Saturday, June 07, 2014

Practical measures to help PMEs to find jobs

There is a simple solution that the government should introduce to help PMETs to compete for jobs against foreigners on employment pass.

Here are two practical measures.

Thursday, June 05, 2014

A quick analysis of Medishield Life

I have done a quick analysis of the increase in coverage and premiums under the newly introduced Medishield Life

The results are shown here:

Tan Kin Lian

Note: if you find any mistake in my figures, please send an email to kinlian@gmail.comNote: if you find any mistake in my figures, please send an email to

Why consumers should invest in the STI ETF

The best investment plan for long term savings is the Straits Times Index ETF. The reasons are:

a) It is well diversified, reducing risk
b) It earned an average yield of more than 9% over the past 20 years, after deducting expenses.
c) The expenses is only 0.3% per annum.
d) When investing for the long term, you can ignore the dialy market fluctuation.

If you are investing for 30 years, the difference between an investment linked policy that pays a net yield of 3% and the STI ETF (assuming only 6%,) is quite large. The STI ETF can pay 50% more. If you get $200,000 from the policy, you get $300,000 from the STi ETF.

You can take a monthly sum of $100 or more in the STI ETF using the regular investment plan offered by POSB or OCBC. See

To understand more about this investment, attend this talk. Spend $30 and 3 hours. and get a lot more for your retirement!
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Enroll your children for the financial planning talk before they start work

A man visited my office to buy my life insurance book. His son, who was just about to start work in a contract job, was approached by an insurance agent who recommended to him an investment linked policy with a monthly premium of $300 and other riders to cover death, accident and disability with a total monthly premium of $70. The son had no idea about what the policies were for, so he approached his father for advice (what a sensible young man!). The father approached me.

I analyzed the policies and came to the following conclusion:

a) The investment linked policy had a projected value, at the end of 30 years, of $180,000 (based on the average between the 4% and 8% yield).
b) If the son invested the same money in the STI ETF earning an average yield of 6% (similar to the projection), the projected sum is $280,000, after deducting expenses and setting aside $10 for the cost of insurance.
c) He does not need to spend $70 a month for the additional covers. By spending $30 a month, he will have adequate term insurance under the SAF policy.

The father decided to enroll himself and his wife and son for the Financial Planning talk on 21 July to learn about financial planning for his son.

He was glad that he saw me, as this information could give his son an additional $100,000 in 30 years time.

I wish to send this message to other parents. Your children will also fall into the trap of buying the wrong investment product. Enroll them and get them to attend the financial planning talk.

Although the investment linked policy use a projected yield of 6%, the actual yield is only 3.2% due to the charges and upfront fee, amounting to 2.8%.
For the STI ETF, the net yield is 5.7% as the annual fee is only 0.3%

Wednesday, June 04, 2014

How to stop mis-selling of life insurance policies

I make a guess, and this is just a guess, that 30% of the life insurance policies sold each year are sold wrongly and for the wrong reasons.

Examples are:
a) Policies that require a big monthly premium to be paid that is beyond the means of the policyholder, such as a student that is not working

b) Policies sold on the misconception that it is a form of savings that can be withdrawn like a fixed deposit, without the policyholder realizing that one or two years of the premium will be forfeited.

c) Policies sold to a policyholder who thinks that it is a single premium policy, when in fact it is an annual premium policy.

d) Policies sold to replace an existing policy - on the false claim that it offers better value to the policyholder.

In most cases, the agents were aware about the misconception and were in fact, responsible for telling misleading the policyholder.

When the policyholder finds out the truth and lodges a complaint to the insurance company, the officer handling the complaint gets a statement from the agent. The agent will deny any wrong doing, and the officer usually tells the policyholder that the complaint is not substantiated, in other words, the consumer cannot get their money back.

If the officer bothers to use his common sense and look at the facts, he or she will surely recognize the following:

a) How can a student, without any income, afford a large monthly premium?
b) How can a consumer, with modest means afford a large annual premium - when their total savings is just enough to pay one year's premium?
c) Why does the policyholder want to stop an existing policy and take up a new policy, when the policyholder is likely to suffer a financial loss?

Surely, something is amiss?

It is usually too late to act, when the policyholder makes a complaint, and it can come several years after the policy is taken.

The best time to act is at the time that the policy is issued. The insurance company can, as a matter or practice, get an officer to call the policyholder and check that he or she is aware about the actual terms of the contract.

If this call is made, any misunderstanding could be found immediately and the situation could be rectified. If the insurance company has such a practice, most of the misrepresentations and bad sales could be prevented.

Many years ago, I introduced this "call the policyholder" practice in the insurance company that I was in charge. I required the agent's supervisor to call the policyholder for each new policy that was issued, and verify that their understanding of the policy is exactly what it should be. The supervisors did not find any case of serious misrepresentations.

The sales general manager reported that the new sales dropped by 30 percent (if my memory served me correctly). My guess is - the insurance agents stopped the mis-selling as they knew that they would be caught quite soon. And this represented 30% of the new sales.

Any insurance company can stop the mis-selling by introducing a system to "call the policyholder to verify the understanding". But will they want to do it?

Well, the answer is "no". They will only do it when the regulator, i.e. the Monetary Authority of Singapore, require them to.

Tan Kin Lian

Increase CPF monthly payout from age 65

In addressing people who do not have the required CPF minimum sum, the government has to consider this question about how much they can be allowed to withdraw from the minimum sum from age 65:

a) Should the monthly withdrawal be reduced according to the available minimum sum and the payment be continued for 20 years or for life?

b) Should the monthly withdrawal be allowed at the level that is needed for their current needs, say $800 a month, although the minimum sum may run out earlier?

The government has chosen method (a).

I think a better decision is method (b). The retiree needs a minimum sum to survive from month to month. Their immediate needs are greater than their longer term needs.

They have to face a separate problem when their minimum sum is exhausted, but at least they can live adequately for the immediate future.

Tan Kin Lian

Tuesday, June 03, 2014

CPF interest rate has to be reviewed

One major source of unhappiness is the low rate of interest, i.e. 2.5% and 4%, payable on the CPF savings.

It is a wrong policy to invest the CPF savings in long term government bonds, which gives a low yield. As the savings are being invested for a long term, say more than 40 years, it is more appropriate to invest them in good quality shares which can give a better return compared to than government bonds.

The yield on good quality shares has averaged more than 8% per annum over the past three decades.

While the values of the shares may fluctuate from one year to the next, this fluctuation is immaterial for a long term investor. While some shares may turn bad, they can be compensated by the good performance of other shares. It is the average yield of the portfolio over the long term that matters to the CPF members.

The CPF members do not expect a yield of more than 8% per annum. But 2.5% and 4% is too low. A yield of 6% would be more appropriate and fair to the people, whose savings have been locked up for a long time.

There is a negative point about raising the yield or interest rate on CPF savings. This will also affect the interest rate charged on loans to buy HDB flats and other properties. The impact has to be considered when making a change. This issue may be difficult, even problematic, but it can be overcome.

It is time for the interest rate policy of the CPF to be reviewed. A higher return will ensure that the members will have more adequate savings for their retirement.

Tan Kin Lian

PM should seek an out of court settlement with Roy Ngerng

PM Lee must take heed of the strong support from ordinary people in Singapore towards the legal defense fund of Roy Ngerng. More than $70,000 were raised in just 4 days, surpassing the target needed to pay a good lawyer to defend Roy Ngerng.

If PM Lee continues with the legal action and wins the case in court and, if the court award the damages of $250,000 that he had asked for, what is likely to happen next?

I expect that the people of Singapore will come forward again and contribute the $250,000 in damages in full. And they will do so, with great anger against the person who is collecting this money. Even if it is donated to charity, it will still be the hard earned money of the donors.

And if that happens, it will surely be followed by a resounding defeat of the People's Action Party at the next general election.

What can PM Lee do now? He can remove the demand for aggravated damages and reduce his claim for damages to $10,000 - twice of what Roy Ngerng had earlier offered. And this is likely to be accepted by Roy Ngerng, leading to an amicable close to this case.

And this may turn out to be positive for PM Lee, as he will be sending a strong message that he is willing to listen to the voices of the people.

Tan Kin Lian

Give a better return on CPF savings

One source of unhappiness with the CPF is the low rate of interest paid on the savings, i.e. 2.5% on the ordinary account and 4% on the special account. The interest rates are so much lower than the actual return that is earned on the funds invested by Temasek Holdings and GIC.

This unhappiness is valid. It is wrong for the government to invest the CPF funds in low yielding government bonds, although they give the reason that the funds have to be invested securely.

The savings are invested for 40 years or longer. For long term investments, the correct investments are in good quality shares, and not in bonds. The difference in return can be as much as 4% per annum.

If the long term savings were invested mainly in good quality shares, the average yield over the past three decades would be more than 8% per annum, and not the 2.5% or 4% that were distributed.

While the values of the shares may fluctuate from year to year, the changes are immaterial to the CPF members, whose savings are locked up for a long term. They are not allowed to take out their savings prematurely, so the fluctuations in the asset values do not matter to them.

Even if some of the share investments turn out to be bad, they will be compensated by the appreciation in other shares. It is the long term average that count. And the long term average had been more than 8% per annum.

We do not need to expect a yield of 8% per annum. A yield of 6% would be fair. And if an adequate and fair yield had been given in the past years, the CPF savings would be much higher today, perhaps 50% more!

One important change to the CPF is to make the return more aligned to the actual yield that can be earned on quality quality shares.

Tan Kin Lian

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