Saturday, October 22, 2005

Consumer should also act responsibly and fairly

24 October 2005

Online Forum
Straits Times

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
NTUC Income

Use MMS to take picture of accident


NTUC Income has come out with an innovative way to help policyholders in their motor accident disputes through the use of MMS technology.

NTUC Income handles about 2000 accidents each month. About 10% of these cases involve disputes between the parties on the cause of the accident. The parties give conflicting versions in the accident in the accident report. This makes it difficult for the insurers of the vehicles to decide on the party that should pay for the damages.

Some motorist try to distort the fact of the accident so that they can avoid liability. They want to put the blame on the other party and keep their No Claim Discount.

To help our policyholders in these disputes , NTUC Income is starting a service to encourage them to send an MMS of the photos taken at the accident scene. Many motorists now carry a mobilephone that can take pictures and send them to us immediately by MMS.

Photos showing the position of the vehicles as well as the damages caused by the accident are useful in the investigation of accident liability. It will also prevent aggravation of damages after the accident to inflate the repair cost.

Our policyholder should also give other useful information like the third party claimant's contact as well as whether there are any injuries substained due to the accident.

The MMS can be sent to XXXX XXXX to be stored directly into our server. Alternatively, the motorist can download the photo into a computer and send them to us by e-mail at When the motorist call our 24 hour accident reporting center, our staff will tell them about how to send the MMS or e-mail.

We hope to solve 50% of the disputes through the use of this new initiative.

Tan Kin Lian
Chief Executive Officer
NTUC Income

You can buy the annuity between 55 and 62

22 October 2005

Forum Page
Straits Times

I refer to the letter "Buying annuity ? No need to rush, can wait till 61" by Mr Dennis Ng Kah Wan (ST, 20 Oct 2005)

Mr Ng said that in the current low interest environment, it is better to leave the CPF Minimum Sum in the retirement account to earn guaranteed interest of 4% per annum. There is no need to decide whether to convert the minimum sum into annuity at age 55.

I agree that the guaranteed interest paid by CPF is attractive. The retiree also has the choice to decide on buying the annuity at any time between 55 and 62. Many of them are aware about this choice, if they speak to our insurance adviser.

As stated in my previous letter, if $90,000 is used to buy a life annuity at age 55, we expect to pay a monthly sum of $543 from age 62, comprising of a guaranteed sum of $473 and an estimated bonus of $70. The bonus amount will depend on our investment yield in future years and is not guaranteed.

If the $90,000 were to be kept in CPF Retirement Account up to age 61 years and 11 months, the sum will grow to about $118,000. Using the sum to purchase an annuity then, the monthly payout from age 62 will only be $528. Based on this example, an earlier purchase of an annuity is a better decision.

I will let each retiree decide on whether it is better to buy the annuity earlier or later. If you buy the annuity later, you will have to take the risk that the plan may not be available at that time, or the terms may change.

For people who are interested to know more about the annuity plan, I suggest that they attend our educational seminar. I will be happy to make a presentation and to answer questions from the floor.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Annuitants who did not receive a bonus in recent years

22 October 2005

Forum Page
Straits Times

I refer to the letters "Don't bank on bonuses to boost monthly payout" by Mdm Ng Lee Chin and "Why was no bonus declared?" by Chen Zhide and Chiang Bak Hoi (ST, 20 Oct 2005).

The three writers bought an annuity plan from NTUC Income. They were disappointed that they have did not receive any bonus during the past three years.

From the information gathered, the writers have invested in our earlier series of annuity policies.

NTUC Income started the participating annuity plan in 1993. They offered high guaranteed payout. For example, a male at 55 investing $90,000 was given a monthly payout of $765 per month. The annual payout amounts to 10.2% on the amount invested. This is a very attractive payout, considering the low interest rate environment
in recent years.

For this series, we used a guaranteed interest rate of 5% to compute the guaranteed payout, and pays a bonus if our average investment yield is higher than 5%.

The annuity is payable for a lifetime, which may stretch for 25 years or longer. In the event of early death, the annuity is payable for a minimum of 15 years.

As the average investment yield in recent years was less than 5%, this batch of annuitants did not receive any bonus. But, they did receive an attractive guaranteed payout which is more than can be obtained from other types of low risk investment today.

We introduced two new series for new purchasers. The series introduced in 2002 provided a lower guaranteed payout, computed on an assumed interest rate of 2.5% per annum. They will receive a bonus if the average investment yield is higher than 2.5%. This batch of annuitants have received a bonus of 0%, 2%, 2.5% during the past 3 years, or an average of 1.5% per year.

We have notified our annuitants on several occasions about our system of declaring bonus on their annuity plan.

We invited our annuitants to a dialogue session on 26 February 2005 for them to ask questions and seek clarification. About 100 annuitants attended. At the dialogue, the earlier batch of annuitants realised that they had a better payout than the later batches. The later batches of annuitants asked if they could be placed in the same footing as the earlier batches. We explained that this was not possible.

As an insurance cooperative, NTUC Income aims to act fairly in the interest of all policyholders, including annuitants. We declare most of our surplus to our policyholders, and invest their money prudently to safeguard their long term interest. We distribute the surplus fairly to all policyholders.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Monday, October 17, 2005

Two ways to buy a life annuity with your CPF

A CPF member is required to keep $90,000 in the CPF to be withdrawn in monthly installments. He can buy a life annuity with this sum.

Here are two ways to buy the life annuity:

- buy at age 55, and receive the monthly payment from 62 years.
- keep in CPF to earn 4% per annum, and to buy the annuity at age 62

Which is better?

If you buy the annuity at age 55, we pay you a guaranteed interest of 2.5% and bonus that depends on the earnings of our insurance fund. Based on our past record, we expect the bonus to vary from 1% to 3%, but this is not guaranteed.

If you keep in the CPF, you will get a guaranteed return of 4% per annum, which is quite attractive. You can invest in the life annuity after age 62. The amount that you can get depends on your age, gender and the amount invested.

Generally, our life annuity gives a guaranteed return of 2.5% plus a bonus that depends on the earnings of our insurance fund. We also give a higher payout, as the capital sum is consumed during your lifetime.

Many people find it quite attractive to buy an annuity at age 55. The guaranteed return of 2.5% plus the bonus (assuming 2% per annum) will be better than keeping the money in CPF.

Sunday, October 16, 2005

Pay an annuity to an injured person

Some people are injured in an accident. They are paid a lump sum as a compensation.

It is better for these victims to receive an annuity of $X a month for a certain number of years, or for a lifetime.

This ensures that the money is used for the purpose, ie medical and living expenses, and not used for other purpose, eg buy a property or speculate in investments.

Pay regularly using an annuity

Singaporeans donated $70,000 to the parent of the Nepalese twin (Gangga and Jammu) to take care of their expenses for 8 years. The parents claimed that they did not receive the money.

It would have been better if the money had been given to the parent in the form of a monthly annuity. The monthly payment could have been around $800. This will ensure that the money is used for the living expenses, and not used for other purpose.

A 8 year term annuity is suitable for this purpose. Technically, this is called an "annnuity certain", but I prefer to create a new name, called the term annuity.

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