Hello Kin Lian,
I really do empathise your plight - as what your former staff said: I quote " that if you are still the CEO, you would probably singing the same tune"....
I do agree with you that the bonus cut is uncalled for. As a layman, every now and then, whenever thereis a 'cut' in bonus, citing economic down turn - as an excuse, and policy holders are the 'guinea pig" to get the 'cut'.
All this while, we have no one to champion our grievances ..... and have to stomach the bonus 'cut' in silence. I feel there is no "transparency and accountability" on this issue as in my opinion, most management staffs are refrain from making "unnecessary comments" on the said subject.
Now, I am extremely delighted that with you at our side, the 'reduction in bonus' is now taken to task. I do hope other insurance companies, before taking out the 'knife' to "butcher" the policy holders' policy bonus rate, will think twice now.
Keep up the good work and now, my perception of you is changed.
REPLY
Thank you. In this case, the cut in bonus is unnecessarry as the invesment yield in 2007 was very high.
Tuesday, May 6, 2008
Fair distribution of bonus
Dear Mr. Tan,
If NTUC allows some policyholders to stay on the "old bonus structure", can NTUC punish these policyholders by giving a low rate of annual bonus in the future?
REPLY
The actuary and board of directors are required to act fairly in the distribution of the bonus among different groups of policyholders. If they act in a malicious manner, they can be subject to law suits and be personally liable.
If NTUC allows some policyholders to stay on the "old bonus structure", can NTUC punish these policyholders by giving a low rate of annual bonus in the future?
REPLY
The actuary and board of directors are required to act fairly in the distribution of the bonus among different groups of policyholders. If they act in a malicious manner, they can be subject to law suits and be personally liable.
Annual and special bonus
Dear Mr. Tan
I receieved a letter from NTUC showing changes to my bonus. They explained that the annual bonus has been reduced, but the surrender and maturity value is better. How is this possible?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/income.html
It explains the difference between annual bonus and special bonus and the impact on the policyholders.
I receieved a letter from NTUC showing changes to my bonus. They explained that the annual bonus has been reduced, but the surrender and maturity value is better. How is this possible?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/income.html
It explains the difference between annual bonus and special bonus and the impact on the policyholders.
Views from the management of NTUC Income
Some of the anonymous postings in my blog are clearly views from the management of NTUC Income.
I invite the management, or their representative, to send their views to my blog with their names. I shall be happy to give them their coverage, similar to letters in the newspaper.
In their anonymous replies, they often put words into my mouth. For example,"Mr. Tan, I am sure that if you are still the CEO of NTUC Income, you would have done the same thing". Let me speak for myself. Do not push your views on me.
I ask these commentators to act honourably and avoid attacking my character, with unstantiated statements, under the cloak of anonymity. I have allowed some of these attacks to be posted, so that other people are aware about what is going on.
If anyone has a point that you want my answer, you can send an e-mail to me. I will reply to it, and post it into my blog.
I invite the management, or their representative, to send their views to my blog with their names. I shall be happy to give them their coverage, similar to letters in the newspaper.
In their anonymous replies, they often put words into my mouth. For example,"Mr. Tan, I am sure that if you are still the CEO of NTUC Income, you would have done the same thing". Let me speak for myself. Do not push your views on me.
I ask these commentators to act honourably and avoid attacking my character, with unstantiated statements, under the cloak of anonymity. I have allowed some of these attacks to be posted, so that other people are aware about what is going on.
If anyone has a point that you want my answer, you can send an e-mail to me. I will reply to it, and post it into my blog.
Bad name to the life insurance industry
Someone attacked me for giving a bad name to the life insurance industry.
In my view, there are two segments of the industry:
1. Bad segment. This segment offers products that give poor value to consumers and pays high commission to agents to sell the products often through misleading means. This has been a problem of the life insurance industry for decades and continue to be a big problem today.
2. Good segment. This segment offers products that give good value to consumers, e.g. low cost term insurance. They give a good return to consumers on their long term savings, e.g. no load mutual funds. This segment represents a smaller share of the market. I hope that it will grow in the future.
In my articles, I wish to educate consumers on how to identify and avoid the bad segments. The agents involved in this market segment have caused disappointments to hundred thousands of policyholders over the years. These agents, and their insurance managers, have been giving a bad name to the life insurance industry.
I encourage consumers to find out and go to the good segment of the market. You need life insurance to provide financial security for your family. You need to grow your savings for your retirement.
I also encourage more insurance agents to move to the good segment of the market. You can earn an honest income (i.e. not at the expense of your customer) by selling good products in bigger volumes at lower margin.
In my view, there are two segments of the industry:
1. Bad segment. This segment offers products that give poor value to consumers and pays high commission to agents to sell the products often through misleading means. This has been a problem of the life insurance industry for decades and continue to be a big problem today.
2. Good segment. This segment offers products that give good value to consumers, e.g. low cost term insurance. They give a good return to consumers on their long term savings, e.g. no load mutual funds. This segment represents a smaller share of the market. I hope that it will grow in the future.
In my articles, I wish to educate consumers on how to identify and avoid the bad segments. The agents involved in this market segment have caused disappointments to hundred thousands of policyholders over the years. These agents, and their insurance managers, have been giving a bad name to the life insurance industry.
I encourage consumers to find out and go to the good segment of the market. You need life insurance to provide financial security for your family. You need to grow your savings for your retirement.
I also encourage more insurance agents to move to the good segment of the market. You can earn an honest income (i.e. not at the expense of your customer) by selling good products in bigger volumes at lower margin.
Charges of unit trusts
Here are the new types of charges you can expect:
Performance-related charges
Instead of paying a fixed fee, the charges are determined by the fund's performance. The better it performs, the higher the charge, but if it doesn't perform you don't pay.
Up-front charge
This can be compared with the present initial charge and is deducted from your money before it is invested.
Back-end charge
Also known as an exit fee, this is payable when you sell your units, and is usually levied on a sliding scale to attract investor loyalty. For example, if you sell after one year you could be charged 5%, after two years the fee drops to 4%, after three years to 3%, after two years to 2%, and after five years to 1%. After that you won't pay.
No-load funds
With no-load funds the investor does not incur any charges other than the annual service fee. These funds are suited to investors who invest directly with the asset management company (by-passing the broker and his commission).
Trailer fees
These are added on to the annual service fee and paid to brokers on a quarterly basis as an incentive not to switch investors to other funds. At present brokers are paid a one-off upfront fee.
All the above fee structures can be applied in combination, depending on the asset management company, for example, by lowering the initial fee but introducing an exit fee.
Performance-related fees would be levied on some of the existing funds if unitholders agree, and on new funds. The annual service fee may be raised for new funds.
Investors will need to compare the various products and their fee structures before committing their savings.
My recommendation
1. Select well diversified funds with low expense ratios, e.g. indexed funds
2. The upfront charge should be 1% or less. Better still, go for no-load funds.
3. The expense ratio should be 1.2% or less (for actively managed funds) or 0.6% or less (for indexed funds).
4. Transact directly through an internet portal, e.g. Fundsupermart, DollarDex, POEMS
Performance-related charges
Instead of paying a fixed fee, the charges are determined by the fund's performance. The better it performs, the higher the charge, but if it doesn't perform you don't pay.
Up-front charge
This can be compared with the present initial charge and is deducted from your money before it is invested.
Back-end charge
Also known as an exit fee, this is payable when you sell your units, and is usually levied on a sliding scale to attract investor loyalty. For example, if you sell after one year you could be charged 5%, after two years the fee drops to 4%, after three years to 3%, after two years to 2%, and after five years to 1%. After that you won't pay.
No-load funds
With no-load funds the investor does not incur any charges other than the annual service fee. These funds are suited to investors who invest directly with the asset management company (by-passing the broker and his commission).
Trailer fees
These are added on to the annual service fee and paid to brokers on a quarterly basis as an incentive not to switch investors to other funds. At present brokers are paid a one-off upfront fee.
All the above fee structures can be applied in combination, depending on the asset management company, for example, by lowering the initial fee but introducing an exit fee.
Performance-related fees would be levied on some of the existing funds if unitholders agree, and on new funds. The annual service fee may be raised for new funds.
Investors will need to compare the various products and their fee structures before committing their savings.
My recommendation
1. Select well diversified funds with low expense ratios, e.g. indexed funds
2. The upfront charge should be 1% or less. Better still, go for no-load funds.
3. The expense ratio should be 1.2% or less (for actively managed funds) or 0.6% or less (for indexed funds).
4. Transact directly through an internet portal, e.g. Fundsupermart, DollarDex, POEMS
Invest to earn 5% to 8%
Dear Mr. Tan,
If have S$200K in my saving account and S$75K in time deposit earning about 1.25%/year. How should I invest for a better return and what products to invest in ? Stock, property, time deposit or unit trust etc. I am for a net return of 5-8%.
REPLY
I hope that this FAQ will help you to find the answer:
http://www.tankinlian.com/faq/returns.html
If have S$200K in my saving account and S$75K in time deposit earning about 1.25%/year. How should I invest for a better return and what products to invest in ? Stock, property, time deposit or unit trust etc. I am for a net return of 5-8%.
REPLY
I hope that this FAQ will help you to find the answer:
http://www.tankinlian.com/faq/returns.html
Saving for a child's education
Hi Mr Tan,
I would like to seek your advice. Based on your years of experience in this industry, do you know of any insurance policy I can purchase for my twins who were born at 25 weeks?
If there is, how can I benefit from such policy as the parent? (e.g. When they turn 21 years old, I can also take it out and gain from the lower premiums paid for kids policies etc.)
They are both 1.5 years old now and growing healthy like any other kids (my younger kid has a certain malfunction but was operated successfully and growing like a normal child now)
I really don't understand why X rejected our application...(but one of my HR colleagues under the Benefits Section asked me to check out Y for congenital coverage).
Looking forward to your advice.
REPLY
I hope that this FAQ will help you to make the best decision for your twins:
http://www.tankinlian.com/faq/child.html
You can buy Medishield (from CPF) to cover their hospital expenses.
I would like to seek your advice. Based on your years of experience in this industry, do you know of any insurance policy I can purchase for my twins who were born at 25 weeks?
If there is, how can I benefit from such policy as the parent? (e.g. When they turn 21 years old, I can also take it out and gain from the lower premiums paid for kids policies etc.)
They are both 1.5 years old now and growing healthy like any other kids (my younger kid has a certain malfunction but was operated successfully and growing like a normal child now)
I really don't understand why X rejected our application...(but one of my HR colleagues under the Benefits Section asked me to check out Y for congenital coverage).
Looking forward to your advice.
REPLY
I hope that this FAQ will help you to make the best decision for your twins:
http://www.tankinlian.com/faq/child.html
You can buy Medishield (from CPF) to cover their hospital expenses.
Reasonable Expectation
Mr. Tan,
What do you mean by policyholder's "reasonable expectation"?
REPLY
In a participating life insurance policy, the contract states that a bonus will be added each year based on the profit for the year and distributed in a manner that is approved by the board of directors, acting on the advice of the actuary.
To prevent abuses, the Monetary Authority of Singapore (MAS) has issued guidelines to require the insurance company to declare its bonuses fairly and equitably, to meet the "reasonable expectation" of the policyholder.
Take the example of a policy with a benefit illustration stating that a bonus of $X will be added yearly to the policy, subject to the investment yield at 5.25%.
If the insurance company earns much more than 5.25%, the policyholders would expect the bonuses to be increased. It would not be fair for the directors to reduce the bonus. The policyholder can object to this reduction as a breach of "reasonable expectation".
If the yield is lower, the policyholder will have to accept that the bonus will be reduced, but they can insist that the reduction has to be applied fairly across all the policies. The insurance company cannot cut the bonus for some policies and increase the bonus for other policies.
What do you mean by policyholder's "reasonable expectation"?
REPLY
In a participating life insurance policy, the contract states that a bonus will be added each year based on the profit for the year and distributed in a manner that is approved by the board of directors, acting on the advice of the actuary.
To prevent abuses, the Monetary Authority of Singapore (MAS) has issued guidelines to require the insurance company to declare its bonuses fairly and equitably, to meet the "reasonable expectation" of the policyholder.
Take the example of a policy with a benefit illustration stating that a bonus of $X will be added yearly to the policy, subject to the investment yield at 5.25%.
If the insurance company earns much more than 5.25%, the policyholders would expect the bonuses to be increased. It would not be fair for the directors to reduce the bonus. The policyholder can object to this reduction as a breach of "reasonable expectation".
If the yield is lower, the policyholder will have to accept that the bonus will be reduced, but they can insist that the reduction has to be applied fairly across all the policies. The insurance company cannot cut the bonus for some policies and increase the bonus for other policies.
Transfer back to retirement account before 62
A policyholder told me that he decided to withdraw from a life annuity before payments starts at 62. He was surprised to learn the following:
> The cash value for the life annuity gave quite an attractive return from the past 6 years
> The CPF was willing to accept the cash value back into the retirement account
> The retiree was able to get a deferment bonus of $1,600 (not sure about the exact amount) a year X 3 years for deferring the withdrawal to 65 years.
This turn out to be a good deal!
> The cash value for the life annuity gave quite an attractive return from the past 6 years
> The CPF was willing to accept the cash value back into the retirement account
> The retiree was able to get a deferment bonus of $1,600 (not sure about the exact amount) a year X 3 years for deferring the withdrawal to 65 years.
This turn out to be a good deal!
Nearly 3,000 visits on Tues 6 May
The average visitors to my blog used to be 850 per day. The vistiors jumped to 2335 on Mon 5 May and to 2929 on Tues 6 May. This is three times of the average visitors. It seems that the bonus cut of NTUC Income is bringing many people to my blog.
In 3 weeks time, after the annual general meeting of NTUC Income, I expect my blog to revert to the quieter days.
In 3 weeks time, after the annual general meeting of NTUC Income, I expect my blog to revert to the quieter days.
Get several quote on your motor insurance
Dear Tan Kin Lian,
Which company insure your car? Kindly advise me. I am thinking of getting out of X. I read in your blog that a policyholder had her car insurance premium increased despite many years of accidents free. She now registered with somewhere else and the premium is cheaper.
REPLY
I suggest that you call a few insurance companies and check the premium. Their particulars are shown here:
http://www.tankinlian.com/faq/motord.html
In my case, I am now insured with Y and their service is good.
Which company insure your car? Kindly advise me. I am thinking of getting out of X. I read in your blog that a policyholder had her car insurance premium increased despite many years of accidents free. She now registered with somewhere else and the premium is cheaper.
REPLY
I suggest that you call a few insurance companies and check the premium. Their particulars are shown here:
http://www.tankinlian.com/faq/motord.html
In my case, I am now insured with Y and their service is good.
Buy a life annuity
Dear Mr. Tan,
I am 55 year old. Should I put my $100,000 saving in the FD or buy an annuity. Kindly advice me which is investment can give me a higher return.
REPLY
I suggest that you buy a life annuity. Read this FAQ:
http://www.tankinlian.com/faq/life.html
If you are interested, I will ask X to advise you.
I am 55 year old. Should I put my $100,000 saving in the FD or buy an annuity. Kindly advice me which is investment can give me a higher return.
REPLY
I suggest that you buy a life annuity. Read this FAQ:
http://www.tankinlian.com/faq/life.html
If you are interested, I will ask X to advise you.
Write to ask the CEO of NTUC Income
Dear Mr. Tan,
My husband and I just invested $X and $Y in the Growth Plan in Feb 2008. We just received a letter from NTUC telling us that Annual Bonuses will be cut. We don't really understand what this means for us. Could you please advise us if the Growth Plan is still a good investment or not?
REPLY
I suggest that you write to the CEO of NTUC Income. I think that he will give you an explanation and advice. Wish you all the best.
My husband and I just invested $X and $Y in the Growth Plan in Feb 2008. We just received a letter from NTUC telling us that Annual Bonuses will be cut. We don't really understand what this means for us. Could you please advise us if the Growth Plan is still a good investment or not?
We feel a little short-changed and puzzled by the change, especially as we have only just bought this Plan. If NTUC had plans to revise the Annual Bonus – and I use the word "revise" euphemistically – then they should not have continued to sell the Growth Plan to customers under the guise of the old Plan and rates.
We are very confused by all this and don't know if we have made a stupid choice. What should we do now? We are risk averse and usually just put our savings in bank accounts and fixed deposits.REPLY
I suggest that you write to the CEO of NTUC Income. I think that he will give you an explanation and advice. Wish you all the best.
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