Tan Kin Lian's Blog: Retrenchment Loan

Saturday, November 15, 2008

Retrenchment Loan

DBS Bank has announced that it will retrench 900 employees. More than half will come from its operations in Singapore.

Many companies in Singapore are expected to retrench their employees in the months ahead, following the slowdown in the global economy. Analysts expect that the number will exceed the 30,000 people retrenched during the Asian financial crisis in 1998.

Singapore does not have an unemployment insurance scheme. The retrenched employees will find it difficult to find alternative jobs. They are likely to be unemployed for several months or years.

I wish to suggest that the Government set up an Unemployment Loan scheme to provide a monthly payment to the retrenched employees. I propose this scheme to work as follows:

a) The amount of loan will be at 70% of the average earnings, subject to a cap of $2,000 a month
b) Interest will be charged at 2.5% per annum
c) The loan will apply to a worker who has been retrenched from a job that he has worked for more than 12 months.
d) The loan can be drawn for up to 24 months from the date of retrenchment.
e) Any retrenchment benefit received by the worker should be used first, before the worker is allowed to draw down on this retrenchment loan.

This loan will enable to retrenched worker to meet the mortgage repayments and family expenses. It has to be repaid in the future, when the retrenched worker has found a job. Any unpaid balance of the loan will be recovered from the Central Provident Fund savings of the worker.

This is similar to the Unemployment Benefit operated by many countries - with one key difference: the proposed scheme provides the monthly payment as a loan that is repayable at a modest rate of interest. The retrenched employee who needs money does not have to rely on credit cards and loan sharks that charge a high rate of interest.

17 comments:

Anonymous said...: A very good suggestion.
I remember when I was in Australia some years ago when the issue of CPF like scheme was debated. The people I talked to objected to the idea because they said when the jobless ppl are not given enough monies, they may resort to unlawful way of getting monies for their needs (wants).
Retrenchment are at the door already, believe it - it is pioneered by DBS bank who still make more than $300M for this quarter alone. More are to come.
Two extremes cases could happened when the bread winners lose their job and their family need the monies for survival :
1. They turned to crime as I wrote in the openning of this writing.
2. They turned to loan shark or whatever organisation they could found, without looking at the interest charged, consequences of failure to pay back because all these to them is not important now. What they want is $$$ to feed the families.
May be the government could use part of the $150B bank guaranteed fund fot this purpose, administered by CC's to take care of various constituents.; November 15, 2008 10:28 AM
Anonymous said...: AngMO said

I believe there is such thing aa
1.Retrenchment Insurance.
2 Reverse Mortgage on HDB.
Then Why not offer Reverse mortgage on CPF until Recession is over! This is to tied those who are financially strapped on retrenchment ahead!An innotive idea indeed!; November 15, 2008 10:47 AM
Anonymous said...: With retrenchment looming next yr. and Singaporeans piling on debts as reported, will Foreclosures hit our shores?
Can FengShui Masters ward off the bad Chi?; November 15, 2008 11:00 AM
bsd said...: i remember when i was unemployed for about a year during the SARS crisis, I had to draw down on my credit lines and credit cards for daily expenses. In the end, I had incurred a $70,000 debt at 18-24% pa before I landed a job. Imagine what happened if I used up all my lines before getting a job... and this recession is expected to last 2-3 years. So keep those credit lines handy. If you have life insurance policies, i believe you can borrow at about 7% against your cash value.; November 15, 2008 11:02 AM
Anonymous said...: FIRST THINGS FIRST, THIS IS NOT A NANNY STATE

Creating, Serving AND Chasing Loans is not a job of the authorities

Thats literally and precisely the kind of social culture and mindset that THEY are trying to steer the Nation AWAY FROM..Over-Reliance!

Imagine, which public agency is formed (and fed) for the sole reason of creating and sustaining social debt..National ones!?

Scenario for consideration:
and if I am a taxpayer who NOT taking up such loans, but knowing my tax dollars are being channeled to those who do, worse yet having difficulties paying back, to the extend MORE of my tax dollars are thrown in to chase after such bad debts, is it fair to me?; November 15, 2008 2:21 PM
zhummmeng said...: bsd,
borrowing from your policy at 7% when they pay you zero does not make sense, right? Of course, if you compare to credit card
it looks good. Put it this way it is the better of the 2 evils.Both are still evils. It would have been averted if you had an adviser instead of an insurance agent.
Never borrow from your policy. Surrender it makes more sense, because eventually you will terminate because of the mounting interest rate that you won't want to pay and also it makes no sense to keep a policy that is encumbered..
Agents will tell you this and that and not to surrender because you might not be covered.THis advice shows how inadequate or narrowness or lack of knowledge these agents have. More like selfishness. If you need coverage buy a term of 10 years renewable from saving from drinking one cup of coffee less..
In fact if you had followed the BTITR strategy you might not have this problem. Another fact is if you had a qualified and competent and honest adviser you would have been prepared for situation like this compared to people who used insurance agents.
The difference lies between having a insurance salesman and a adviser.; November 15, 2008 4:03 PM
Anonymous said...: in oz, it is called income protection insurance but it doesnt insure against job loss or retrenchment.; November 15, 2008 5:32 PM
Anonymous said...: Prhaps it is time to go back to the founding principles of Singapore - people acting for people, The NTUC for example was set up to cater for workers' welfare woth its various cooperatives. Has the NTUC been a partner in planning and supporting for workers' retirements and retrenchments? If the government for whatever reason is unwilling to offer more help for retrenched workers then perhaps they can allow more alternative coops and trade union organizations to emerge.; November 15, 2008 5:48 PM
Anonymous said...: Hi, I do agree with the above that using tax payers money to fund these loans isn't a very good idea. I do hope that this loan can be made in place as a 2nd tier.

The Solution:

What people suggest is using CPF money

http://www.nsp.sg/speech_transcript.php?more=18

I.e. the idea will be similar to your employment loans, but instead of having to draw funds from the tax payers, instead it will be drawn from what you have earned and accumulated.

CPF isn't a coffin provision fund, since it has enable us to own homes and fund our education, why not tide us over through the darkest time.

Also, you do have to repay back your CPF once you have found a job (Similar to education loans, where you have to pay back into the kitty once you have graduated).

The condition you have laid out for your empoylement loans can be applied here too. However, the big difference is that the direct risk is not on us, the tax payers. This would be a much acceptable solution.

The critics:

Now, people might argue that what about those of lower-income with little CPF. Perhaps, as I have mentioned above regarding your empolyment loans as a 2nd tier, thus if the lower-income group is found to have insufficient funds, then we do really have to resort to this.

Also, people might ask wouldn't this affect your retirement plan or savings? Well, if you are in deep shit now, what is more about the future?; November 15, 2008 7:40 PM
Anonymous said...: I gather you would rather your tax dollars are used to invest in the likes of Merill Lynch.

The biggest Nanny State in the world at this moment in time is the United States of America.

Best Regards
Stressed Out; November 15, 2008 7:49 PM
Anonymous said...: People should be prepared to try all efforts before giving in to hardships in life. Have we all forgotten how our forefathers "suffered" in the old days? I was told that meat is a luxury that is only permitted during CNY. The rest of the year are rice, porridge, veg, and soy sauce. In the film Cinderella Man, during the Great Depression, people lined up for soup for hours. Father gave up his meal for his daughter. Even when his hand was injured, he had to work as hard labour in the docks. He felt ashamed of himself having to go get assistance from the local government. The first thing he did after winning a boxing match was to return the money he took.

Don't tell me we have softened today? True, that was a film which may not be accurate. However, is it not possible to find work that pays hourly, work that rely on labour, work that most people don't want to do? If can drive, work as a cabby, or a heavy vehicle driver. Not great pay, but can survive, right? If still can downgrade to small house, do so. Stop spending except necessary items. Many successful people today lived in harsh condition as a kid. Perhaps, your children has the best environment to learn about life instead of playig Wii at home, throw tantrums at the library, play loud music via handphone on public transport, go waste time in branded tuition centres, throw money for a short stint in piano, violin, ballet that will never materialise being his career.
If really cannot make it, liquidate everything and go live in our neighbouring countries where cost of living is lower. Yes, I know you have friends and relatives here, but can always meet once in 2 years. Or, via internet. What about those relatives in North and South Korea who are seperated for decades?

The point is, be debt-free and adapt to new environment and conditions, and don't give up life because there is always a way out.; November 15, 2008 8:31 PM
Anonymous said...: It is surely significant that Mr Lim Swee Say as well as the minibod/pinnacle notes investors raise the issue of trust where DBS is concerned. Here is Mr Lim Swee Say,

"'We are disappointed by the sudden decision,' he said yesterday, adding that the lack of communication has weakened the trust between its management and the union.

'There was no prior consultation with the DBS staff union. There was no exploration with the union on other cost reduction alternatives.

'It is regrettable because trust takes a long time to build but a short time to destroy.'

(Mr Lim, secretary-general of the National Trades Union Congress (NTUC) and adviser to the DBS union)

When we have repeated concerns expressed about the trust that we should place in DBS surely this is ground for an investigation into the way the Board and the management of DBS (a public bank belonging to the people of Singapore) have managed their duties and responsibilities. Or are they beyond question?; November 15, 2008 11:05 PM
Anonymous said...: If you are retrenched or prospect of being retrenched and if you have bought the ntuc revosave and have difficulty paying the premium it is time to review the product.Get a third party to review for mis-selling or misrepresentation. There is strong likelihood that you were mis-sold and the product was misrepresented to you.You can get a full refund of all premium paid if there is. I urge you consult a qualified financial planner to check for you.
All the best . At a time like this every cent counts.; November 16, 2008 1:11 AM
Anonymous said...: All those who bought vivolife from ntuc can claim retrenchment benefit.
Your wish has come true. Hope more will join the rank and ntuc will deliver.
Let us know how the retrenchment benefit works for all of you .; November 16, 2008 5:40 PM
Anonymous said...: Insurance protect events that have a statistical bias in size, frequency and premiums are based on statistical models.

Unfortunately, recessions and retrenchments are events which have no statistical bias in size or frequency.

Credit Default Swaps were designed operated like insurance policies that may protect mortgagee loans from default through substitution of the defaulters monthly payments from the swap account. CDS can be designed for assets to be collaterized based on paid out amounts to the mortgagor. Instead of the government providing bailouts they can hold the junior tranch of the CDS and be the first party to take the hit. ( Again if it is structure properly because of the asset is a hard asset and not synthetic the government will recover the shareholders ( tax payers money) after the economy recovers. When a person is in deep financial trouble time they will need to buy time. Helping with small amounts workfare etc does not help mitigate risk. If workfare was to be converted to a CDS for mortgagees' recessions can be treated as part of the risk of living in this global world. In addition with safety net it protects the property market from bubbles like were present in USA. Freddi mac and Mae had provided the liquidity for defaults that was structure as a replacement to assist banks with price discovery and transparency. By so doing it also unintentionally created a default structure that provided property developers with a safety net to overdevelop.

Risk Management is to diversify the risk using time deflectors as the means of standardization. If done properly it will spur entrepreneurship as risk from the venture is separated from the risk in economy conditions that impact daily living expenses.; November 17, 2008 12:31 AM
Anonymous said...: Yesterday I was inform by DBS that my RM is being retrenched and my account taken over by other senior staff. I was told it has nothing to do with my complains of mis-sold for High notes 2 and "mismanaged of my funds." But it just makes me wonder if my complains would be still under investigation? Or is DBS taking the easy way to "clear" and reduced the complaints rec'd?
Any comments?; November 18, 2008 11:00 AM
John Morley said...: How to be SAFE in troubled times.

Fear of 'job-loss" is a universal element in the minds of millions of people worldwide, because of the basic system that creates the "employee" mindset.
Systematic programming over a long period of time, coupled with a manipulative education system ensures that fear is permanently embedded.
From being small children to adults, the GRADING/CHANELLING and SCREENING process systematically and progressively reduces the options of an individual to the point of needle point specialization.
The result is .. large numbers of highly trained, but very limited individuals at the mercy of market forces which are beyond their own control.
The obligatory letter of EMPLOYEE UNDERTAKING, not to engage in other income generating activities whilst employed, sets the stage for a life of exclusive servitude.
Routinely creating a mindset that has the 'expected outcome' of a single dependency income is the root cause of unlimited personal distress.
Even though the risk of financial disaster is exceptionally high, it is sought after and welcomed year after year by the millions of new and willing job seekers.
In economically difficult times the truth becomes self-evident.
THE SYSTEM IS SERIOUSLY FLAWED to an extent that verges on immoral.
The FACT is.. Everybody should have at least THREE INCOME SOURCES.
It is folly to rely on a single dependency income from a source outside your control.
It is silly to expect an employer to put your interest before that of the Company.
It is idealistic to believe that the Government will maintain your standard of living.
It is foolish to think it only happens to OTHER people.
Under the generally accepted system MOST employed people are only three paychecks away from losing their homes.
Is it any wonder that in these troubled times, the fear of retrenchment tops the list of stressors.
The solution is not difficult. It does however require a change of mindset.
It is NECESSARY to replace the EMPLOYEE mindset with an entrepreneurial mindset .. even if you have to bend the rules.
Bad rules that place you at risk to benefit somebody else NEED to be broken.
For the sake of your family, your sanity and your future prosperity you must re-focus attention onto the real issues.
To get what YOU want you have to work with YOUR rules.
AT LEAST three sources of income are necessary for security.
If your JOB FAILS its ok ..If you career fails its ok ...if your business fails its ok.. because the other TWO will sustain you.
Make your additional income sources in diverse industries.
Leave the fear behind ..YOU don't need it.
There are dozens of opportunities available to you every day ..if you look beyond the blinkered tunelled view of an employee.
Don't place your future in the hands of other people .. They will eventually abuse you.
Don't place your families future in the realms of hope and prayer.. They depend on YOU.
Making small changes can give big results .. Learning the RIGHT skills is the key to financial security. No point learning how to mend shoes when everybody throws old shoes away.
Good industries to build income streams are .. "Health" .. "Leisure" .. "Telecommunications" ..
Become a "middle-man" .. get paid for talking and organizing .. Teach other people how to work and get paid for what they do. Look at leverage industries and marketing.
There are many avenues available to you.. if you take off the blinkers.
Eventually you could find that retrenchment was the best thing that ever happened to you.
Perhaps it just opened the door to a better life that you otherwise never would have found.
Reach out with hope ..a world of opportunity is waiting..
John Morley ..info@pgn.co.za; June 10, 2009 1:00 AM

Saturday, November 15, 2008

Retrenchment Loan

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