Is an equity fund appropriate for a retiree?

FROM POLICYHOLDER

I have $150,000 of CPF OA in your Growth fund. I am 61 years old and will not be needing my CPF money.

At the same time I don't know whether it is appropriate for an older person who will be retiring in 6 months time to take risk. I do have additional income from rental and interests from fixed deposits.

I am thinking of switching $20,000 at least to your global equity fund as I think that bonds are not performing well at the moment. I know that the risk is lower with your Growth fund as it is a balanced fund.

Would you advise me to remain with the Growth fund or would you advise me to switch to both Global Equity Fund and Spore Equity Fund or just Global Equity Fund which I think is more diversified.

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MY REPLY

I am 58 years old, and I keep most of my investments in the Growth Fund as well. I intend to invest for the next 20 years, and to withdraw a small sum each month after I retire.

It should be all right to invest in a fund that is largely in equity. By investing for the long term, we diversify our risk.

You can also attend my educational talk. Details of my talks are shown in this weblink: http://www.income.coop/seminar/

I think that this is a good idea to switch part of your investments into an equity fund.

A few months ago, I switched about $100,000 of my investments from the Growth Fund (which is 70% equity and 30% bond) to the Singapore Equity fund. This turned out to be a good decision at that time.

For investors who look towards the long term, I think that the Global Equity Fund may be more appropriate than the Growth Fund.

For the immediate future, there is some uncertainty about the impact of high oil prices on equities, so one has to take this into account.

Visit to Italy

I spent four days in Italy to attend a conference and also to visit Venice for a holiday. Italy is expensive. This must be due to their economic progress, since joining Europe

Thirty years ago, Italy was known to be cheap. Many people took a holiday in Italy for art, culture and to buy cheap things. How things have changed!

I had to pass through immigration in Frankfurt Germany. After that, I am allowed to move freely into Italy and back, without passing through immigration.

I hope that the countries of South East Asia can work together to simplify travel within the region.

Maybe, by working together in a larger economic zone, our countries can make better economic progress, similar to Europe.

Have adequate insurance

For the past 25 years, I have the following insurance:

$1,000,000 in personal accident cover
$500,000 in term insurance cover

Each year, I paid $800 for the personal accident insurance and $1,000 for the term insurance.

Nothing happened to me for 25 years. That's good. I do not expect to get the premium back.

I am glad that I paid the premium for the 25 years, as it provided security for my family. If something did happen, my family would have been well taken care of.

Leave something for your grandchilren

Someone suggested to me that we should leave something for our grandchildren in our will. This will make them remember us.

Another way is to name them as beneficiary in a life insurance policy. You can also take a single premium policy to give the maturity benefit to a grandchild, when the beneficiary reaches a certain age.

Pay less for your travel insurance

NTUC Income charges the lowest premium rates for
comparable benefits.

PREMIER PLAN

Benefit                  Income  Co-A  Co-X

Death/PTD                $200k  $200k  $250k
Medical Expenses         $500k  $500k  $300k
Premium (Asia - 7 days)    $41   $66    $56
Premium (Europe -7days)    $68   $80    $76

BASIC PLAN

Death/PTD                $100k  $150k  $150k
Medical Expenses         $250k  $250k  $150k
Premium (Asia - 7 days)    $29   $46    $42
Premium (Europe -7days)    $51   $70    $61

All plans pay for 100% of emergency medical evacuation
and also cover terrorism. NTUC Income has just removed
the 15% cost-sharing.

The above is the cost per person. If the diffence is
$30, a family of 5 people will have to pay $150
to the other insurer. You can save this sum by
insuring with NTUC Income.

Call 6332 3456.

ILP vs. Unit Trust – which is best?

Editor
Business Times

I refer to the article by Genevieve Cua, “What clients are not told about ILPs” (BT, April 12).

The article does a good job of pointing out the problems of unit trusts and ILPs which are sold by two life insurance companies: Aviva and Manulife. The ILPs and unit trusts offered by these two insurers are nearly identical. Yet the ILPs cost slightly more than the unit trusts.

The conclusion of the article is give by Mr Ben Fok from IPAC financial planners. He says: “My personal opinion is, if you can avoid investing in ILPs, don't invest. Just go for a unit trust.”

Is this good advice? Are unit trusts really cheaper than ILPs?

To find out, it would be useful to compare expense ratios of unit trusts vs. ILPs.

This has been done. A study recently compiled the expense ratios of both and compared them. To standardise, the study excluded bond funds and considered only equity (stock) funds.

For ILPs, the median expense ratio was 1.8 per cent. For unit trusts, it was slightly higher at 2.1 per cent. The difference is a small one.

Of equal importance is that among the 11 insurers, the median expense ratios of their ILPs ranged from a low of 1.0 per cent to a high of 2.2. The range is important since people typically don’t buy an average fund. They buy one or more funds from a single insurer.

The study found the insurers with the lowest expense ratios for ILPs are NTUC Income (1.0 per cent), GreatEastern Life (1.4 per cent) and Prudential (1.5 per cent).

Indeed there are bargains to be found among ILPs.

Source: www.AskDrMoney.com “Best ILPs -- single premium”.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Reply: What clients are not told about ILPs

Editor
Business Times

I refer to the article entitled “What clients are not told about ILPs” by Genevieve Cua (BT, 12 April).

The article does a good job of highlighting a serious problem: Funds in Singapore cost too much. More than any other insurer, NTUC Income has been fighting this problem with its low-cost funds.

The article concludes with Mr Ben Fok of IPAC saying, “…if you can avoid investing in ILPs, don’t invest. Insurance is for protection, just go for a Unit Trust".

I hold a different view.

In choosing the right investment plan, the investor should consider the following:

- the risk profile of the fund
- the distribution charges
- the fund management fees
- the charges for the insurance protection (in the case of an investment-linked plan)

Many investment plans (ie unit trusts or ILPs) have high distribution charges and fund management fees which are not properly disclosed to the investor. The advisers earn a large share of these fees, and are required to disclose this fact. In spite of it, many layman continue to be confused.

There is an independent comparision of these charges in the website, www.askdrmoney.com.

NTUC Income keeps our charges at a competitive level, so that most of the returns are given back to our investors. Our charges for our ILP funds are generally lower than the unit trusts.

Our fund management fee is about 1% per annum. This fee for most similar funds, including unit trusts, is 1.5% to 2% per annum. Some financial advisers charge a separate level of advisory fee which is additional to the fund management fees at the unit trust level.

Our distribution charges are generally lower than for similar products. Our spread is 3.5%, compared to 5% for similar funds. During our sales promotion, we give a bonus units of up to 2%, which reduces the spread to 1.5%.

Our distribution charge for a regular saving plan is about one third of the cost of similar ILP offered by other insurance plans.

Our total expense ratio is among the lowest for all funds and unit trusts in the market. As the expense ratio is an annual charge, it has the most significant impact in determining the net return to the investor, for a similar risk profile of the investments.

The insurance protection embedded in our ILP plan is offered free of charge. It is funded by the margin in our modest charges.

We provide a low-cost term assurance plan to be bought separately as a rider. The premium is extremely low, and is kept level for the duration of the rider. The cost does not increase with age.

We advise long-term investors to select our combined fund, which is a large, well diversified fund of $3,800 million. It is invested in 900 good quality equity and bond invesments. It is managed by 9 top fund managers around the world. It has earned an attractive return for our investors during the past three years. The fees are among the lowest, ie 1% per annum.

We educate consumers to make the right choice. We invite them to visit our educational website, www.knowyourinsurance.com.sg

Tan Kin Lian
Chief Executive Officer
NTUC Income

Reduced special bonus for Prime Life

Several insurers (not NTUC Income) sold large numebrs of Prime Life policies about 20 years ago. They paid a low rate of annual bonus, but promises special bonus of 300%, 400% and 500% of the accunmulated bonus on the 20th, 25th and 30th year.

They were not able to meet their projection. In reality, special bonus rates were something reduced to 100%, 150%, 200% respectively.

The policyhoholders who bought these plans suffered several cuts in their expected bonus payouts.

NTUC Income refused to issue this type of policy. We prefer to pay a higher rate of annual bonus, and to keep our special bonus at 25%. Our policyholders have enjoyed much better bonus compared to Prime Life plans.

Special bonus maintained at 25%

NTUC Income pays a special bonus on maturity and death. This is computed at 25% of the accumulated bonus.

We are probably the only insurer that maintains the special bonus even in difficult times. Other insurers has cut their special bonus on several occasions in past years. Their policyholders will suffer a big cut, if their policies matured in these years. The amount of the cut can be more than 10% of the policy proceeds. That is a lot of money.

NTUC Income prefer to adjust the annual bonus to reflect changes in our investment earnings. This ensures that the adjustment applies fairly to all policyholders and is not borne by the policyholders whose policies mature in the current year.

Our policyholders have found our method to be fairer. We are also able to give a higher return to our policyholders in the past years.

Technology Fund performed well during past 3 years

The Technology Fund managed by NTUC Income started in 2001 and had two bad years.

It performed well during past 3 years (2003 to 2005), as follows:

- actual return (net of manager fee): 18.2%
- benchmark: 17.2% pa.
- outperformance: 1.0% p.a

It continued to perform well during the first quarter of 2006:

- actual return (net of manager fee) 6.4%
- benchmark's 3.4%.
- outperforamnce: 3.0%

During my educational talk for the past year, I was often asked by a participant, "Should I move out of Technology Fund? What is your advice?".

My answer was, "I also invested in the Technology Fund. I have decided to stay invested. The Fund will recover".

My view turned out to be right.

Adequate provision for motor claims

Some companies make a low provision for their outstanding claims. This gives the impression that their motor insurance is profitable. This allows them to reduce their premium rates.

Here are the claim provision for three large insurers during 2004:

NTUC Income: 101%
Company A: 60%
Company X: 72%

NTUC Income makes adequate provision for our claims. This means that we will be able to keep our competitive premium rates for a longer period.

The insurers who have inadequate provision will have to increase their premium rates in the near future.

Insure with NTUC Income, to enjoy lower premiums over the next few years.

Additional Cover for Renting a car overseas

NTUC Income is providing an extended benefit for its motor policyholders who has to drive a rented car overseas. This extension will covers the additional third party liability for death, bodily injury or damage to property over the limited cover provided by the rental car company. The additional premium charged by NTUC Income for a similar coverage is likely to be lower than the market.

This cover is for US$1 million and covers the policyholder against third party liability that exceeds the basic cover provided by the car rental company. The premium rate that is charged by NTUC Income will be 50% of the normal market rate and is available only to a policyholder who has a No Claim Discount of 20% or more.

If the policyholder does not meet the requirement, the policyholder can purchase the cover from the overseas insurer of the rental company.

Quite a hassle to file my income tax returns through internet

Many people said that it is easy to file the income tax return to IRAS through the internet. I have a different experience. It was quite difficult time for me.

Here are the problems:

- my Singpass is not accepted
- I am required to use exactly 8 character for my RAS password (no more, no less)
- it rejected my new password, bacause "it was used before".
- the website was very, very slow
- it was quite difficult to enter my income from property
- it was quite difficult to navigate.

Why is this the case? IRAS has designed a system that is convenient for them, but NOT for the taxpayer.

It is easier for me to fill a form and to fax to IRAS.

Do not rent your car to a stranger

For the last three months, we have four cases where the owner rent their car to a stranger for a certain period.

Later, the hirer disappears without a trace leaving the car owner in a lurch. The car was reported as "stolen" but the insurance policy does not cover the lost of the vehicle while it is being illegally rented out.

We suspect that the rented cars were driven across the Causeway to be sold.

We wish to warn the public that it is illegal to rent your vehicle without a proper permit and insurance coverage. Most importantly, you should not fall victim to this criminal act.

Banks charge differently from what they say

I refer to the letter from Gan Siok Bin, “Why do existing customers pay a higher 2nd-year rate?” (ST March 31)

Gan Siok Bin took a floating rate home-loan from United Overseas Bank (UOB). The loan is now in its second year and it costs 4.05 per cent. However, UOB’s advertised second year rate is only 3.5 per cent.

The 3 local banks offer identical home-loan rates and our family had a similar experience with a different bank. Our year 2 home loan rate shot up to 3.85 per cent while the quoted rate is also 3.5 per cent.

I looked into this and found there is no relation between the rates banks quote and the rates they charge. In fact, a loan officer told me, "The variable rates we tell customers does not obligate the bank in any way."

It turns out that how much you pay depends on the bank’s "board rate". Each bank has many board rates and can re-set them at any time. This determines how much a borrower must pay for a variable rate home-loan. It is independent of a bank’s advertised rates.

Larry Haverkamp

Annuity plans needs improvement

Editor
Lianhe Zaobao

I refer to the letter, 'Annuity plans need improvements', by Mr Yang Song Jian, (Zaobao, 23 March).

Mr Yang asked insurance companies to improve the annuity plans to better take care of the elderly. More should be done educate Singaporeans on the importance of financial planning and savings.

I agree.

In a recent survey, we found out that 50 percent of the respondents wanted to increase their regular savings for their retirement. They know that their current savings in the Central Provident Fund is inadequate.

As a general guide, each person should set aside 10 to 15 percent of the regular earnings as savings for the future. They can use the savings for their retirement or to meet emergencies, in they lose their jobs or have to pay a large medical bill.

They should invest these savings in a flexible plan that can give an attractive rate of return, by investing for the long term.

NTUC Income offers a choice of attractive annuity plans. We handle 65 percent of all life annuities sold in Singapore. Our annuities offer an attractive return, an annual bonus (in most years) to supplement the guaranteed return, and a refund of the balance of the capital on death.

There are a few ways for the public to learn about financial planning:

- see an insurance adviser;
- attend an educational talk;
- visit an educational website.

NTUC Income holds an educational talk every week. The topics include retirement plans, medical insurance, financial planning, reverse mortgage scheme, etc. Schedule of the talks can be found at www.income.coop/seminar. Admission to these talks is free.

We also manage an educational website at www.KnowYourInsurance.com.sg. It is available in English, Chinese and Malay versions. The website covers a wide range of insurance topics, such as: personal accident, medical insurance, financial planning, travel insurance and saving for education.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Tips on Financial Planning

My daughter asked me to give three important tips for financial planning to her. Here is my reply:

Tip 1. Save 10% to 20% of your regular earnings. This is in addition to CPF.

Tip 2. Invest in an investment-linked policy (ILP). It allows you to adjust your regular savings. Choose an ILP with low distribution charges.

Tip 3. Invest in global equities or Singapore equities. They are likely to give a better return than bonds. You can get a better return. Risk is an advantage.

After listening to my explanation, she became quite convinced. It makes a lot of sense.

Assessment on the spot

Editor
Straits Times

I refer to the letters, 'Pictures can help settle insurance claims' by Mr Sin Chee Kharn and 'Refusal to submit report foils claim' by Mr Goh Khee Kuan (ST, March 29).

Mr Sin shared the usefulness of submitting photographs of a motor accident scene in the claims process.

Each month, NTUC Income handles about 2,000 motor accident claims. About 10 per cent of these are disputed by the parties, who give conflicting versions of the accident.

Since Dec 15 last year, we have introduced the 'assessment-on-the-spot' service. This service provides roadside assistance to motorists at the scene of accident. Motorists who need help after an accident can call 67886616. Once the service is activated, our appointed assessor will arrive at the accident scene in about 15 minutes.

The assessor helps our policyholder and the third party driver to assess the damage at the scene of the accident. He also helps them fill in Singapore Accident Statement (SAS) forms, and takes photographs of the damaged vehicles. Disputes can be minimised if both parties to the accident agree to sign the SAS on the spot.

If anyone is injured, the assessor calls an ambulance and reports to the police. All documents, particulars and photographs will be forwarded to Income for follow-up by its claims officer.

The officer is usually able to come to a decision on the appropriate apportionment of liability. We are fair in our assessment and do not favour any side. If any party disagrees with our assessment, they can ask for an independent expert to review the case or take the case to court.

We have a simple service to leverage on technology to allow a speedy motor claims process. During an accident, motorists are encouraged to use their mobile phone to take photographs of the damage and send them to us via MMS on 93885992 or e-mail photo@income.com.sg

This initiative has received a favourable response and has resulted in a more professional and efficient way of handling liability disputes. An average of 35 cases each month are successfully resolved because photographs were sent to us via MMS.

Freddy Neo
General Manager
NTUC Income

You can change a nomination

QUESTION FROM POLICYHOLDER

What happens if I have made a nomination for my insurance policy, and many years later when I made a will, I decide to add or change the nominee of the policy in the will.

REPLY

You can change the nomination (by submitting a new nomination) or by cancelling it. If you have a specific nomination in force, we will pay according to the nomination, and not according to the will.

Policyholder ask for supplementary liability cover

Our policyholder wish to rent a car in the USA for 11 days. His rented car pays for third party liability up to about US$50,000. He has to pay US$11 a day to buy supplementary cover for US$1 million.

He asked us to provide this cover to you at a lower rate.

We offer to reduce the rate to US$5 a day, as he already enjoys a 50% no claim discount. The policyholder is delighted to have this offer.

Tentative. We intend to extend this privilage to other policyholders who are insured with NTUC Income. If you rent a car in another country, eg USA, UK, Europe, Australia, you can get this supplementary cover at a discount of 50% from the rate that is normally charged in the respective country.

This will be offered only to a policyholder who now enjoys a NCD of 20% or higher.