Higher interest rate for Government bonds

Dear Mr, Tan,
The past week saw the drop in price of Singapore Government bonds. What is the reason for the drop and is this the right time to buy the 10 or 15 year bonds, considering that their yield is well over 3%? Are they not better than some of the single premium products offer by insurance companies?

REPLY
I do not follow the market in Government Bonds. I suspect that the drop in price is due to a general rise in interest rate. The world may be entering a period of higher inflation, which is being reflected in the increase in interest rate.

If the level of interest rate increases further, you may see a further drop in the bond prices. I do not know if this is the right time to buy Government bonds, as it depends on whether interest rate will rise further.

Perhaps, if you buy a bond for 3 to 5 years, it may be all right. However, the yield may be lower than 3%.

Here are the yields on Singapore Government bonds, taken from the Fundsupermart website:
http://www.fundsupermart.com/main/sgs/SGShome.tpl

Maturing   Remaining  Yield
year       duration
2011         3.1 yr   1.79%
2013         5.1 yr   2.51%
2018        10.2 yr   3.38%
2022        14.2 yr   3.39%
2027        18.7 yr   3.80%

Drop in maturity benefit

Dear Mr. Tan,
You should know the implication, a new page in Singapore insurance ....

20 year ago, I bought a 25 yrs endowment with premium payments limited to 20 year from X. The maturity benefit was projected to be $24,583 with an annual premium of $500. After paying for 20 yrs, I received a statement from X stating the projected total maturity benefit is $19,810 instead of $24,583 - a 20% drop.

Since NTUC is the largest, all other insurance company will follow and I believe not only endowment policy, other policies are also affected. This will affect every citizen. I pity those agents whose customers were mostly friends and relatives.
JK

REPLY
The drop in the maturity benefit is due probably to the lower investment yield earned during the past 20 years, compared to the expected yield at the time that the policy was sold to you. Based on the revised maturity benefit, the yield is 3.9%.

I agree that the yield on this poilcy is somewhat how, compared to the yield earned by company X during the past 20 years. I hope that life insurance companies will reduce their charges and give a better yield to their customers in the future.

Reason for Restructuring of Bonus

If you like to know Income's reason for the restructuring of bonus, you can read their statement in their website: http://www.income.com.sg/

Here are some key points from the press statement issued by Income:

> We will work always with customers’ interests at heart. Every decision we take is calculated to protect their interests individually and as a whole. What we seek to do is to deliver the best possible returns to policyholders, now and also in the future.

> Although special bonuses are not guaranteed, they are set to ensure that the reduction in annual bonus is fully compensated. Where the strength of the Fund and investment outlook permits, this will continue in future. Should this compensatory special bonus reduce in future due to poor investment conditions, we are committed to restoration when conditions improve.

> We will ensure that the bonus allocated to policyholders result in payouts which are fair and consistent with the experience of the fund.

I remember that these points are also reiterated in the speech given by chairman Ng Kee Choe at the annual general meeting. I believe that his full speech will be posted in the website over the next few days.

Restructuring of EV series

Dear Mr. Tan
I have just voted in your Poll that I disagree with your decision to call off the Collective Protest. I attended the annual general meeting and heard your question about the EV series, introduced recently, where the bonus has not been restructured.

Is it fair to restructure the bonus for the old series and expose the policyholders to the uncertainty, and at the same time sell new policies (i.e. EV series) on the unrestrucutred bonus? If the restructured bonus is good for the future, why is it not applied to the EV series? (Remainder of statement deleted)

I urge you to continue to lodge the Collective Protest.
MS

REPLY
I have followed up on this matter after the annual general meeting with Mr. Matthias Yao. Let us wait for his reply.

There are three products under the EV series. One has been restructured. Maybe, the other two products will be restructured next year (just my guess).

Gold Link Capital Protected Fund

Dear Mr. Tan
What are your view of this product?
> 100% Capital Protected
> 3 years
> MAX annual return 23% - 25%p.a.
> No service charge if hold until maturity
> A small portion in invested in JP MORGAN GOLD INDEX
> The balance is invested in 3 years NRID

This fund will invest in the gold market in June. What is your forecast on its performance? Is now a good time to do in Gold-LINK products?? Is commodity related funds favorable to go in at this point of time?

REPLY
I dislike all capital protected and capital guaranteed products. My reasons are stated in this FAQ:
http://www.tankinlian.com/faq/sinvest.html

If you are willing to take a risk in gold, it is best to invest in it directly, and not through a structured product. However, if you are not sure about the risk, you should stay away from it.

Personally, I find gold, oil and commodity prices to be too high, due to speculation. I avoid them at this time.

Convert Life Annuity to Cash

Dear Mr. Tan
My 61 yr old mother has a Income Life annuity purchased with CPF retirement funds. We are thinking of converting the CPF annuity to a cash annuity using cash payments (since we bought the annuity at good terms previously). Then she would have funds both in CPF (from the annuity refund) and the Life annuity, which would both offer stable returns for a retiree.

Do you know whether NTUC Income allows policy holders to convert an existing CPF annuity policy to cash annuity if we pay cash?

REPLY
You can ask Income directly. The head of life insurance is Peh Chee Keong, pehck@income.com.sg.

Capital adequacy ratio of 170%

Dear Mr Tan
I do not understand why Income change its policy?

1) Does it mean they are not making enough to pay like the old system?

2) Is it still safe to buy insurance from Income which I am consider Growth plan despite the bonus change which is lower in return? I read Saturday May 31st in Straits Times reported that such scheme was to improve Income solvency position. Will they go burst for year to come?

3) If there have decided to change the bonus plan. Why not take effect from 1 June 2008 after the AGM instead of from year 1993 which is not fair for those who bought during that year onwards. A vote for this to all policyholder to decide.

4) Yearly AGM, should they declare the special bonus that is put aside at Income but is not payable. This will give policyholder a peace of mind when their policy is due for payment as a form of some guarantee.
JT

REPLY
Income is still financially strong with a capital adequacy ratio of 170% (2006), compared to a minimum of 120%. It is quite safe to invest with Income, from this standpoint.

I hope that they will be able to earn a good yield in the future, and distribute it to the policyholders. The chairman had made a statement that the board is committed to give the best value to the policyholders. I hope that this means that the policyholder will get a better yield, compared to similar policies in the market.

Will writing service

Dear Mr Tan,
I intend to write a will and wonder if you could recommend a lawyer to me.

REPLY
I will ask Alan Chiu (achiu@income.com.sg) to help you. He manages a will writing service under NTUC Income. They have lawyers on a panel who charges a low fee for writing a standard will.

REPLY FROM ALAN CHIU
The cost of our simple Will Writing service is $160.50. This is a special price for our policyholders and Big Trumpet members.

If you are keen, kindly provide your contact number and we will ask our lawyer, to contact you directly on the details.

Transfer of Shares to Family Members

I am visiting SGX to open a share account for my family members. I will transfer some of my shares to them. The cost of transfer is $10 per account per family member. I will transfer some shares initially, and additional shares at a later date.

This will give my family members the experience of owning shares, receiving the annual report and dividend of the investee company. They can also attend the annual general meeting.

Later, they can buy their own shares, from their savings. This gives them a chance to learn about their own investments, instead of investing through a high cost life insurance policy.

I wish to post this suggestion, so that other parents who have shares accumulated during their working life, can consider to transfer some shares to their grown up children.

Uphold the cooperative values

Hi Mr. Tan,

My wife and I have got a living policy each with NTUC Income during your tenure as CEO. I have great admiration for you as a CEO because you have come across to me as the dying breed of CEOs who do not aim for Income to keep breaking new frontiers but rather give more consideration to your clients and members.

The moment I heard you are stepping down, I told my wife our policy returns will suffer as the next CEO will try all means to increase profits. Now I am proven right - the new structure is a change to the policyholders' disfavour. We have to sacrifice one per cent per annum to gamble on promised return scenarios amid greater uncertainties and the present investment experts never disclose how they will ensure the existing policy holders will not be worst off.

I support you strongly to ask for old structure as a choice for existing policy holders - otherwise the investment chief must disclose how the policy holders will not be worst off with the new structure not just for the next few years but for the length of the policy life, stating clearly all assumptions objectively.

The greatest disadvantage is to let so high weightage on the surrender year or the death year to decide all the returns of the policy. This is like a lottery and it is completely unfair to those who do not want to gamble! I am too aware that privatisation will only incur initial few years of savings in the case of clean and efficient government but will eventually become a heavy burden for lower middle income earners and below.

If even a 2.13% return cannot be guaranteed for such a long period of investment horizon, I don't know what are they doing. Very sad that even insurance companies are joining the banks in paying less than peanuts as interest.

The fear that new CEO will take NTUC Income closer to the commercial insurance companies in achieving lesser and lesser returns because of higher expense ratio but less effective investment realisations is taking shape.

I am indeed very sad and disappointed that Mr Lim Boon Heng and Mr Yao who also represent the government support the NTUC Income case. Please do not be disheartened by the less than expected response from the policy holders because many do not understand the implications of the new structure - some even may be unaware of the change. I do not know how many policyholders are affected too.

That day I was trying to give you my signature but as I was not tech savy, I failed. Surely I am not the only one and there are still many uncles and aunties who are not very familiar with internet technology.

Mr Tan, I at one time felt that NTUC Fairprice also would be going down to be another Cold Storage, until the rising economic problems facing the mainstream of Singapore saves it. I sincerely hope you could lead us to prevent NTUC Income to become like just another AIA, Prudential, etc to show that NTUC Income has arrived. NTUC Income should distinguish itself from the rest of the insurers by guaranteeing that there will always be a space for a constant consideration to be given to the policyholders in the temptation of 'commercial pyrotechnics'.

Best Regards,
HT

REPLY
Thank you for your letter. I hope that the new CEO and board will continue to uphold the cooperative values and achieve better results to give better value to the policyholders. Give them some time.