and go purchase a zero coupon bond and so get a discount upfront. It is protected as long as the bond issuer do not default. As I understand it the bonds invested are usually rated A+ and above (does not really mean much as Lehman Brother bonds are also rated A+). The money they get from the original discount is then used to “invest” in a risky way , i.e. options, currency and whatever. Once they have lost all your money thru these risky stuff and taken their fees, then they tell you now you are sitting on a zero coupon bond and waiting the next 5 years with zero payment.
Basically my point is that these products are TOTALLY NOT TRANSPARENT and USUALLY DO NOT EVEN give return of FD over the 5 years. If the investor wants to get that 1-2% more than FD, I suggest they go buy bond themselves and invest the rest. Sorry just my 2 cents....I do get quite passionate about this as I have seen many people suckered into such deals.
C
REPLY
Thank you for the explanation. I agree with your explanation.
Can you read this?
Only people with minds can read this
This is weird, but interesting!
fi yuo cna raed tihs, yuo hvae a sgtrane mnid too
Cna yuo raed tihs? Olny 55 plepoe out of 100 can.
i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg. The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are, the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset ca n be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe. Azanmig huh? yaeh! and I awlyas tghuhot slpeling was ipmorantt! If you can raed tihs forwrad it.
This is weird, but interesting!
fi yuo cna raed tihs, yuo hvae a sgtrane mnid too
Cna yuo raed tihs? Olny 55 plepoe out of 100 can.
i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg. The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are, the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset ca n be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe. Azanmig huh? yaeh! and I awlyas tghuhot slpeling was ipmorantt! If you can raed tihs forwrad it.
Tuesday, June 10, 2008
Another new structured product
Hi Mr Tan,
I received an email about Jubilee Series 8 Notes. In the factsheet, it is stated that principal is 100% protected if held until maturity date. May I know the difference between Capital Protected and Capital Guaranteed? What other risks that I should be made aware of?
I received this reply from the marketing officer:
Good News as the interest rate has been revised from the original 2.7% to currently 3.15%. Its selling out fast. Please call my mobile phone now. Principal protected - there is a condition. You have to hold this note till maturity date of 2.5 years. Principal guaranteed - misleading that its guaranteed at all times under all conditions, even upon early termination. No hidden risks. Only thing is have to hold till maturity to avoid principal loss. Interest rate is guaranteed.
JP
REPLY
From my reading, "principal protected" means that it is "not guaranteed". So, I do not really understand what "principal protected" really means. Someone explained to me previously that it means "we will do our best to protect your principal, but we do not give any guarantee". I always avoid investments that I do not understand.
I avoid structured financial products. I do not let the issuer of the structured product take away my investment gain through their high charges. My views are explained in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
I prefer to invest in Government bonds (low risk, 3% or more), or well rated corporate bonds (4-5%) or shares (high risk, high reward). I pay low cost and get the actual return (commenusrate with risk).
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I received an email about Jubilee Series 8 Notes. In the factsheet, it is stated that principal is 100% protected if held until maturity date. May I know the difference between Capital Protected and Capital Guaranteed? What other risks that I should be made aware of?
I received this reply from the marketing officer:
Good News as the interest rate has been revised from the original 2.7% to currently 3.15%. Its selling out fast. Please call my mobile phone now. Principal protected - there is a condition. You have to hold this note till maturity date of 2.5 years. Principal guaranteed - misleading that its guaranteed at all times under all conditions, even upon early termination. No hidden risks. Only thing is have to hold till maturity to avoid principal loss. Interest rate is guaranteed.
JP
REPLY
From my reading, "principal protected" means that it is "not guaranteed". So, I do not really understand what "principal protected" really means. Someone explained to me previously that it means "we will do our best to protect your principal, but we do not give any guarantee". I always avoid investments that I do not understand.
I avoid structured financial products. I do not let the issuer of the structured product take away my investment gain through their high charges. My views are explained in this FAQ:
http://www.tankinlian.com/faq/sinvest.html
I prefer to invest in Government bonds (low risk, 3% or more), or well rated corporate bonds (4-5%) or shares (high risk, high reward). I pay low cost and get the actual return (commenusrate with risk).
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Public Facilities need to be improved
Read my article in The Online Citizen:
www.theonlinecitizen.com
http://theonlinecitizen.com/2008/06/public-facilities-need-to-be-improved/#comments
www.theonlinecitizen.com
http://theonlinecitizen.com/2008/06/public-facilities-need-to-be-improved/#comments
New Zealand Dollar Deposit
Dear Mr. Tan,
I will like to have some advise from you. Now NZ$ exchange rate is 1.0447 bank rate for deposit in FD. Do you think is it the right time to deposit NZ$ fixed deposit now? Thanks.
M
REPLY
I am sorry that this is not my area of expertise. It is difficult to time the market.
I have some of my money on NZD deposit. I think that the current level (which represents a fall from the recent high) should be okay, and the interest rate is above 8% per annum. All the best.
I will like to have some advise from you. Now NZ$ exchange rate is 1.0447 bank rate for deposit in FD. Do you think is it the right time to deposit NZ$ fixed deposit now? Thanks.
M
REPLY
I am sorry that this is not my area of expertise. It is difficult to time the market.
I have some of my money on NZD deposit. I think that the current level (which represents a fall from the recent high) should be okay, and the interest rate is above 8% per annum. All the best.
Comment - risk of high terminal bonus
Hello --
It is an excellent point, Mr. Tan.
Obviously, terminal bonuses are higher than annual bonuses. Doing that -- pushing most of the bonuses to the end the policy -- puts the policyholders' fund at risk IF the courts would decide the company cannot simply walk away from its obligation to pay its terminal bonus, as promised.
That is what happened in the case of Equitable Life in UK. Equitable couldn't pay and it went broke.
Are Singapore insurers also at risk?
Well, it depends. In the case of NTUC Income, it gave its assurance at its recent AGM (May 30) that it would not walk away from its terminal bonus. It would pay it.
In a way, that is good for policyholders.
On the other hand, such a statement sounds very much like "an obligation".
Requiring NTUC Income to keep its promises (to meet its obligations) could be expensive for the company.
As mentioned, it was prohibitively expensive for Equitable Life in UK.
Sincerely,
Larry Haverkamp
It is an excellent point, Mr. Tan.
Obviously, terminal bonuses are higher than annual bonuses. Doing that -- pushing most of the bonuses to the end the policy -- puts the policyholders' fund at risk IF the courts would decide the company cannot simply walk away from its obligation to pay its terminal bonus, as promised.
That is what happened in the case of Equitable Life in UK. Equitable couldn't pay and it went broke.
Are Singapore insurers also at risk?
Well, it depends. In the case of NTUC Income, it gave its assurance at its recent AGM (May 30) that it would not walk away from its terminal bonus. It would pay it.
In a way, that is good for policyholders.
On the other hand, such a statement sounds very much like "an obligation".
Requiring NTUC Income to keep its promises (to meet its obligations) could be expensive for the company.
As mentioned, it was prohibitively expensive for Equitable Life in UK.
Sincerely,
Larry Haverkamp
Danger of unfunded terminal bonus
The collapse of Equitable Life in UK was quoted as the reason to restructure the bonus of Income. The consultant recommended that the annual bonus rate was too high and supported the restructure to a lower rate of annual bonus, to be compensated by a higher rate of terminal bonus.
Tan Yew Ming, a local actuary, studied the report on the collapse of Equitable Life. He found that the problem of Equitable Life was the high rate of terminal bonus promised to policyholders that were not reserved.
When the court decided that Equitable Life had to pay the terminal bonus, Equitable Life faced financial difficulties and had to cease transacting new business. This concluson was also reported by BBC in a commentary.
If Equitable Life had declared a higher rate of annual bonus, they are required to set aside reserve for the bonus. This would have given them a stronger financial position.
I hope that Income will study this matter carefully and avoid the risk faced by Equitable Life, i.e. promise high terminal bonus rates that are not funded.
Tan Yew Ming, a local actuary, studied the report on the collapse of Equitable Life. He found that the problem of Equitable Life was the high rate of terminal bonus promised to policyholders that were not reserved.
When the court decided that Equitable Life had to pay the terminal bonus, Equitable Life faced financial difficulties and had to cease transacting new business. This concluson was also reported by BBC in a commentary.
If Equitable Life had declared a higher rate of annual bonus, they are required to set aside reserve for the bonus. This would have given them a stronger financial position.
I hope that Income will study this matter carefully and avoid the risk faced by Equitable Life, i.e. promise high terminal bonus rates that are not funded.
Heavy burden of debts
A few young people have approached me for help to solve their heavy burden of debts. They owed $20,000 or more, on credit card and other borrowings. They are not able to repay the debts.
I advised them to consult this organisation: Credit Counselling Singapore
http://www.ccs.org.sg/
Some of the debtors told me that they had already tried this channel, but the assistance was limited.
I wish to share this advice with many year people. Avoid borrowing on credit cards or other sources. Save now and spend later. You can lend the past savings to yourself in the future, and save on 24% interest.
Read this FAQ:
http://www.tankinlian.com/faq/return.html
I advised them to consult this organisation: Credit Counselling Singapore
http://www.ccs.org.sg/
Some of the debtors told me that they had already tried this channel, but the assistance was limited.
I wish to share this advice with many year people. Avoid borrowing on credit cards or other sources. Save now and spend later. You can lend the past savings to yourself in the future, and save on 24% interest.
Read this FAQ:
http://www.tankinlian.com/faq/return.html
Monday, June 9, 2008
Lessons from Equitable Life - high terminal bonus
An article appeared in the Straits Times: 'Salutary bonus lessons from the UK'
(http://www.asiaone.com/Business/My%2BMoney/Starting%2BOut/Insurance/Story/A1Story20080528-67478.html)
Tan Yew Ming studied the detailed report by Lord Penrose, who headed a comprehensive investigation into the reasons for Equitable’s debacle. This report can be found at : http://www.hm-treasury.gov.uk/independent_reviews/penrose_report/indrev_pen_index.cfm
Here are the key Below are key extracts from Part 7 (conclusions and lessons) of the report, regarding the bonus policy of Equitable Life:
38 ... from the early 1980s the Board’s bonus policy became increasingly driven by the pursuit of growth in new business...
45 ... the Society maintained a bonus record that enabled it to achieve consistent growth in new business premium income, ... growth could not have been achieved without the support of a bonus allocation and distribution policy that produced high policy values and high policy proceeds.
49 ... The Society followed the general view that terminal bonus was not guaranteed and did not have to be provided for in mathematical reserves or technical provisions.... By disregarding accrued terminal bonus, the Society was able to over-allocate bonus beyond its available assets at market value, and in particular to make payments on claims that exceeded the relative available assets at the time.
80 ... The failure to cover future terminal bonus by the retention of funds, given the expectations generated by representations, and by the Society’s sustained practice of paying such bonuses on maturities and other claims, contributed significantly to its ultimate weakness...
95 ... It is appropriate to comment in the first place on bonus policy.... Having adopted a rational approach to bonus distribution policy in 1973 that involved prudent reserving for future reversionary bonuses and related terminal bonus to sums standing at credit of investment reserve, the Board as constituted over the material period began progressively to reduce the reserves held for future reversionary bonuses from 1983 until that aspect of the previous reserving policy was abandoned entirely in 1985. In and after 1983 the amount allotted as terminal, later final, bonus was progressively increased.
240 ... The following may be regarded as the key conclusions arising from this report:
(3) The Society adopted a policy whereby unguaranteed terminal or final bonus became an increasing proportion of total allocations. This was in line with industry trends, but had the intended effect of reducing over time the share of benefits which required to be reserved for or recognised as liabilities in the Society’s statutory accounts and regulatory returns.
(4) As a consequence of this shift towards terminal bonus, and in the absence of any coherent or consistently applied smoothing policy, the Society began to over-allocate from the late 1980s onwards, with the effect that the realistic financial position (as reported regularly on internal systems and therefore known to the executive management) was progressively weakened, and policy claims progressively withdrew funds in excess of prudently calculated policy values. By the end of 2000, the position reached could only be dealt with by radical re-alignment of policy values, as happened in July 2001...
Here is my understanding from the Penrose’s report:
- Equitable wanted to pursue new business growth and high bonuses was used attract customers.
- Reversionary/annual bonuses require prudent reserving as opposed to Terminal/special bonuses. Since they are at the full discretion of the company, not guaranteed nor reserved, Terminal/Special bonus was an ideal “strategy” for Equitable’s management to promise high returns (to attract new customers).
- Over the years, Equitable shifted from the prudent reversionary bonus to the obscure terminal bonus, effectively setting up a Ponzi scheme to payout high bonuses at the expense of other customers.
- The actuary also adopted dubious valuation methods to release unearned profits to support the bonuses.
- Eventually all Ponzi schemes collapse.
To grow, all businesses need capital. Capital is scarce, ie limited. How to get capital besides asking from stakeholders (ie shareholders and policyholders)? More fundamentally, is growth at the expense of current stakeholders?
Yew Ming
(http://www.asiaone.com/Business/My%2BMoney/Starting%2BOut/Insurance/Story/A1Story20080528-67478.html)
Tan Yew Ming studied the detailed report by Lord Penrose, who headed a comprehensive investigation into the reasons for Equitable’s debacle. This report can be found at : http://www.hm-treasury.gov.uk/independent_reviews/penrose_report/indrev_pen_index.cfm
Here are the key Below are key extracts from Part 7 (conclusions and lessons) of the report, regarding the bonus policy of Equitable Life:
38 ... from the early 1980s the Board’s bonus policy became increasingly driven by the pursuit of growth in new business...
45 ... the Society maintained a bonus record that enabled it to achieve consistent growth in new business premium income, ... growth could not have been achieved without the support of a bonus allocation and distribution policy that produced high policy values and high policy proceeds.
49 ... The Society followed the general view that terminal bonus was not guaranteed and did not have to be provided for in mathematical reserves or technical provisions.... By disregarding accrued terminal bonus, the Society was able to over-allocate bonus beyond its available assets at market value, and in particular to make payments on claims that exceeded the relative available assets at the time.
80 ... The failure to cover future terminal bonus by the retention of funds, given the expectations generated by representations, and by the Society’s sustained practice of paying such bonuses on maturities and other claims, contributed significantly to its ultimate weakness...
95 ... It is appropriate to comment in the first place on bonus policy.... Having adopted a rational approach to bonus distribution policy in 1973 that involved prudent reserving for future reversionary bonuses and related terminal bonus to sums standing at credit of investment reserve, the Board as constituted over the material period began progressively to reduce the reserves held for future reversionary bonuses from 1983 until that aspect of the previous reserving policy was abandoned entirely in 1985. In and after 1983 the amount allotted as terminal, later final, bonus was progressively increased.
240 ... The following may be regarded as the key conclusions arising from this report:
(3) The Society adopted a policy whereby unguaranteed terminal or final bonus became an increasing proportion of total allocations. This was in line with industry trends, but had the intended effect of reducing over time the share of benefits which required to be reserved for or recognised as liabilities in the Society’s statutory accounts and regulatory returns.
(4) As a consequence of this shift towards terminal bonus, and in the absence of any coherent or consistently applied smoothing policy, the Society began to over-allocate from the late 1980s onwards, with the effect that the realistic financial position (as reported regularly on internal systems and therefore known to the executive management) was progressively weakened, and policy claims progressively withdrew funds in excess of prudently calculated policy values. By the end of 2000, the position reached could only be dealt with by radical re-alignment of policy values, as happened in July 2001...
Here is my understanding from the Penrose’s report:
- Equitable wanted to pursue new business growth and high bonuses was used attract customers.
- Reversionary/annual bonuses require prudent reserving as opposed to Terminal/special bonuses. Since they are at the full discretion of the company, not guaranteed nor reserved, Terminal/Special bonus was an ideal “strategy” for Equitable’s management to promise high returns (to attract new customers).
- Over the years, Equitable shifted from the prudent reversionary bonus to the obscure terminal bonus, effectively setting up a Ponzi scheme to payout high bonuses at the expense of other customers.
- The actuary also adopted dubious valuation methods to release unearned profits to support the bonuses.
- Eventually all Ponzi schemes collapse.
To grow, all businesses need capital. Capital is scarce, ie limited. How to get capital besides asking from stakeholders (ie shareholders and policyholders)? More fundamentally, is growth at the expense of current stakeholders?
Yew Ming
Money Market Fund - drop in price
Dear Mr. Tan,
I deposited $300,000 in their Money Market Fund. It generated about 3% interest at the end of the first year (2007). But this year the MMF is not doing well. For the first time, the units bid price went down from 1.088 to 1.087. I am not sure whether I should continue to leave my money in the Fund or should I look elsewhere to park my cash. What's the next best alternative that could preserve my capital sum and give me reasonable amount of interest.
As I am depending on this saving for my old age, I can't afford to make a wrong decision. As I can't afford to pay for professional advice, I hope you could kindly help me.
P
REPLY
I suggest that you talk to the insurance company and ask for their explanation. I suspect that the drop in the price of MMF is due to the recent increase in interest rate. The existing investments are locked in at the old yield. When interest rate increase, the bonds have a small drop in price.
The good news is that the future yield should be higher, say 2.5% or 3% (compared to 2% previously). In the absence of other better alternatives, it is all right to keep invested in the MMF.
I deposited $300,000 in their Money Market Fund. It generated about 3% interest at the end of the first year (2007). But this year the MMF is not doing well. For the first time, the units bid price went down from 1.088 to 1.087. I am not sure whether I should continue to leave my money in the Fund or should I look elsewhere to park my cash. What's the next best alternative that could preserve my capital sum and give me reasonable amount of interest.
As I am depending on this saving for my old age, I can't afford to make a wrong decision. As I can't afford to pay for professional advice, I hope you could kindly help me.
P
REPLY
I suggest that you talk to the insurance company and ask for their explanation. I suspect that the drop in the price of MMF is due to the recent increase in interest rate. The existing investments are locked in at the old yield. When interest rate increase, the bonds have a small drop in price.
The good news is that the future yield should be higher, say 2.5% or 3% (compared to 2% previously). In the absence of other better alternatives, it is all right to keep invested in the MMF.
Cash value on education policy
Dear Mr. Tan
My child's education policy matured lately. However, the increase in cash value is lower than the previous three years. I though that the value should increase more, according to the duration.
Below are the cash values:
Year Cash value Increase
2005 $37,956
2006 $44,734 $6,778
2007 $49,461 $4,727
2008 $52,397 $2,936 (maturity)
Is the maturity amount applied to everyone in the same age group and sum insured? In 2003, the insurance company send a letter stating that the estimated maturity amount is higher than the $52,397.
JT
REPLY
I suggest that you write to ask the insurance company. Their actuary should be able to give you an explanation.
My child's education policy matured lately. However, the increase in cash value is lower than the previous three years. I though that the value should increase more, according to the duration.
Below are the cash values:
Year Cash value Increase
2005 $37,956
2006 $44,734 $6,778
2007 $49,461 $4,727
2008 $52,397 $2,936 (maturity)
Is the maturity amount applied to everyone in the same age group and sum insured? In 2003, the insurance company send a letter stating that the estimated maturity amount is higher than the $52,397.
JT
REPLY
I suggest that you write to ask the insurance company. Their actuary should be able to give you an explanation.
Personal savings to supplement our CPF
Are you saving enough for your retirement? Is CPF sufficient? If not, what can you do about supplementing CPF?
Read the tips in this article:
http://www.tankinlian.com/articles/savings.html
Read the tips in this article:
http://www.tankinlian.com/articles/savings.html
Personal accident insurance
If you need a large amount of insurance protection, say $500,000, and have a limited budget, you can consider a personal accident insurance. It may not cover sickness, but the big risk for most young peopls is accident.
Read this FAQ:
http://www.tankinlian.com/faq/pa.html
Read this FAQ:
http://www.tankinlian.com/faq/pa.html
Investing in Foreign Currency Deposits
Here are some tips. Read this FAQ:
http://www.tankinlian.com/faq/foreigncurr.html
http://www.tankinlian.com/faq/foreigncurr.html
Saturday, June 7, 2008
POEMS (Phillips Securities)
Someone asked me how to access the foreign currency rates offered by Phillips Securities.
You have to register as a subscriber to their online portal, POEMS. You can get the foreign currenct rates from the tab, FOREX/GOLD, FX/INVEST.
There may be an easier way. You can call Phillips Securities and ask them how you can use this service.
You have to register as a subscriber to their online portal, POEMS. You can get the foreign currenct rates from the tab, FOREX/GOLD, FX/INVEST.
There may be an easier way. You can call Phillips Securities and ask them how you can use this service.
Tips for Seniors on Investments
Many seniors ask for my advice on how to invest their savings.
I wish to give you two tips, set out in the following FAQs. You have to read them and see which is more appropriate for your situation.
> Financial Planning for Seniors:
http://www.tankinlian.com/faq/seniors.html
> Investing Savings at 60:
http://www.tankinlian.com/faq/age60.html
I wish to give you two tips, set out in the following FAQs. You have to read them and see which is more appropriate for your situation.
> Financial Planning for Seniors:
http://www.tankinlian.com/faq/seniors.html
> Investing Savings at 60:
http://www.tankinlian.com/faq/age60.html
Financial Speculators
There is a growing body of opinion that financial speculators are the major cause of the large increase in oil and commodity prices. These new financial bubbles will burst one day. In the meantime, the speculators make a lot of money and the ordinary people have to pay for their greed, through the high inflation and cost of living. The capitalist, free market system is falling apart. It will not stay long in this manner.
Life insurance up to age 65
Should you buy term insurance up to age 65 or whole life insurance?
The best plan is a decresing term plan, ceasing at age 65 or covering 25 years only. You do not need life insurance after age 65, as you are likely to have retired from work, and there is no lost income to be covered.
Read this FAQ:
http://www.tankinlian.com/faq/age65.html
Here are the benchmark premium rates:
http://www.tankinlian.com/faq/benchmark.html
The best plan is a decresing term plan, ceasing at age 65 or covering 25 years only. You do not need life insurance after age 65, as you are likely to have retired from work, and there is no lost income to be covered.
Read this FAQ:
http://www.tankinlian.com/faq/age65.html
Here are the benchmark premium rates:
http://www.tankinlian.com/faq/benchmark.html
Financial Planning and Inflation
The past 15 years have been a period of relatively low inflation. Inflation rate has picked up this year. It is likely to stay high in the future.
We now have to factor inflation into our financial planning. This article contains some tips on how you can take inflation into account.
http://www.tankinlian.com/articles/financial.html
We now have to factor inflation into our financial planning. This article contains some tips on how you can take inflation into account.
http://www.tankinlian.com/articles/financial.html
Save for your child's education
If you wish to save for your child's education, you have two options:
> endowment policy (also called education policy)
> low cost investment fund.
This FAQ explains the difference
http://www.tankinlian.com/faq/education.html
Tip: Save in a low cost investment fund. It gives a better yield and is more flexible.
> endowment policy (also called education policy)
> low cost investment fund.
This FAQ explains the difference
http://www.tankinlian.com/faq/education.html
Tip: Save in a low cost investment fund. It gives a better yield and is more flexible.
Participating Life Insurance Policies
The participating life insurance policies was created more than 100 years ago. The policyholder pays premium into the policy, to be used to pay the death benefits and expenses. The remainder is invested to earn a good rate of return (compared to the yield that the individual policyholders could get on their own). The actuaries were specially trained to treat policyholders fairly and to distribute the surplus fairly in the form of reversionary bonuses.
Much has changed during the recent 20 years. Many insurance companies have been converted into for-profit companies. There is greater competition to get new business, leading to the launching of new series of policies with complicated bonus structures. In this chaotic situation, it is likely that many policyholders will get less than their fair share of the returns.
Many policyholders wonder why their yield on maturity is so low, compared to the investment yield earned by the life insurance fund. Although a large part of the yield is taken away to cover the high cost and expenses, they wonder if they are given their fair share of the remaining yield.
In today's environment, the participating life insurance policy is an unsatisfactory product to the consumer. It gives a poor yield and is not transparent.
Tip: Do not put your long term savings in a participating life insurance product. It is better to buy term insurance for the protection and to invest in a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Much has changed during the recent 20 years. Many insurance companies have been converted into for-profit companies. There is greater competition to get new business, leading to the launching of new series of policies with complicated bonus structures. In this chaotic situation, it is likely that many policyholders will get less than their fair share of the returns.
Many policyholders wonder why their yield on maturity is so low, compared to the investment yield earned by the life insurance fund. Although a large part of the yield is taken away to cover the high cost and expenses, they wonder if they are given their fair share of the remaining yield.
In today's environment, the participating life insurance policy is an unsatisfactory product to the consumer. It gives a poor yield and is not transparent.
Tip: Do not put your long term savings in a participating life insurance product. It is better to buy term insurance for the protection and to invest in a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Sudden Shift left me high and dry
Dear Mr. Tan,
My company had a Workmen Compensation Insurance Policy with X. In a letter to my company dated about 1 month before the expiry (but in fact posted late as I only received it only 2 weeks before the expiry), X said that they will not renew the policy any more.
On checking with my agent, I found that the X's new practice requires my company to buy "fire and theft" insurance with premium of 100% more than the premium for "Work Injury Compensation" (new name for "Workmen Compensation) before it can be accepted.
My questions are as follows:
a) If X changed it practice, why was it communicated so late to its existing customer?
b) If the claims for "Workmen Compensation" was high, why did it not raise the premium for this cover, instead of forcing the customer to buy other policies?
c) Why does the Ministry of Manpower allow this to happen?
d) Is X using its strong market position to unfairly?
After all, this "Work Injury Compensation" system is mandated by MOM. MOM should settle some of these ground rules so that the system can operate in an efficient and fair way. MOM cannot say "let market forces decide" because it is not a completely free market with many buyers and many sellers but a market with many small buyers who are "forced" to buy something and a small number of big sellers)
HW
My company had a Workmen Compensation Insurance Policy with X. In a letter to my company dated about 1 month before the expiry (but in fact posted late as I only received it only 2 weeks before the expiry), X said that they will not renew the policy any more.
On checking with my agent, I found that the X's new practice requires my company to buy "fire and theft" insurance with premium of 100% more than the premium for "Work Injury Compensation" (new name for "Workmen Compensation) before it can be accepted.
My questions are as follows:
a) If X changed it practice, why was it communicated so late to its existing customer?
b) If the claims for "Workmen Compensation" was high, why did it not raise the premium for this cover, instead of forcing the customer to buy other policies?
c) Why does the Ministry of Manpower allow this to happen?
d) Is X using its strong market position to unfairly?
After all, this "Work Injury Compensation" system is mandated by MOM. MOM should settle some of these ground rules so that the system can operate in an efficient and fair way. MOM cannot say "let market forces decide" because it is not a completely free market with many buyers and many sellers but a market with many small buyers who are "forced" to buy something and a small number of big sellers)
HW
Friday, June 6, 2008
What a wasteful world!
AN OPINION.
We are a wasteful world. We bring people from the rural areas into crowded, congested cities. They spend several hours each day commuting to and from work. A lot of time and energy is wasted in this commuting.
We produce material goods that are excessive for a comfortable life. We have too many products and choices. We buy too many things that we do not use, to be thrown away. We keep producing more, and use up the limited materials and minerals.
We work too many hours in an excessively competitive environment. We compete to survive. We destroy our competitors and take over their assets. We have too little time to enjoy leisure.
No wonder - we are short of oil, minerals and food. We see the huge spike in prices. It will lead to more hardship on the poor. It may lead to unrest.
The capitalist, free market system has not given people a good life. It is time to re-think of a new model for the world.
We are a wasteful world. We bring people from the rural areas into crowded, congested cities. They spend several hours each day commuting to and from work. A lot of time and energy is wasted in this commuting.
We produce material goods that are excessive for a comfortable life. We have too many products and choices. We buy too many things that we do not use, to be thrown away. We keep producing more, and use up the limited materials and minerals.
We work too many hours in an excessively competitive environment. We compete to survive. We destroy our competitors and take over their assets. We have too little time to enjoy leisure.
No wonder - we are short of oil, minerals and food. We see the huge spike in prices. It will lead to more hardship on the poor. It may lead to unrest.
The capitalist, free market system has not given people a good life. It is time to re-think of a new model for the world.
AUD Fixed Deposits
I searched the Internet to find out the interest rate on 3 month fixed deposit offered by various banks in Singapore.
Note: Large deposit is usually for SGD 200,000 or more. But it differs according to the bank.
Tip: Source the internet to get an idea about the interest rate offered by the bank on the deposit. Usually, 3 month is a good period to invest, unless you wish to take a longer term view. You can convert your SGD to the foreign currency with a online stockbroker and transfer the foreign currency to the bank that offers the best interest rate.
Small Large
deposit deposit
ICICI 8.29% 8.34%
ANZ 7.58% 7.58%
RHB 7.3% 7.3%
DBS 6.99% 7.21%
UOB 6.38% 6.58%
HSBC 6.2% 6.5%
Note: Large deposit is usually for SGD 200,000 or more. But it differs according to the bank.
Tip: Source the internet to get an idea about the interest rate offered by the bank on the deposit. Usually, 3 month is a good period to invest, unless you wish to take a longer term view. You can convert your SGD to the foreign currency with a online stockbroker and transfer the foreign currency to the bank that offers the best interest rate.
Get a better yield on your savings
Singapore banks make huge profits, or $1 billion or more. Their profit come from the following sources:
> High margin between the interest rate that they charge to borrowers and the interest rate that they pay to depositors
> High charges on conversion of foreign currency, e.g. spread of more than 0.5% (compared to 0.15% charged by efficient online brokers).
> High fees for bank transfer and other services.
I hope that the banks can give a better deal to their customers, as follows:
> Pay higher interest rate on fixed deposits
> Reduce the spread on currency conversion
> Reduce their bank charges
There are many online portals that can offer lower charges and fees, and better conversion rates. If you search the internet, you can also find banks that offer better interest rate on fixed deposits. I advice consumers to be more active in searching for the best deal through the internet.
> High margin between the interest rate that they charge to borrowers and the interest rate that they pay to depositors
> High charges on conversion of foreign currency, e.g. spread of more than 0.5% (compared to 0.15% charged by efficient online brokers).
> High fees for bank transfer and other services.
I hope that the banks can give a better deal to their customers, as follows:
> Pay higher interest rate on fixed deposits
> Reduce the spread on currency conversion
> Reduce their bank charges
There are many online portals that can offer lower charges and fees, and better conversion rates. If you search the internet, you can also find banks that offer better interest rate on fixed deposits. I advice consumers to be more active in searching for the best deal through the internet.
FAQ: Traded Endowment Policies
1. What is a traded endowment policy?
A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.
The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.
The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.
2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?
It depends on the following:
> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?
3. What is the underlying risk of the traded endowment policies?
These traded endowment policies carry the following risks:
> The future bonuses paid under the policies may be reduced. This will reduce the expected yield.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination
These risks have to be factored in considering the net yield on the fund.
4. What is a satisfactory rate of return, considering the risk?
If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.
You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.
If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.
5. Do you invest in traded endowment policies?
I avoid investing in this type of product as I am not familiar with the risk, the yield and the integrity of the fund manager.
I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.
Tan Kin Lian
A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.
The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.
The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.
2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?
It depends on the following:
> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?
3. What is the underlying risk of the traded endowment policies?
These traded endowment policies carry the following risks:
> The future bonuses paid under the policies may be reduced. This will reduce the expected yield.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination
These risks have to be factored in considering the net yield on the fund.
4. What is a satisfactory rate of return, considering the risk?
If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.
You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.
If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.
5. Do you invest in traded endowment policies?
I avoid investing in this type of product as I am not familiar with the risk, the yield and the integrity of the fund manager.
I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.
Tan Kin Lian
Investing in foreign currency deposits
Here are my tips for investing in foreign currency deposits. They are based on my personal experience:
1. Get a good rate when you convert from Singapore dollars to the foreign currency. Find out the buy and sell rate for the currency. Take the middle of these rates (which is usually the interbank rate). Find out the spread charged by the bank, which is the rate that you pay, compared to the interbank rate. A good spread is 0.15%. If the spread is more than 0.2%, you should take the trouble to convert the money elsewhere.
2. You can convert the money with an online stockbroker, such as Phillips, and pay a spread of 0.15%. You may have to pay some bank charges, but the amount is quite small. You can compare the total cost, i.e. the spread and the bank charges, to decide which is the best option for you.
3. You can call a few banks to check the interest rate that they pay on the fixed deposit. If you tell your bank about the rate quoted by other banks, they are likely to match it.
4. On withdrawal of the fixed deposit, you can convert the foreign currency into Singapore dollar in the same way, i.e. move the foreign currency to the online stockbroker to get a better conversion rate.
Here is an example. You wish to convert SGD 100,000 into Australian dollars. The bank quotes the buy and sell rate as 1.3015 and 1.3210. The middle rate, or interbank rate is 1,3112 (i.e. mid-way between the buy and sell rates). The spread charged by the bank is 0.75% (i.e. 1.3201 divided by 1.3112).
If you convert the money at Phillips (through POEMS), you are given a spread of 0.15% above the interbank rate. You will be charged 1.3132. However, as the interbank rate changes each few seconds, you will find this rate changing as well.
If you are converting $50,000, you will be able to save $390 by converting with Phillips. You may have to pay $100 or less in bank charges. You can still make a saving by taking some trouble. If you are converting a larger sum, say $100,000 or more, your saving will be more.
If you convert the money at Philiips, you can transfer it to another bank to earn a better interest rate on the fixed deposit.
1. Get a good rate when you convert from Singapore dollars to the foreign currency. Find out the buy and sell rate for the currency. Take the middle of these rates (which is usually the interbank rate). Find out the spread charged by the bank, which is the rate that you pay, compared to the interbank rate. A good spread is 0.15%. If the spread is more than 0.2%, you should take the trouble to convert the money elsewhere.
2. You can convert the money with an online stockbroker, such as Phillips, and pay a spread of 0.15%. You may have to pay some bank charges, but the amount is quite small. You can compare the total cost, i.e. the spread and the bank charges, to decide which is the best option for you.
3. You can call a few banks to check the interest rate that they pay on the fixed deposit. If you tell your bank about the rate quoted by other banks, they are likely to match it.
4. On withdrawal of the fixed deposit, you can convert the foreign currency into Singapore dollar in the same way, i.e. move the foreign currency to the online stockbroker to get a better conversion rate.
Here is an example. You wish to convert SGD 100,000 into Australian dollars. The bank quotes the buy and sell rate as 1.3015 and 1.3210. The middle rate, or interbank rate is 1,3112 (i.e. mid-way between the buy and sell rates). The spread charged by the bank is 0.75% (i.e. 1.3201 divided by 1.3112).
If you convert the money at Phillips (through POEMS), you are given a spread of 0.15% above the interbank rate. You will be charged 1.3132. However, as the interbank rate changes each few seconds, you will find this rate changing as well.
If you are converting $50,000, you will be able to save $390 by converting with Phillips. You may have to pay $100 or less in bank charges. You can still make a saving by taking some trouble. If you are converting a larger sum, say $100,000 or more, your saving will be more.
If you convert the money at Philiips, you can transfer it to another bank to earn a better interest rate on the fixed deposit.
Thursday, June 5, 2008
Adequate Wage in Singapore
Extracted from http://www.theonlinecitizen.com/
http://theonlinecitizen.com/2008/06/giving-equal-access-to-social-benefits/
I wish to say a few words on why there should be a minimum wage. It is necessary to ensure that the weakest members of our society, i.e. the poor and lower educated, are given a wage that is sufficient to meet the cost of living and raise a family. They should not be required to work 12 hours a day or two jobs, just to earn enough.
Most countries in the world has a minimum wage, including the low income and high income countries. Even the USA, which is the worlds biggest proponent of the free labour market, has a minimum wage.
A minimum wage may not increase the business cost significantly. It just reduces the huge profit earned by the business owners, salaries of the top management and the rental costs. The share of business cost of the minimum wage earners is probably not significant, except for labour intensive industries.
There is less economic pressure for a minimum wage policy in a big country. If necessary, a person can move to live in a low cost part of the country. Some people can go back into farming, for example.
But in a small country like Singapore, the choices are limited. So a minimum wage policy is necessary.
The argument against a minimum wage is that it will drive jobs to other countries. Let us look at the facts. Are our jobs going overseas? Hardly!
We have the opposite situation. Many jobs are created in Singapore, that have to be filled by low wage workers from other countries.
I am surprised at the large number of these foreign workers. They increase the demand on our public infrastructure and facilities and increase the congestion in Singapore. Is this good for Singapore?
These low cost foreign workers compete with our local workers. Many of our local workers cannot find jobs and have to be unemployed. The unemployed are criticised for being “choosy”. Is this true? Many of our elderly are willing to take menial jobs as cleaners just to survive. I respect them. I hope that we can give them a decent wage for their work.
We must remember that there is a high cost of living in Singapore. More so, for a worker who has a family to feed. We cannot expect them to accept the same wage that is adequate for a foreign worker who feeds a family in a low cost country.
Tan Kin Lian
http://theonlinecitizen.com/2008/06/giving-equal-access-to-social-benefits/
I wish to say a few words on why there should be a minimum wage. It is necessary to ensure that the weakest members of our society, i.e. the poor and lower educated, are given a wage that is sufficient to meet the cost of living and raise a family. They should not be required to work 12 hours a day or two jobs, just to earn enough.
Most countries in the world has a minimum wage, including the low income and high income countries. Even the USA, which is the worlds biggest proponent of the free labour market, has a minimum wage.
A minimum wage may not increase the business cost significantly. It just reduces the huge profit earned by the business owners, salaries of the top management and the rental costs. The share of business cost of the minimum wage earners is probably not significant, except for labour intensive industries.
There is less economic pressure for a minimum wage policy in a big country. If necessary, a person can move to live in a low cost part of the country. Some people can go back into farming, for example.
But in a small country like Singapore, the choices are limited. So a minimum wage policy is necessary.
The argument against a minimum wage is that it will drive jobs to other countries. Let us look at the facts. Are our jobs going overseas? Hardly!
We have the opposite situation. Many jobs are created in Singapore, that have to be filled by low wage workers from other countries.
I am surprised at the large number of these foreign workers. They increase the demand on our public infrastructure and facilities and increase the congestion in Singapore. Is this good for Singapore?
These low cost foreign workers compete with our local workers. Many of our local workers cannot find jobs and have to be unemployed. The unemployed are criticised for being “choosy”. Is this true? Many of our elderly are willing to take menial jobs as cleaners just to survive. I respect them. I hope that we can give them a decent wage for their work.
We must remember that there is a high cost of living in Singapore. More so, for a worker who has a family to feed. We cannot expect them to accept the same wage that is adequate for a foreign worker who feeds a family in a low cost country.
Tan Kin Lian
Call hotline for the best quote
Hi Mr. Tan,
I read from your blog, you mentioned that X offers competitive rates for motor insurance. For many models of cars, the rates are up to 15% lower than our competitors.
How can this be, when I was quoted a higher rate compared to another insurance company? I was quoted $518 for my next renewal with X, 50% NCD + 5% loyalty discount. A good friend recently renew his motor insurance with another company and he was quoted $460 for his renewal on the same terms.
I emailed and called X for clariffication. No one could give me a satisfactory answer. When I asked a customer officer if X could give me a better requote, she said NO and its not negotiable.
How wonderful. Seems like i have no incentive or reason to stick to X anymore, as X is now charging more than others. That's all I have to say for now. Thank you for reading this email.
AT
REPLY
In past years, X offered competitive quotes. I understand that the increased their premium rates by about 20% (or more) this year. They are no longer the most competitive.
I now advise consumers to call the hotlines of insurance companies to get the best quote. Read this FAQ:
http://www.tankinlian.com/faq/motord.html
I read from your blog, you mentioned that X offers competitive rates for motor insurance. For many models of cars, the rates are up to 15% lower than our competitors.
How can this be, when I was quoted a higher rate compared to another insurance company? I was quoted $518 for my next renewal with X, 50% NCD + 5% loyalty discount. A good friend recently renew his motor insurance with another company and he was quoted $460 for his renewal on the same terms.
I emailed and called X for clariffication. No one could give me a satisfactory answer. When I asked a customer officer if X could give me a better requote, she said NO and its not negotiable.
How wonderful. Seems like i have no incentive or reason to stick to X anymore, as X is now charging more than others. That's all I have to say for now. Thank you for reading this email.
AT
REPLY
In past years, X offered competitive quotes. I understand that the increased their premium rates by about 20% (or more) this year. They are no longer the most competitive.
I now advise consumers to call the hotlines of insurance companies to get the best quote. Read this FAQ:
http://www.tankinlian.com/faq/motord.html
Restore the Annual Bonus
Hello
I note this part from the Income's Chairman's speech:"Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve."
That is good to know. But if that is the policy, why not do it for the annual bonus? It was cut in 2003 because of adverse financial circumstances. Since then, the company has done well, with returns averaging 7.8 per cent over the last 10 years.
So, why not put those words into practice: "...we are committed to restoring it when conditions improve."Conditions have improved. Where is the restored bonus?
Sincerely,
Larry Haverkamp
I note this part from the Income's Chairman's speech:"Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve."
That is good to know. But if that is the policy, why not do it for the annual bonus? It was cut in 2003 because of adverse financial circumstances. Since then, the company has done well, with returns averaging 7.8 per cent over the last 10 years.
So, why not put those words into practice: "...we are committed to restoring it when conditions improve."Conditions have improved. Where is the restored bonus?
Sincerely,
Larry Haverkamp
Wednesday, June 4, 2008
Extract from speech by Income's chairman
Extract from the speech by chairman of Income, made at the annual general meeting on 30 June 2008:
Some policyholders have raised specific concerns on the special bonus in blogs. Allow me to address them.
> While special bonuses are not guaranteed, they are designed to ensure that the reduction in annual bonus is compensated. As I have indicated earlier, the new bonus structure is aimed at improving, the total payout to policyholders.
> Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve.
> I have stated that this Board will look after the policyholders’ interests. Towards this end, the Board will ensure that the bonus allocated to policyholders result in payouts is fair and consistent with the experience of the Life Fund.
Some policyholders have raised specific concerns on the special bonus in blogs. Allow me to address them.
> While special bonuses are not guaranteed, they are designed to ensure that the reduction in annual bonus is compensated. As I have indicated earlier, the new bonus structure is aimed at improving, the total payout to policyholders.
> Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve.
> I have stated that this Board will look after the policyholders’ interests. Towards this end, the Board will ensure that the bonus allocated to policyholders result in payouts is fair and consistent with the experience of the Life Fund.
Avoid switching to another high cost policy
Dear Mr. Tan,
I would like to seek your help and advice on the policies which i purchased from X a few years back. I am 25 years old and started work 2 years ago. I bought my first Protection policy in 2002. Later, I bought a Living policy in 2006.
Recently a few insurance agents advised me to terminate my policies with X. They said that I am paying a very high premium for my policies. Especially for the Living policy. Two agents from Y and Z offered an alternative policy at a lower premium.
I have been reading your blog and am curious if I am really paying a costly price for my policies under X? Due to the high living standard in Singapore, i would like to spend my money wisely and purchase the most competitive policy in the insurance market.
Should I terminate my policies with X and buy the policy recommended by Z? Is there any other alternatives which i can look into?
G
REPLY
As a general guide, you should not terminate a policy and buy a new policy from another agent. Each time that you buy a policy, the agent earns big commission that takes away two years of your savings. I suggest that you approach the insurance agent from X, and ask for his or her advice, on whether the agents from Y and Z are giving you proper advice.
If you wish to make a change, you should buy a low cost term insurance and invest your money in a low cost investment fund. Low cost means that there is no adviser who earns a lot of money from giving you the advice.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I would like to seek your help and advice on the policies which i purchased from X a few years back. I am 25 years old and started work 2 years ago. I bought my first Protection policy in 2002. Later, I bought a Living policy in 2006.
Recently a few insurance agents advised me to terminate my policies with X. They said that I am paying a very high premium for my policies. Especially for the Living policy. Two agents from Y and Z offered an alternative policy at a lower premium.
I have been reading your blog and am curious if I am really paying a costly price for my policies under X? Due to the high living standard in Singapore, i would like to spend my money wisely and purchase the most competitive policy in the insurance market.
Should I terminate my policies with X and buy the policy recommended by Z? Is there any other alternatives which i can look into?
G
REPLY
As a general guide, you should not terminate a policy and buy a new policy from another agent. Each time that you buy a policy, the agent earns big commission that takes away two years of your savings. I suggest that you approach the insurance agent from X, and ask for his or her advice, on whether the agents from Y and Z are giving you proper advice.
If you wish to make a change, you should buy a low cost term insurance and invest your money in a low cost investment fund. Low cost means that there is no adviser who earns a lot of money from giving you the advice.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Online Trading Platforms
Sir,
I refer to your blog entry on your subscribing to Fundsupermart: http://tankinlian.blogspot.com/2008/03/fundsupermart.html
I recommend that you check out the service provided by Phillips Capital (at http://www.poems.com.sg) as well. I have accounts on both, and I have noticed that POEMS sometimes has lower sale charges for their unit trusts. (I do not have vested interests in either companies and am speaking as an individual investor.)
As an example, Fundsupermart has a 2% sales charge for the DBS Shenton Global Opportunities fund. For POEMS, it is 1.5% (I think you need to have an account before you can see these details). Also, there are ways to get even lower charges on POEMS.
POEMS provides avenues to invest in ETFs in global markets and S'pore govt treasury bills, while Fundsupermart does not. Fundsupermart provides an avenue for investing in S'pore govt bonds, while POEMS does not.
One key downside about using POEMS is its (very) badly designed user interface, but I can live with that!
JT
I refer to your blog entry on your subscribing to Fundsupermart: http://tankinlian.blogspot.com/2008/03/fundsupermart.html
I recommend that you check out the service provided by Phillips Capital (at http://www.poems.com.sg) as well. I have accounts on both, and I have noticed that POEMS sometimes has lower sale charges for their unit trusts. (I do not have vested interests in either companies and am speaking as an individual investor.)
As an example, Fundsupermart has a 2% sales charge for the DBS Shenton Global Opportunities fund. For POEMS, it is 1.5% (I think you need to have an account before you can see these details). Also, there are ways to get even lower charges on POEMS.
POEMS provides avenues to invest in ETFs in global markets and S'pore govt treasury bills, while Fundsupermart does not. Fundsupermart provides an avenue for investing in S'pore govt bonds, while POEMS does not.
One key downside about using POEMS is its (very) badly designed user interface, but I can live with that!
JT
Tuesday, June 3, 2008
Give a better currency rate
I used to convert my Singapore dollars into foreign currency with my bank. I learned recently that the spread (i.e. difference between the buy and sell rate) is about 1.3% compared to 0.3% charged by an online stockbroker. The difference of 1% is for a two way trade. For one way, the difference is 0.5%.
If the amount is $100,000, the difference in charges of 0.5% is $500. I have to pay a TT fee of $10, so I can save $490 by going through the online stockbroker. I hope that my bank can give a better currency rate, so that I do not need to go through another source (which is quite troublesome).
If the amount is $100,000, the difference in charges of 0.5% is $500. I have to pay a TT fee of $10, so I can save $490 by going through the online stockbroker. I hope that my bank can give a better currency rate, so that I do not need to go through another source (which is quite troublesome).
Renewal of Motor Insurance
A few people found their motor insurance premium increased by 20% or more, on the renewal of the insurance this year. They did not make any claim during the past year. The increase was due to the escalating claim cost faced by the industry and the poor management of these claims.
They asked my advice on how to get a lower premium rate. I asked them to get a quote from the hotlines of the insurance companies shown in this FAQ:
http://www.tankinlian.com/faq/motord.html
A few consumers have found that India International (Tel: 6347 6100 Fax: 6225 7743) to offer the most attractive quote.
A few months ago, I visited their office to renew the motor insurance for my wife's car. I found their service to be satisfactory. The office environment is friendly. I asked about their claim procedure and was satisfied with it. The premium rate is almost 20% lower than the rate quoted by my existing insurer.
If you like to try, you can send a fax to India International for a quote. If the quote is competitive, you can visit their office and talk to the employee, before you decide to make a switch. You can send your feedback to me.
They asked my advice on how to get a lower premium rate. I asked them to get a quote from the hotlines of the insurance companies shown in this FAQ:
http://www.tankinlian.com/faq/motord.html
A few consumers have found that India International (Tel: 6347 6100 Fax: 6225 7743) to offer the most attractive quote.
A few months ago, I visited their office to renew the motor insurance for my wife's car. I found their service to be satisfactory. The office environment is friendly. I asked about their claim procedure and was satisfied with it. The premium rate is almost 20% lower than the rate quoted by my existing insurer.
If you like to try, you can send a fax to India International for a quote. If the quote is competitive, you can visit their office and talk to the employee, before you decide to make a switch. You can send your feedback to me.
Foreign currency conversion rate
Are you getting a good conversion rate when you buy and sell foreign currency, such as Australian dollar or British pound?
Look at the buy and sell rate. The difference is called the spread. This is the charge imposed by the bank to cover their expenses and profit. It is the cost incurred by the customer to convert from Signapore dollar into the foreign currency and to convert it back at a later date.
If the spread is less than 0.5%, it is a good rate. If it is more than 1%, it is too expensive.
I found the spread charged by a local bank to be as follows:
TT - telegraphic transfer
OD - on demand, i.e. currency notes
The spread is slightly lower for sums above $50,000
LOWER SPREAD AT POEMS.COM.SG
I found the spread on foreign currency at POEMS (Philips Securities) to be 0.3%. In the future, I will convert my money at POEMS and ask them to transfer it to a bank to place on fixed deposit.
Look at the buy and sell rate. The difference is called the spread. This is the charge imposed by the bank to cover their expenses and profit. It is the cost incurred by the customer to convert from Signapore dollar into the foreign currency and to convert it back at a later date.
If the spread is less than 0.5%, it is a good rate. If it is more than 1%, it is too expensive.
I found the spread charged by a local bank to be as follows:
TT OD
USD 1.1% 1.6%
Euro 1.1% 1.3%
GBP 1.3% 1.7%
AUD 1.6% 2.1%
NZD 1.7% 2.2%
Other 2.6% 3.4%
TT - telegraphic transfer
OD - on demand, i.e. currency notes
The spread is slightly lower for sums above $50,000
LOWER SPREAD AT POEMS.COM.SG
I found the spread on foreign currency at POEMS (Philips Securities) to be 0.3%. In the future, I will convert my money at POEMS and ask them to transfer it to a bank to place on fixed deposit.
Debt Trap
Dear Mr. Tan
I am in debt and would like to seek your advice on how to manage my financial problem. I was badly hit during 1997 (CLOB shares). I am still unable to get out of my debt trap.
REPLY
Please try this organisation - Credit Counselling Singapore:
http://www.ccs.org.sg/
I am in debt and would like to seek your advice on how to manage my financial problem. I was badly hit during 1997 (CLOB shares). I am still unable to get out of my debt trap.
REPLY
Please try this organisation - Credit Counselling Singapore:
http://www.ccs.org.sg/
Investing a Lump Sum
Dear Mr. Tan,
I have some 600k that is liquid yielding very low return. Can you advise what I can do? Many investment banker illustrate how regular saving plans can yield BIG if we have TIME and CASH to invest (both I have). My experience is the variable - which instrument can consistently hit the projected return? What do you say?
REPLY
I hope that you find these FAQs to be useful:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/age60.html
I have some 600k that is liquid yielding very low return. Can you advise what I can do? Many investment banker illustrate how regular saving plans can yield BIG if we have TIME and CASH to invest (both I have). My experience is the variable - which instrument can consistently hit the projected return? What do you say?
REPLY
I hope that you find these FAQs to be useful:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/age60.html
Monday, June 2, 2008
Call a few companies for a competitive quote
Hi Mr. Tan,
Iam 30 yrs old female. I want to buy a term insurance with critical illness. An agent quoted me a 30 year term insurance with critical illness for $50,000 with yearly premium $287.50. Is it advisable to take it up?
REPLY
The premium seems to be rather expensive. My estimate is that the premium rate should be less than $200. You can read this FAQ to get the benchmark rate: http://www.tankinlian.com/faq/benchmark.html
I suggest that you call a few insurance companies and get a competitive quote:
http://www.tankinlian.com/faq/termd.html
Iam 30 yrs old female. I want to buy a term insurance with critical illness. An agent quoted me a 30 year term insurance with critical illness for $50,000 with yearly premium $287.50. Is it advisable to take it up?
REPLY
The premium seems to be rather expensive. My estimate is that the premium rate should be less than $200. You can read this FAQ to get the benchmark rate: http://www.tankinlian.com/faq/benchmark.html
I suggest that you call a few insurance companies and get a competitive quote:
http://www.tankinlian.com/faq/termd.html
Bonuses will be fair and consistent with experience
Dear Mr. Tan,
After reading your letter to "ToDay", I started to worry whether NTUC Income can really pay a higher and better special bonus. I felt so because you said that Mr Lim Boon Heng and Mr Matthias Yeo "reaffirmed that Income would observe its social purpose ..... and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals."
Does it mean they have yet to work out a complete and properly thought through plan and just proceed to revise and cut the annual bonus? This is not the way a big and reputable organization works! Especially they are taking care of money saved for retirement or raining day?
What will happen if they can't fulfill what they claim at the end of the day? Just say sorry and forget their "social purpose" and the promises? Your comments please.
CH
REPLY
In making the change, Income has made sure that the special bonus will compensate for the cut in annual bonus. They have now given adequate assurance on the payment of the speical bonus.
More time is needed to address the other issue, which was raised by me. Income has agreed to ensure that the bonuses are "fair and consistent with the experience of the fund". If this can be achieved, it will be good news for the policyholders. It will probably allow the past bonus cuts to be restored and more to be paid, consistent with the good investment yield.
After reading your letter to "ToDay", I started to worry whether NTUC Income can really pay a higher and better special bonus. I felt so because you said that Mr Lim Boon Heng and Mr Matthias Yeo "reaffirmed that Income would observe its social purpose ..... and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals."
Does it mean they have yet to work out a complete and properly thought through plan and just proceed to revise and cut the annual bonus? This is not the way a big and reputable organization works! Especially they are taking care of money saved for retirement or raining day?
What will happen if they can't fulfill what they claim at the end of the day? Just say sorry and forget their "social purpose" and the promises? Your comments please.
CH
REPLY
In making the change, Income has made sure that the special bonus will compensate for the cut in annual bonus. They have now given adequate assurance on the payment of the speical bonus.
More time is needed to address the other issue, which was raised by me. Income has agreed to ensure that the bonuses are "fair and consistent with the experience of the fund". If this can be achieved, it will be good news for the policyholders. It will probably allow the past bonus cuts to be restored and more to be paid, consistent with the good investment yield.
OCBC Preference Shares
Dear Mr. Tan,
OCBC is offering preference shares to retail and institutional investors. If I am not wrong, DBS too offered such investment earlier. I like to know whether would you consider buying into this and how much?
REPLY
Personally, I intend to invest in the OCBC Preference Shares. It gives a good dividend and has rather low risk.
OCBC is offering preference shares to retail and institutional investors. If I am not wrong, DBS too offered such investment earlier. I like to know whether would you consider buying into this and how much?
REPLY
Personally, I intend to invest in the OCBC Preference Shares. It gives a good dividend and has rather low risk.
Dr. Lee Kum Tatt's Blog
I visited the wake of Dr. Lee Kum Tatt who passed away on Sunday. His daughter showed me a printed copy of the postings in his blog.
Kum Tatt made the effort to print out the postings, arranged them in a nice order, and bound into a book. It is a piece of work that Kum Tatt must have been very proud of.
http://www.leekumtatt.blogspot.com/
Kum Tatt made the effort to print out the postings, arranged them in a nice order, and bound into a book. It is a piece of work that Kum Tatt must have been very proud of.
http://www.leekumtatt.blogspot.com/
Near term investment strategy
Dear Mr Tan,
I am a novice to investment. I have spare cash lying in the bank for years. Should I be investing now? I sense quite a bit of pessimism, talk of global crisis. Even Dr Tony Tan was talking a great recession. So should I be holding to wait for the great crash so that cash is king and I would be able to buy at a discount?
If you are saying it makes no sense to hold, could you please advice on some products I can look at? Short and long term. I would really appreciate some very practical advice here.
SK
REPLY
It is difficult to make this type of timing decision.
In my case, I decided to stay invested in shares, REITs and foreign currency deposits. You can read about my asset allocation in my blog, www.tankinlian.com.
Some people do not agree with my strategy. Each person has to make his own decision and judgement.
I am a novice to investment. I have spare cash lying in the bank for years. Should I be investing now? I sense quite a bit of pessimism, talk of global crisis. Even Dr Tony Tan was talking a great recession. So should I be holding to wait for the great crash so that cash is king and I would be able to buy at a discount?
If you are saying it makes no sense to hold, could you please advice on some products I can look at? Short and long term. I would really appreciate some very practical advice here.
SK
REPLY
It is difficult to make this type of timing decision.
In my case, I decided to stay invested in shares, REITs and foreign currency deposits. You can read about my asset allocation in my blog, www.tankinlian.com.
Some people do not agree with my strategy. Each person has to make his own decision and judgement.
Sunday, June 1, 2008
Foreign Currency Fixed Deposit
Many people like to invest in foreign currency fixed deposit, such as Australian or New Zealand dollars, to enjoy the higher interest rate. They face a few practical difficulties:
> get a good conversion rate from Singapore dollar to the foreign currency
> get a good interest rate on the foreign currency deposit
It is possible to set up a fund that will invest in a few high yielding foreign currency fixed deposits, e.g. Australian dollar, New Zealand dollar, British pounds, Euro and US dollar. These currencies have higher interest rate than Singapore dollars.
The fund manager will be able to source for the most competitive exchange and interest rate. This should save the investor up to 1% spread on the currency and interest rate. This should be more than sufficient to cover the fee of the fund manager, and still give an additional benefit to the investor. The investor will be able to enjoy the higher interest rate and the spread of currencies.
I think that there should be interest in this type of fund.
> get a good conversion rate from Singapore dollar to the foreign currency
> get a good interest rate on the foreign currency deposit
It is possible to set up a fund that will invest in a few high yielding foreign currency fixed deposits, e.g. Australian dollar, New Zealand dollar, British pounds, Euro and US dollar. These currencies have higher interest rate than Singapore dollars.
The fund manager will be able to source for the most competitive exchange and interest rate. This should save the investor up to 1% spread on the currency and interest rate. This should be more than sufficient to cover the fee of the fund manager, and still give an additional benefit to the investor. The investor will be able to enjoy the higher interest rate and the spread of currencies.
I think that there should be interest in this type of fund.
Inflation adjusted Income Benefit
I discussed this idea with an insurance agency manager. I said that most people preferred an income benefit to be provided to the family in the event of premature death.
For example, the breadwinner may wish to have a monthly income of $3,000 payable to the family for the remainder of the term of 25 years, in the event of premature death. I suggested a 25 year term, as the children would have grown up by that age.
A monthly payment of $3,000 for 10 years (say) is better than a lump sum payment of $300,000 (say). The family does not have to worry about investing the lump sum.
He agreed with me. He said that his agents have been selling this type of protection, and it is well received. The only disadvantage is that the current products do not allow for inflation adjustment. He said that if the monthly income could be adjusted by 2% or 3% a year, it would be ideal.
This is possible. I shall be designing this product. As it is a term insurance product which ceases after 25 years, the cost will be quite affordable.
For example, the breadwinner may wish to have a monthly income of $3,000 payable to the family for the remainder of the term of 25 years, in the event of premature death. I suggested a 25 year term, as the children would have grown up by that age.
A monthly payment of $3,000 for 10 years (say) is better than a lump sum payment of $300,000 (say). The family does not have to worry about investing the lump sum.
He agreed with me. He said that his agents have been selling this type of protection, and it is well received. The only disadvantage is that the current products do not allow for inflation adjustment. He said that if the monthly income could be adjusted by 2% or 3% a year, it would be ideal.
This is possible. I shall be designing this product. As it is a term insurance product which ceases after 25 years, the cost will be quite affordable.
Higher interest rate?
Someone pointed out that the interest rate for Singapore Government bonds has increased in recent days, and is now above 3% for longer term bonds.
When interest rate increases, the prices of the bond drops. An increase of 1% in the yield can cause a drop of more than 10% in the price of the longer term bonds.
During the past 15 years, Singapore went through a period of low inflation and low interest rate. As inflation has increased this year, and may continue at a high level in the future, there is the likelihood that interest rate will increase.
If you are invested in a long term Government bond or life insurance policy with a guaratneed return, you may be locked into the low return for many years.
Try to invest for the shorter term, say up to 3 years, or into equities and REITS, which are likely to give some hedge against inflation.
When interest rate increases, the prices of the bond drops. An increase of 1% in the yield can cause a drop of more than 10% in the price of the longer term bonds.
During the past 15 years, Singapore went through a period of low inflation and low interest rate. As inflation has increased this year, and may continue at a high level in the future, there is the likelihood that interest rate will increase.
If you are invested in a long term Government bond or life insurance policy with a guaratneed return, you may be locked into the low return for many years.
Try to invest for the shorter term, say up to 3 years, or into equities and REITS, which are likely to give some hedge against inflation.
Reply to New Comment in Today
2 June 2008
Editor
Today Paper
I refer to your News Comment “Which hat was Tan Kin Lian wearing?” (Today, 2 June).
I have two policies affected by the bonus restructure. My initial reaction was to terminate these two policies and take a loss. I decided against this course of action, as I would lose the opportunity to raise this issue as a policyholder. My key concern was that 310,000 policyholders should not lose out.
Under the new bonus structure, the policyholder receives a lower annual bonus, to be compensated by a higher special bonus payable on surrender, death or maturity. My concern was that the special bonus is not guaranteed and it is difficult to keep track of the correct amount of special bonus required to compensate the cut in annual bonus for each policy.
After I started the collective protest, I obtained another important piece of information. The average investment yield earned by Income during the past 10 years was 7.8% per annum. This was higher than the yield used to project the bonuses at the point of sale.
Most of these 310,000 policies had received bonuses that are lower than originally projected, due to the cut in bonus during some past years. I felt that it is more important for these past bonus cuts to be restored, subject to financial solvency.
In my meeting with Mr. Lim Boon Heng and Mr. Matthias Yao, I raised these two issues. They understood my concerns and reaffirmed that Income would observe its social purpose, treat policyholders fairly and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals.
Income has issued a statement, which is posted in their website, to address these concerns. The statement is reiterated by the chairman at the annual general meeting.
The first two points address the concern about the payment of special bonus. The third point that “the bonus allocated to policyholders should be fair and consistent with the experience of the fund” is more important for the long term interest of the policyholders. I am following up with Income on this important goal.
The comments of your editorial director about my “strategic errors” arose from a misunderstanding of my purpose, which is to protect the long term interest of the policyholders. I hope that the resulting actions will benefit the other policyholders as well.
Tan Kin Lian
Editor
Today Paper
I refer to your News Comment “Which hat was Tan Kin Lian wearing?” (Today, 2 June).
I have two policies affected by the bonus restructure. My initial reaction was to terminate these two policies and take a loss. I decided against this course of action, as I would lose the opportunity to raise this issue as a policyholder. My key concern was that 310,000 policyholders should not lose out.
Under the new bonus structure, the policyholder receives a lower annual bonus, to be compensated by a higher special bonus payable on surrender, death or maturity. My concern was that the special bonus is not guaranteed and it is difficult to keep track of the correct amount of special bonus required to compensate the cut in annual bonus for each policy.
After I started the collective protest, I obtained another important piece of information. The average investment yield earned by Income during the past 10 years was 7.8% per annum. This was higher than the yield used to project the bonuses at the point of sale.
Most of these 310,000 policies had received bonuses that are lower than originally projected, due to the cut in bonus during some past years. I felt that it is more important for these past bonus cuts to be restored, subject to financial solvency.
In my meeting with Mr. Lim Boon Heng and Mr. Matthias Yao, I raised these two issues. They understood my concerns and reaffirmed that Income would observe its social purpose, treat policyholders fairly and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals.
Income has issued a statement, which is posted in their website, to address these concerns. The statement is reiterated by the chairman at the annual general meeting.
The first two points address the concern about the payment of special bonus. The third point that “the bonus allocated to policyholders should be fair and consistent with the experience of the fund” is more important for the long term interest of the policyholders. I am following up with Income on this important goal.
The comments of your editorial director about my “strategic errors” arose from a misunderstanding of my purpose, which is to protect the long term interest of the policyholders. I hope that the resulting actions will benefit the other policyholders as well.
Tan Kin Lian
Poll on the Collective Protest
I decided to withdraw the Collective Protest after receiving the assurances from Income's chairman and deputy chairman and the chairman of NTUC's social enterprise development committee. These assurances address the two key concerns regarding the payment of the special bonus and that the future bonuses will reflect the actual experience.
I carried out a Poll on this matter. 76% of visitors (90 replies) to my blog disagreed with my decision. They must have felt strongly that policyholders should be given an option to stay under the old bonus structure. I wish to apologise for disappointing these policyholders.
I have agreed to withdraw the Collective Protest (670 signatures) in return for the assurances. I believe that we will not be able to achieve more by lodging the protest. It will affect the reputation of Income, and is not good for Income or the policyholders.
I believe that these assurances are important for the policyholders. I will continue to monitor the developments to make sure that they are implemented within the near future.
It is more important to policyholders that they should get bonuses that reflect the actual experience. I believe that the good investment yield of 7.8% earned over the past 10 years should allow Income to restore the cut in bonuses that were made during the bad years. If these bonuses are restored, even as a non-guaranteed special bonus, it will be good news to the policyholders.
Although the special bonus is non-guaranteed, Income has given an assurance on the payment of these bonus. I believe that this assurance can be accepted. Income has further assured policyholders that they will be fairly treated and given good value on their polciies.
I carried out a Poll on this matter. 76% of visitors (90 replies) to my blog disagreed with my decision. They must have felt strongly that policyholders should be given an option to stay under the old bonus structure. I wish to apologise for disappointing these policyholders.
I have agreed to withdraw the Collective Protest (670 signatures) in return for the assurances. I believe that we will not be able to achieve more by lodging the protest. It will affect the reputation of Income, and is not good for Income or the policyholders.
I believe that these assurances are important for the policyholders. I will continue to monitor the developments to make sure that they are implemented within the near future.
It is more important to policyholders that they should get bonuses that reflect the actual experience. I believe that the good investment yield of 7.8% earned over the past 10 years should allow Income to restore the cut in bonuses that were made during the bad years. If these bonuses are restored, even as a non-guaranteed special bonus, it will be good news to the policyholders.
Although the special bonus is non-guaranteed, Income has given an assurance on the payment of these bonus. I believe that this assurance can be accepted. Income has further assured policyholders that they will be fairly treated and given good value on their polciies.
Calculate your Life Expectancy
You can calculate your life expectancy based on your actual age, and lifestyle. Try this calculator: http://www.peterrussell.com/Odds/RealAge.php
This test shows that my virtual age is 46 (actual age 60) due to my lifestyle. My life expectancy is 90 years (another 30 years more to go!)
This test shows that my virtual age is 46 (actual age 60) due to my lifestyle. My life expectancy is 90 years (another 30 years more to go!)
Insurance for parents
Dear Mr. Tan,
My parents are in the mid 50s. They do not have any insurance coverage other than a private Shield plan. They belong to the old school - they do not see the benefits on insurance when they were young and now that they are old, the premiums for people of their age are very high.
An agent quoted close to $200 per month for a $30,000 critical illness term coverage. This seems like quite a high amount to pay for such little coverage. Are these premium rates the norm?
They are both in good health now but I worry when they fall sick in future as they do not have much savings to fall back on. I am very keen to buy these plans on their behalf but I do not want to be paying excessive for such little coverage.
REPLY
They are already adequately covered for medical expenses under the Shield plan. There is no need to buy the critical illness coverage at this age.
It is better for you to put the savings into a low cost investment fund, and accumulate some savings for them to draw down during their old age. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
The agent wants to earn a high commission from selling the critical illness coverage. This is not suitable for your parents, as their greater need is for an income during their retirement.
My parents are in the mid 50s. They do not have any insurance coverage other than a private Shield plan. They belong to the old school - they do not see the benefits on insurance when they were young and now that they are old, the premiums for people of their age are very high.
An agent quoted close to $200 per month for a $30,000 critical illness term coverage. This seems like quite a high amount to pay for such little coverage. Are these premium rates the norm?
They are both in good health now but I worry when they fall sick in future as they do not have much savings to fall back on. I am very keen to buy these plans on their behalf but I do not want to be paying excessive for such little coverage.
REPLY
They are already adequately covered for medical expenses under the Shield plan. There is no need to buy the critical illness coverage at this age.
It is better for you to put the savings into a low cost investment fund, and accumulate some savings for them to draw down during their old age. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
The agent wants to earn a high commission from selling the critical illness coverage. This is not suitable for your parents, as their greater need is for an income during their retirement.
Wise words from the late Dr. Lee Kum Tatt
How do we help our young to find a purpose in life? Dr. Lee Kum Tatt said:
One of the ways I follow is to ask questions and try to help them to find the answers. Here is an example.What do you treasure most in your life?
This sounds like a stupid question. My children thought so when they were young. My teenage grand children have taken over this thinking for a while but are now beginning to appreciate the good in some of our way of thinking. I take this as the generation gap which will narrow down with time and age.
As parents, we want our family members to grow up and be good citizens. It is exasperating that there are no accepted set paths to do this and our kids are constantly exposed to all sorts of ideas, some of which were not considered to be acceptable to us before.
For the younger generation, it is just as frustrating not knowing how to achieve what they think they like to have or to be. Our youngsters are looking for guidance on how to succeed in life.
Encouraging them to go for money is easy. Teaching them how to earn money in the correct way is a different matter. To teach them good values in words is also not difficult.
Some common words used include: love your parents; have integrity, be caring for others, avoid the four vices, etc. But to teach others how to live these values is not so easy. This is especially so when our society places strong emphasis on money making above everything else. To do anything different from the newly introduced acceptable norms will cost our young opportunities, effort, money, fun and with no materialistic or other tangible returns.
But as grandparents and elders we still have a role to play to guide the future generation to keep them on the “straight and narrow path” which are good for us all now and for our future generations.
Extracted from:
www.leekumtatt.blogspot.com
One of the ways I follow is to ask questions and try to help them to find the answers. Here is an example.What do you treasure most in your life?
This sounds like a stupid question. My children thought so when they were young. My teenage grand children have taken over this thinking for a while but are now beginning to appreciate the good in some of our way of thinking. I take this as the generation gap which will narrow down with time and age.
As parents, we want our family members to grow up and be good citizens. It is exasperating that there are no accepted set paths to do this and our kids are constantly exposed to all sorts of ideas, some of which were not considered to be acceptable to us before.
For the younger generation, it is just as frustrating not knowing how to achieve what they think they like to have or to be. Our youngsters are looking for guidance on how to succeed in life.
Encouraging them to go for money is easy. Teaching them how to earn money in the correct way is a different matter. To teach them good values in words is also not difficult.
Some common words used include: love your parents; have integrity, be caring for others, avoid the four vices, etc. But to teach others how to live these values is not so easy. This is especially so when our society places strong emphasis on money making above everything else. To do anything different from the newly introduced acceptable norms will cost our young opportunities, effort, money, fun and with no materialistic or other tangible returns.
But as grandparents and elders we still have a role to play to guide the future generation to keep them on the “straight and narrow path” which are good for us all now and for our future generations.
Extracted from:
www.leekumtatt.blogspot.com
Farewell to Dr. Lee Kum Tatt
I am deeply saddened to inform you that my very good friend, Dr. Lee Kum Tatt, passed away this morning.
For the past year, I have helped him to maintain his blog. He shared his passion about science, research, innovation and the values that are good for Singapore. We will not be able to learn from his wisdom any more.
Do read his blog, www.leekumtatt.blogspot.com.
For the past year, I have helped him to maintain his blog. He shared his passion about science, research, innovation and the values that are good for Singapore. We will not be able to learn from his wisdom any more.
Do read his blog, www.leekumtatt.blogspot.com.
Bonus based on long term yield
POSTED IN MY BLOG
I find it puzzling that Income said that the yield is unsustainable and they cut the bonus to 1.3%.
I bought a policy for my wife in 2003 when my insurance adviser told me that Income is a cooperative and that strengthened my belief to buy one from Income. Now that trust has been betrayed.
If the yield is unsustainable, is Income saying that all other insurance companies are unable to sustain it also. The annual yield is only declared when all other costs are being deducted.
I understand that in certain years the yield may be negative but policyholders are looking at the long term, of at least 20 years, for the average returns to be in the region of 5 - 7%. If Income wants to pay only 1.3% every year, if for that year the yield is 5%, what is Income going to do with the difference of 3.7%? The compounding effect of this nett 3.7% over 20 years can be very substantial.
And how would policyholders know how much every year they have earned if they are only being compensated when they surrender or a claim is made. Is there transparency?
Already the true cost of insurance is exorbitent and now they still want to cut bonus rates! If they are all out to s*** policyholders then in the long run, it will be only the insurance companies which will suffer, as nobody can be convinced to pay for a high cost for a small coverage.
pete
REPLY
Although the annual bonus has been reduced to 1.3%, Income has stated that they will increase the special bonus to compensate for the reduction. If the special bonus are paid as projected, the policyholder will not be worse off.
In the future, it is better to buy term insurance for the insurance protection, and to invest in a low cost investment fund. This is explained here:
http://www.tankinlian.com/faq/savings.html
I find it puzzling that Income said that the yield is unsustainable and they cut the bonus to 1.3%.
I bought a policy for my wife in 2003 when my insurance adviser told me that Income is a cooperative and that strengthened my belief to buy one from Income. Now that trust has been betrayed.
If the yield is unsustainable, is Income saying that all other insurance companies are unable to sustain it also. The annual yield is only declared when all other costs are being deducted.
I understand that in certain years the yield may be negative but policyholders are looking at the long term, of at least 20 years, for the average returns to be in the region of 5 - 7%. If Income wants to pay only 1.3% every year, if for that year the yield is 5%, what is Income going to do with the difference of 3.7%? The compounding effect of this nett 3.7% over 20 years can be very substantial.
And how would policyholders know how much every year they have earned if they are only being compensated when they surrender or a claim is made. Is there transparency?
Already the true cost of insurance is exorbitent and now they still want to cut bonus rates! If they are all out to s*** policyholders then in the long run, it will be only the insurance companies which will suffer, as nobody can be convinced to pay for a high cost for a small coverage.
pete
REPLY
Although the annual bonus has been reduced to 1.3%, Income has stated that they will increase the special bonus to compensate for the reduction. If the special bonus are paid as projected, the policyholder will not be worse off.
In the future, it is better to buy term insurance for the insurance protection, and to invest in a low cost investment fund. This is explained here:
http://www.tankinlian.com/faq/savings.html
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