24 October 2005
I refer to the letter from Lai Chong Seng entitled "Consumer protection law should also cover financial services" (ST Online, 21 Oct 2005).
NTUC Income supports the proposal to extend the consumer protection law to cover financial services.
We believe in offering products that are fair to consumers. We are a cooperative society and do not intend to make profit at the expense of our policyholders. We distribute most of our annual surplus to our policyholders, and distribute them fairly.
We believe that the law should also encourage consumers to act responsibly and not pursue their self-interest at the expense of business organisations.
I now wish to address the issues raised by Lai Chong Seng.
We have always made in clear in our communciation that non-guaranteed bonus could mean zero bonus in some bad years. In illustrating our bonus, we act responsibly in estimating the likely investment income in the future. Our illustration in 1996 reflect the global economic situation at that time.
Subsequently, the global economy went through several years of low interest rate environment. This has reduced the return on investments. Mr Lai was protected by the high guaranteed rate of return on his annuity. He has benefitted from his annuity contract.
It was made clear in our policy contract that the bonus is declared by the appointed actuary. In doing his work, the actuary has the duty to be look after the solvency of the insurance fund and the long term interest of all policyholders.
Each year, the actuary recommends to the board of directors on the rates of bonus to be declared for different series of policyholders, and ensures equitable treatment of all policyholders.
As this is a complex matter, it is not possible for the bonus declaration formula to be spelled out in the policy contract.
In 2001, we issued two new series of annuity contact to offer a lower guaranteed return. This was necessary to reflect the lower interest rate. The new series did not adversely affect the old annuity contracts, such as the annuity taken by Mr Lai.
Although the new annuitants enjoy a bonus during the last two years, they still receive a lower return compared to the high guaranteed return enjoyed by Mr Lai.
I understand that Mr Lai has raised this issue with us in the past. We have provided the explanation to him previously. He is still not convinced.
If Mr Lai still feels that he has been misled into buying the annuity contract, I wish to offer him a refund of his invested sum with interest at 4.5% per annum, less the annuity payments that he has received.
The proposed rate of 4.5% is the average net rate that was earned on our investments during the past 10 years. I shall also be making this offer to other annuitants who had bought the same series of annuity as Mr Lai.
Tan Kin Lian
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