Hello Kin Lian,
I really do empathise your plight - as what your former staff said: I quote " that if you are still the CEO, you would probably singing the same tune"....
I do agree with you that the bonus cut is uncalled for. As a layman, every now and then, whenever thereis a 'cut' in bonus, citing economic down turn - as an excuse, and policy holders are the 'guinea pig" to get the 'cut'.
All this while, we have no one to champion our grievances ..... and have to stomach the bonus 'cut' in silence. I feel there is no "transparency and accountability" on this issue as in my opinion, most management staffs are refrain from making "unnecessary comments" on the said subject.
Now, I am extremely delighted that with you at our side, the 'reduction in bonus' is now taken to task. I do hope other insurance companies, before taking out the 'knife' to "butcher" the policy holders' policy bonus rate, will think twice now.
Keep up the good work and now, my perception of you is changed.
REPLY
Thank you. In this case, the cut in bonus is unnecessarry as the invesment yield in 2007 was very high.
Wednesday, May 07, 2008
Fair distribution of bonus
Dear Mr. Tan,
If NTUC allows some policyholders to stay on the "old bonus structure", can NTUC punish these policyholders by giving a low rate of annual bonus in the future?
REPLY
The actuary and board of directors are required to act fairly in the distribution of the bonus among different groups of policyholders. If they act in a malicious manner, they can be subject to law suits and be personally liable.
If NTUC allows some policyholders to stay on the "old bonus structure", can NTUC punish these policyholders by giving a low rate of annual bonus in the future?
REPLY
The actuary and board of directors are required to act fairly in the distribution of the bonus among different groups of policyholders. If they act in a malicious manner, they can be subject to law suits and be personally liable.
Annual and special bonus
Dear Mr. Tan
I receieved a letter from NTUC showing changes to my bonus. They explained that the annual bonus has been reduced, but the surrender and maturity value is better. How is this possible?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/income.html
It explains the difference between annual bonus and special bonus and the impact on the policyholders.
I receieved a letter from NTUC showing changes to my bonus. They explained that the annual bonus has been reduced, but the surrender and maturity value is better. How is this possible?
REPLY
Read this FAQ:
http://www.tankinlian.com/faq/income.html
It explains the difference between annual bonus and special bonus and the impact on the policyholders.
Views from the management of NTUC Income
Some of the anonymous postings in my blog are clearly views from the management of NTUC Income.
I invite the management, or their representative, to send their views to my blog with their names. I shall be happy to give them their coverage, similar to letters in the newspaper.
In their anonymous replies, they often put words into my mouth. For example,"Mr. Tan, I am sure that if you are still the CEO of NTUC Income, you would have done the same thing". Let me speak for myself. Do not push your views on me.
I ask these commentators to act honourably and avoid attacking my character, with unstantiated statements, under the cloak of anonymity. I have allowed some of these attacks to be posted, so that other people are aware about what is going on.
If anyone has a point that you want my answer, you can send an e-mail to me. I will reply to it, and post it into my blog.
I invite the management, or their representative, to send their views to my blog with their names. I shall be happy to give them their coverage, similar to letters in the newspaper.
In their anonymous replies, they often put words into my mouth. For example,"Mr. Tan, I am sure that if you are still the CEO of NTUC Income, you would have done the same thing". Let me speak for myself. Do not push your views on me.
I ask these commentators to act honourably and avoid attacking my character, with unstantiated statements, under the cloak of anonymity. I have allowed some of these attacks to be posted, so that other people are aware about what is going on.
If anyone has a point that you want my answer, you can send an e-mail to me. I will reply to it, and post it into my blog.
Bad name to the life insurance industry
Someone attacked me for giving a bad name to the life insurance industry.
In my view, there are two segments of the industry:
1. Bad segment. This segment offers products that give poor value to consumers and pays high commission to agents to sell the products often through misleading means. This has been a problem of the life insurance industry for decades and continue to be a big problem today.
2. Good segment. This segment offers products that give good value to consumers, e.g. low cost term insurance. They give a good return to consumers on their long term savings, e.g. no load mutual funds. This segment represents a smaller share of the market. I hope that it will grow in the future.
In my articles, I wish to educate consumers on how to identify and avoid the bad segments. The agents involved in this market segment have caused disappointments to hundred thousands of policyholders over the years. These agents, and their insurance managers, have been giving a bad name to the life insurance industry.
I encourage consumers to find out and go to the good segment of the market. You need life insurance to provide financial security for your family. You need to grow your savings for your retirement.
I also encourage more insurance agents to move to the good segment of the market. You can earn an honest income (i.e. not at the expense of your customer) by selling good products in bigger volumes at lower margin.
In my view, there are two segments of the industry:
1. Bad segment. This segment offers products that give poor value to consumers and pays high commission to agents to sell the products often through misleading means. This has been a problem of the life insurance industry for decades and continue to be a big problem today.
2. Good segment. This segment offers products that give good value to consumers, e.g. low cost term insurance. They give a good return to consumers on their long term savings, e.g. no load mutual funds. This segment represents a smaller share of the market. I hope that it will grow in the future.
In my articles, I wish to educate consumers on how to identify and avoid the bad segments. The agents involved in this market segment have caused disappointments to hundred thousands of policyholders over the years. These agents, and their insurance managers, have been giving a bad name to the life insurance industry.
I encourage consumers to find out and go to the good segment of the market. You need life insurance to provide financial security for your family. You need to grow your savings for your retirement.
I also encourage more insurance agents to move to the good segment of the market. You can earn an honest income (i.e. not at the expense of your customer) by selling good products in bigger volumes at lower margin.
Charges of unit trusts
Here are the new types of charges you can expect:
Performance-related charges
Instead of paying a fixed fee, the charges are determined by the fund's performance. The better it performs, the higher the charge, but if it doesn't perform you don't pay.
Up-front charge
This can be compared with the present initial charge and is deducted from your money before it is invested.
Back-end charge
Also known as an exit fee, this is payable when you sell your units, and is usually levied on a sliding scale to attract investor loyalty. For example, if you sell after one year you could be charged 5%, after two years the fee drops to 4%, after three years to 3%, after two years to 2%, and after five years to 1%. After that you won't pay.
No-load funds
With no-load funds the investor does not incur any charges other than the annual service fee. These funds are suited to investors who invest directly with the asset management company (by-passing the broker and his commission).
Trailer fees
These are added on to the annual service fee and paid to brokers on a quarterly basis as an incentive not to switch investors to other funds. At present brokers are paid a one-off upfront fee.
All the above fee structures can be applied in combination, depending on the asset management company, for example, by lowering the initial fee but introducing an exit fee.
Performance-related fees would be levied on some of the existing funds if unitholders agree, and on new funds. The annual service fee may be raised for new funds.
Investors will need to compare the various products and their fee structures before committing their savings.
My recommendation
1. Select well diversified funds with low expense ratios, e.g. indexed funds
2. The upfront charge should be 1% or less. Better still, go for no-load funds.
3. The expense ratio should be 1.2% or less (for actively managed funds) or 0.6% or less (for indexed funds).
4. Transact directly through an internet portal, e.g. Fundsupermart, DollarDex, POEMS
Performance-related charges
Instead of paying a fixed fee, the charges are determined by the fund's performance. The better it performs, the higher the charge, but if it doesn't perform you don't pay.
Up-front charge
This can be compared with the present initial charge and is deducted from your money before it is invested.
Back-end charge
Also known as an exit fee, this is payable when you sell your units, and is usually levied on a sliding scale to attract investor loyalty. For example, if you sell after one year you could be charged 5%, after two years the fee drops to 4%, after three years to 3%, after two years to 2%, and after five years to 1%. After that you won't pay.
No-load funds
With no-load funds the investor does not incur any charges other than the annual service fee. These funds are suited to investors who invest directly with the asset management company (by-passing the broker and his commission).
Trailer fees
These are added on to the annual service fee and paid to brokers on a quarterly basis as an incentive not to switch investors to other funds. At present brokers are paid a one-off upfront fee.
All the above fee structures can be applied in combination, depending on the asset management company, for example, by lowering the initial fee but introducing an exit fee.
Performance-related fees would be levied on some of the existing funds if unitholders agree, and on new funds. The annual service fee may be raised for new funds.
Investors will need to compare the various products and their fee structures before committing their savings.
My recommendation
1. Select well diversified funds with low expense ratios, e.g. indexed funds
2. The upfront charge should be 1% or less. Better still, go for no-load funds.
3. The expense ratio should be 1.2% or less (for actively managed funds) or 0.6% or less (for indexed funds).
4. Transact directly through an internet portal, e.g. Fundsupermart, DollarDex, POEMS
Invest to earn 5% to 8%
Dear Mr. Tan,
If have S$200K in my saving account and S$75K in time deposit earning about 1.25%/year. How should I invest for a better return and what products to invest in ? Stock, property, time deposit or unit trust etc. I am for a net return of 5-8%.
REPLY
I hope that this FAQ will help you to find the answer:
http://www.tankinlian.com/faq/returns.html
If have S$200K in my saving account and S$75K in time deposit earning about 1.25%/year. How should I invest for a better return and what products to invest in ? Stock, property, time deposit or unit trust etc. I am for a net return of 5-8%.
REPLY
I hope that this FAQ will help you to find the answer:
http://www.tankinlian.com/faq/returns.html
Saving for a child's education
Hi Mr Tan,
I would like to seek your advice. Based on your years of experience in this industry, do you know of any insurance policy I can purchase for my twins who were born at 25 weeks?
If there is, how can I benefit from such policy as the parent? (e.g. When they turn 21 years old, I can also take it out and gain from the lower premiums paid for kids policies etc.)
They are both 1.5 years old now and growing healthy like any other kids (my younger kid has a certain malfunction but was operated successfully and growing like a normal child now)
I really don't understand why X rejected our application...(but one of my HR colleagues under the Benefits Section asked me to check out Y for congenital coverage).
Looking forward to your advice.
REPLY
I hope that this FAQ will help you to make the best decision for your twins:
http://www.tankinlian.com/faq/child.html
You can buy Medishield (from CPF) to cover their hospital expenses.
I would like to seek your advice. Based on your years of experience in this industry, do you know of any insurance policy I can purchase for my twins who were born at 25 weeks?
If there is, how can I benefit from such policy as the parent? (e.g. When they turn 21 years old, I can also take it out and gain from the lower premiums paid for kids policies etc.)
They are both 1.5 years old now and growing healthy like any other kids (my younger kid has a certain malfunction but was operated successfully and growing like a normal child now)
I really don't understand why X rejected our application...(but one of my HR colleagues under the Benefits Section asked me to check out Y for congenital coverage).
Looking forward to your advice.
REPLY
I hope that this FAQ will help you to make the best decision for your twins:
http://www.tankinlian.com/faq/child.html
You can buy Medishield (from CPF) to cover their hospital expenses.
Reasonable Expectation
Mr. Tan,
What do you mean by policyholder's "reasonable expectation"?
REPLY
In a participating life insurance policy, the contract states that a bonus will be added each year based on the profit for the year and distributed in a manner that is approved by the board of directors, acting on the advice of the actuary.
To prevent abuses, the Monetary Authority of Singapore (MAS) has issued guidelines to require the insurance company to declare its bonuses fairly and equitably, to meet the "reasonable expectation" of the policyholder.
Take the example of a policy with a benefit illustration stating that a bonus of $X will be added yearly to the policy, subject to the investment yield at 5.25%.
If the insurance company earns much more than 5.25%, the policyholders would expect the bonuses to be increased. It would not be fair for the directors to reduce the bonus. The policyholder can object to this reduction as a breach of "reasonable expectation".
If the yield is lower, the policyholder will have to accept that the bonus will be reduced, but they can insist that the reduction has to be applied fairly across all the policies. The insurance company cannot cut the bonus for some policies and increase the bonus for other policies.
What do you mean by policyholder's "reasonable expectation"?
REPLY
In a participating life insurance policy, the contract states that a bonus will be added each year based on the profit for the year and distributed in a manner that is approved by the board of directors, acting on the advice of the actuary.
To prevent abuses, the Monetary Authority of Singapore (MAS) has issued guidelines to require the insurance company to declare its bonuses fairly and equitably, to meet the "reasonable expectation" of the policyholder.
Take the example of a policy with a benefit illustration stating that a bonus of $X will be added yearly to the policy, subject to the investment yield at 5.25%.
If the insurance company earns much more than 5.25%, the policyholders would expect the bonuses to be increased. It would not be fair for the directors to reduce the bonus. The policyholder can object to this reduction as a breach of "reasonable expectation".
If the yield is lower, the policyholder will have to accept that the bonus will be reduced, but they can insist that the reduction has to be applied fairly across all the policies. The insurance company cannot cut the bonus for some policies and increase the bonus for other policies.
Tuesday, May 06, 2008
Transfer back to retirement account before 62
A policyholder told me that he decided to withdraw from a life annuity before payments starts at 62. He was surprised to learn the following:
> The cash value for the life annuity gave quite an attractive return from the past 6 years
> The CPF was willing to accept the cash value back into the retirement account
> The retiree was able to get a deferment bonus of $1,600 (not sure about the exact amount) a year X 3 years for deferring the withdrawal to 65 years.
This turn out to be a good deal!
> The cash value for the life annuity gave quite an attractive return from the past 6 years
> The CPF was willing to accept the cash value back into the retirement account
> The retiree was able to get a deferment bonus of $1,600 (not sure about the exact amount) a year X 3 years for deferring the withdrawal to 65 years.
This turn out to be a good deal!
Nearly 3,000 visits on Tues 6 May
The average visitors to my blog used to be 850 per day. The vistiors jumped to 2335 on Mon 5 May and to 2929 on Tues 6 May. This is three times of the average visitors. It seems that the bonus cut of NTUC Income is bringing many people to my blog.
In 3 weeks time, after the annual general meeting of NTUC Income, I expect my blog to revert to the quieter days.
In 3 weeks time, after the annual general meeting of NTUC Income, I expect my blog to revert to the quieter days.
Get several quote on your motor insurance
Dear Tan Kin Lian,
Which company insure your car? Kindly advise me. I am thinking of getting out of X. I read in your blog that a policyholder had her car insurance premium increased despite many years of accidents free. She now registered with somewhere else and the premium is cheaper.
REPLY
I suggest that you call a few insurance companies and check the premium. Their particulars are shown here:
http://www.tankinlian.com/faq/motord.html
In my case, I am now insured with Y and their service is good.
Which company insure your car? Kindly advise me. I am thinking of getting out of X. I read in your blog that a policyholder had her car insurance premium increased despite many years of accidents free. She now registered with somewhere else and the premium is cheaper.
REPLY
I suggest that you call a few insurance companies and check the premium. Their particulars are shown here:
http://www.tankinlian.com/faq/motord.html
In my case, I am now insured with Y and their service is good.
Buy a life annuity
Dear Mr. Tan,
I am 55 year old. Should I put my $100,000 saving in the FD or buy an annuity. Kindly advice me which is investment can give me a higher return.
REPLY
I suggest that you buy a life annuity. Read this FAQ:
http://www.tankinlian.com/faq/life.html
If you are interested, I will ask X to advise you.
I am 55 year old. Should I put my $100,000 saving in the FD or buy an annuity. Kindly advice me which is investment can give me a higher return.
REPLY
I suggest that you buy a life annuity. Read this FAQ:
http://www.tankinlian.com/faq/life.html
If you are interested, I will ask X to advise you.
Write to ask the CEO of NTUC Income
Dear Mr. Tan,
My husband and I just invested $X and $Y in the Growth Plan in Feb 2008. We just received a letter from NTUC telling us that Annual Bonuses will be cut. We don't really understand what this means for us. Could you please advise us if the Growth Plan is still a good investment or not?
REPLY
I suggest that you write to the CEO of NTUC Income. I think that he will give you an explanation and advice. Wish you all the best.
My husband and I just invested $X and $Y in the Growth Plan in Feb 2008. We just received a letter from NTUC telling us that Annual Bonuses will be cut. We don't really understand what this means for us. Could you please advise us if the Growth Plan is still a good investment or not?
We feel a little short-changed and puzzled by the change, especially as we have only just bought this Plan. If NTUC had plans to revise the Annual Bonus – and I use the word "revise" euphemistically – then they should not have continued to sell the Growth Plan to customers under the guise of the old Plan and rates.
We are very confused by all this and don't know if we have made a stupid choice. What should we do now? We are risk averse and usually just put our savings in bank accounts and fixed deposits.REPLY
I suggest that you write to the CEO of NTUC Income. I think that he will give you an explanation and advice. Wish you all the best.
Insurance agents of NTUC Income
There has been several attacks against insurance agents of NTUC Income. These attacks are unfair.
I know many of these agents personally. They are people who work hard to make a living. They are willing to earn lower commission rates (compared to the market) to bring good value products to the policyholders. They believe in the cooperative principles.
Some of these agents tell me that they continue to sell the good value products that were introduced in past years. They include life annuity, flexi-link, ideal (ID7), family insurance and term insurance products. These products offer good value, compared to similar, high cost products that are being sold in the market.
As the agents earn low commission on the sale of these products, the customer should make it easy for them to close the sale with minimal effort.
Some people criticised these agents to be "product pushers". It is all right to recommend specific products that give good value and are suitable for the ordinary families. These products do not need a complicated and time consuming "needs analysis".
I hope that the general public will continue to support these agents, so that it is possible for them to offer good value products for the benefit of policyholders.
I know many of these agents personally. They are people who work hard to make a living. They are willing to earn lower commission rates (compared to the market) to bring good value products to the policyholders. They believe in the cooperative principles.
Some of these agents tell me that they continue to sell the good value products that were introduced in past years. They include life annuity, flexi-link, ideal (ID7), family insurance and term insurance products. These products offer good value, compared to similar, high cost products that are being sold in the market.
As the agents earn low commission on the sale of these products, the customer should make it easy for them to close the sale with minimal effort.
Some people criticised these agents to be "product pushers". It is all right to recommend specific products that give good value and are suitable for the ordinary families. These products do not need a complicated and time consuming "needs analysis".
I hope that the general public will continue to support these agents, so that it is possible for them to offer good value products for the benefit of policyholders.
AGM of NTUC Income
I hope that many policyholders will attend the annual general meeting of NTUC Income, to be held at 6 pm on 30 May at the auditorium of NTUC Income Center in Bras Basah Road. I will be attending to bring up the issue of the bonus cut.
To attend, you have to be a life policyholder or shareholder. You can call the cooperative secretary and ask for a pass to be sent to you.
To attend, you have to be a life policyholder or shareholder. You can call the cooperative secretary and ask for a pass to be sent to you.
Lack of reply to a letter
Good morning Tan Kin Lian
I read this morning's media report regarding your dissatisfaction with NTUC Income policy.
A few months prior to your retirement, I had the occasion to formally write to you as I wasn't satisfied with an NTUC policy which I had taken up. I did not receive even the courtesy of a response nor a simple acknowledgment of my correspondence.That to me was sheer rudeness let alone gross discourtesy to a customer.
Don't bite the hands that fed you. You know the system well . If dissatisfied, please go somewhere else, probably Russia, where, perhaps, you will find greater justice and fairplay
JL
REPLY
I normally reply to letters that are sent to me. It could have been misplaced. The other remarks in your letter are unnecessary.
I read this morning's media report regarding your dissatisfaction with NTUC Income policy.
A few months prior to your retirement, I had the occasion to formally write to you as I wasn't satisfied with an NTUC policy which I had taken up. I did not receive even the courtesy of a response nor a simple acknowledgment of my correspondence.That to me was sheer rudeness let alone gross discourtesy to a customer.
Don't bite the hands that fed you. You know the system well . If dissatisfied, please go somewhere else, probably Russia, where, perhaps, you will find greater justice and fairplay
JL
REPLY
I normally reply to letters that are sent to me. It could have been misplaced. The other remarks in your letter are unnecessary.
Guts and honour
Mr. Tan,
I have read the postings in your blog and news reports about your campaign to get NTUC Income to reverse its decision to cut policyholders' annual bonus.
Objectively, you are doing the right thing. I applaud you for doing it inspite of some criticisms that you are like Mahathir, i.e doing it out of bitterness. Far from it. Those who read your blog know that you have always been objective. When NTUC Income was doing the right things, you applauded the actions. You also recommended NTUC Income's products that were truly superior to products from other financial institutions. Now that NTUC Income is doing the wrong thing, it is only right that you speak. This is what I really call guts and honour.
The guts to speak up when things are not right. I see you in mould of ex-US President Jimmy Carter, somebody with conviction and honour. He don't care what President George Bush thinks as long as he knows that he is doing the right thing. He has the guts to speak to Kim Jong Il and the Hamas leaders even when the US Government boycotted these leaders.
NTUC Income's action is wrong for two reasons. Firstly, it cannot cut the annual bonus (which is guaranteed and vest in the policyholders) unilaterally of existing policies. It cannot just say that it will give a higher terminal (or special) bonus when this bonus is not guaranteed. If the funds are not doing well at the points when the policies mature or are surrendered, some policyholders may well get no terminal bonus.
NTUC Income cannot say these is what commercial insurers do. It is precisely because policyholders want a higher annual bonus that they bought from NTUC Income and not from the commercial companies.
Secondly, NTUC Income cannot say that they hold the money back because they will invest for policyholders and they might get higher returns at the end. As they say, "a bird in the hand is worth two in the bush". The higher return is dependent on various contingencies which may never materialise.
I take NTUC Income's action as a breach of promise to policyholders and in bad faith.
N
I have read the postings in your blog and news reports about your campaign to get NTUC Income to reverse its decision to cut policyholders' annual bonus.
Objectively, you are doing the right thing. I applaud you for doing it inspite of some criticisms that you are like Mahathir, i.e doing it out of bitterness. Far from it. Those who read your blog know that you have always been objective. When NTUC Income was doing the right things, you applauded the actions. You also recommended NTUC Income's products that were truly superior to products from other financial institutions. Now that NTUC Income is doing the wrong thing, it is only right that you speak. This is what I really call guts and honour.
The guts to speak up when things are not right. I see you in mould of ex-US President Jimmy Carter, somebody with conviction and honour. He don't care what President George Bush thinks as long as he knows that he is doing the right thing. He has the guts to speak to Kim Jong Il and the Hamas leaders even when the US Government boycotted these leaders.
NTUC Income's action is wrong for two reasons. Firstly, it cannot cut the annual bonus (which is guaranteed and vest in the policyholders) unilaterally of existing policies. It cannot just say that it will give a higher terminal (or special) bonus when this bonus is not guaranteed. If the funds are not doing well at the points when the policies mature or are surrendered, some policyholders may well get no terminal bonus.
NTUC Income cannot say these is what commercial insurers do. It is precisely because policyholders want a higher annual bonus that they bought from NTUC Income and not from the commercial companies.
Secondly, NTUC Income cannot say that they hold the money back because they will invest for policyholders and they might get higher returns at the end. As they say, "a bird in the hand is worth two in the bush". The higher return is dependent on various contingencies which may never materialise.
I take NTUC Income's action as a breach of promise to policyholders and in bad faith.
N
Reply to Today: Cut in Annual Bonus
4 May 2008
Editor
Today Paper
Cut in annual bonus
I refer to your article entitled "Tan Kin Lian, an upset Income customer" (Today, 3 May 2008).
I have two life insurance polices with NTUC Income that are affected by the cut in annual bonus. The reduction in bonus is about 45%. This large cut will apply not just for one year but for every year into the future.
NTUC Income told me that, to compensate for the cut in annual bonus, they will be increasing the terminal bonus (previously called special bonus) payable on surrender, maturity or death. I have now received the scale of terminal bonuses which vary according to duration for my two policies. Each policy has an entirely different scale. They appear to be calculated to be slightly more than sufficient to compensate for the cut in the annual bonus.
I suspect that a different scale of terminal bonus will apply to other policies according to their type and year of entry.
I wish to raise the following issues:
1) How many scales of terminal bonuses will NTUC Income be using for the various policies affected by this cut in the annual bonuses?
2) How will the scales of terminal bonuses be changed in the future, to reflect changes in the investment yield?
3) What are the principles that will be followed to maintain fairness between the policyholders with different entry years and different policy types?
4) To what extent is the higher rate of special bonus guaranteed, as it is intended to compensate for the cut in the annual bonus?
5) Will NTUC Income be prepared to lay out these principles in a transparent manner to be disclosed to all affected policyholders?
6) For policyholders who have suffered a reduction in annual bonuses during the past years, does NTUC Income intend to use some of the exceptional
surplus in 2007 to pay additional bonuses to policyholders to make good their shortfall (as compared to the bonuses that were projected at the time of taking up the policies)?
7) Will NTUC Income give an option for policyholders to remain on the old bonus structure, if they do not accept the change to the new bonus structure?
When the policies were sold, each policyholder was given a benefit illustration showing how the future bonuses would be distributed. While the actual bonuses were not guaranteed, I expect that NTUC Income would honour the underlying promise to distribute the bonuses in the manner that was illustrated.
My personal preference is to stay with the old bonus structure, as it is more transparent and a higher proportion of the bonus is vested each year.
I do not like the new bonus structure as the terminal bonus can be withdrawn in the future. I am also less confident of getting a higher payout, if the investment yield improves.
I believe that this unilateral change is to the detriment of the policyholders. It contravenes the "reasonable expectation" of the policyholders. Many policyholders have written to me on this matter, as I was the former chief executive of NTUC Income. I consider it my duty to voice their concerns.
I suggest that NTUC Income should reverse the bonus cut and restore the bonus to at least the same level as for the previous year. In fact, the policyholders expect a higher annual bonus, due to the high investment yield achieved in 2007. It is disappointing to see the cut in bonus when the investment results justify an increase.
Tan Kin Lian
Editor
Today Paper
Cut in annual bonus
I refer to your article entitled "Tan Kin Lian, an upset Income customer" (Today, 3 May 2008).
I have two life insurance polices with NTUC Income that are affected by the cut in annual bonus. The reduction in bonus is about 45%. This large cut will apply not just for one year but for every year into the future.
NTUC Income told me that, to compensate for the cut in annual bonus, they will be increasing the terminal bonus (previously called special bonus) payable on surrender, maturity or death. I have now received the scale of terminal bonuses which vary according to duration for my two policies. Each policy has an entirely different scale. They appear to be calculated to be slightly more than sufficient to compensate for the cut in the annual bonus.
I suspect that a different scale of terminal bonus will apply to other policies according to their type and year of entry.
I wish to raise the following issues:
1) How many scales of terminal bonuses will NTUC Income be using for the various policies affected by this cut in the annual bonuses?
2) How will the scales of terminal bonuses be changed in the future, to reflect changes in the investment yield?
3) What are the principles that will be followed to maintain fairness between the policyholders with different entry years and different policy types?
4) To what extent is the higher rate of special bonus guaranteed, as it is intended to compensate for the cut in the annual bonus?
5) Will NTUC Income be prepared to lay out these principles in a transparent manner to be disclosed to all affected policyholders?
6) For policyholders who have suffered a reduction in annual bonuses during the past years, does NTUC Income intend to use some of the exceptional
surplus in 2007 to pay additional bonuses to policyholders to make good their shortfall (as compared to the bonuses that were projected at the time of taking up the policies)?
7) Will NTUC Income give an option for policyholders to remain on the old bonus structure, if they do not accept the change to the new bonus structure?
When the policies were sold, each policyholder was given a benefit illustration showing how the future bonuses would be distributed. While the actual bonuses were not guaranteed, I expect that NTUC Income would honour the underlying promise to distribute the bonuses in the manner that was illustrated.
My personal preference is to stay with the old bonus structure, as it is more transparent and a higher proportion of the bonus is vested each year.
I do not like the new bonus structure as the terminal bonus can be withdrawn in the future. I am also less confident of getting a higher payout, if the investment yield improves.
I believe that this unilateral change is to the detriment of the policyholders. It contravenes the "reasonable expectation" of the policyholders. Many policyholders have written to me on this matter, as I was the former chief executive of NTUC Income. I consider it my duty to voice their concerns.
I suggest that NTUC Income should reverse the bonus cut and restore the bonus to at least the same level as for the previous year. In fact, the policyholders expect a higher annual bonus, due to the high investment yield achieved in 2007. It is disappointing to see the cut in bonus when the investment results justify an increase.
Tan Kin Lian
Monday, May 05, 2008
Prepared to lose the premiums paid
Dear Mr. Tan
I've few policies under NTUC Income which bought many years ago.
Recently in Jan 08, I bought another policy called "VIVOLIFE" for my child aged 12 believing that it provides good returns. Lately, I received a letter from NTUC Income announcing the change of bonuses. I did not fully understand the impact of the changes until reading your blog. I thank you for defending our rights.
I'm contemplating to cancel this new policy. I understand that I'll get nothing if the policy cancel during the 1st year. I'm prepared to lose it and will not support the NTUC in future if they proceed with their unfair policies.
REPLY
Thank for for telling me about this matter.
I've few policies under NTUC Income which bought many years ago.
Recently in Jan 08, I bought another policy called "VIVOLIFE" for my child aged 12 believing that it provides good returns. Lately, I received a letter from NTUC Income announcing the change of bonuses. I did not fully understand the impact of the changes until reading your blog. I thank you for defending our rights.
I'm contemplating to cancel this new policy. I understand that I'll get nothing if the policy cancel during the 1st year. I'm prepared to lose it and will not support the NTUC in future if they proceed with their unfair policies.
REPLY
Thank for for telling me about this matter.
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