FAQ: Flexi Cash

1. What is this plan

Technically, it is an investment-linked plan that invests your savings in a money market fund. But to you, it may look more like a savings account that pays high interest.

But like a savings account, you can withdraw your money at any time. You are not locked in for one or two years, with a penalty for early withdrawal.

Flexi-Cash is a safe investment that pays a high rate of interest.

2. What is the expected return?

The current return on the money market is about 3.3%. After deducting 0.25% per annum for this fund, the net return to the investor is likely to be slightly more than 3%.

As the return on the money market is a floating rate, the return on this plan will also fluctuate. As interest rate is likely to increase in the near future, the return on this plan will similarly improve. You enjoy an attractive, floating rate. You are not locked in to the current rate for one year or longer.

It is possible that interest rate may come down some time in the future. The return from the fund will reduce accordingly.

3. What is the upfront spread and annual fee?

The spread is 0.25%. It is much lower than the spread for equity or bond funds, which vary from 3.5% to 5%.

During the promotion period (ie for the launch of this product), the spread is reduced to 0.1%. Yes, it is just one-tenth of 1 percent.

The annual fee is 0.25 %. It is subtracted from the inter-bank yield. You will be paid the difference, which is now about 3 %.

4. Is there any penalty on withdrawal?

There is no penalty. You can withdraw your savings at any time, based on the bid price (ie net asset value) of the money market fund.

The net asset value should be quite close to your invested capital, less the upfront spread (of only 0.1% during the promotion period), plus the interest earned on the money market (less the annual charge of 0.25%). This is almost like getting an interest rate of 3% on your savings.

5. What is the minimum amount of investment?

For an initial investment, the minimum is $5,000. For topping up
and withdrawal, the minimum is $500.

6. Are the fees subject to change?

Yes. We will give at least 30 days notice of any change. We are likely to
change the initial spread to 0.25% after the promotion period.

We will try to keep the annual fee to the very low rate of 0.25%.

We will only increase it in the future, if the fee is insufficient to meet our
operating expenses, and the interest rate on the money market
exceeds 3.5%.

Our aim is to give an net return that is attractive to our policyholders,
and higher than other types of similar investments.

7. What is the risk of losing my capital?

The risk is very small, almost negligible. The fund is invested in the
interbank market. The borrowers of the funds are the banks. A small
portion is invested in A-rated floating rate notes issued by corporate
bodies. As the rating is A or better, the risk of loss is quite small.

8. Is there any capital guarantee?

The basic product does not come with any capital guarantee.

The investor can buy a capital guarantee separately at the cost of 0.5%
per annum. By paying this cost, the investor is guaranteed that the
principal at the end of 12 months will not be lower than the principal at
the start of the guarantee period.

Effectively this reduces the return by 0.5%. So, if the return is 3%, the
net return after paying for the guarantee is 2.5%.

In my view, there is no need to buy this guarantee, as the risk is
negligible. Even if there is a loss, the amount of capital loss will be
very small.

9. Is there any insurance cover?

The basic policy provides a very nominal insurance cover.

It guarantee that in the event of death, the sum assured will not be lower
than the amount that has been invested. This means that any capital loss
(which is most unlikely) will be insured in the event of death.

If you wish to buy additional cover, we recommend that it be purchased
through a separate low cost term assurance plan.

10. How do I buy this plan?

You can come to our insurance business center (located at Bras Basah Road
and Tampoines Point). You can also see our insurance adviser.

Tentatively, the plan will be available from 1 June 2006.

Educational Talk - Financial Tips for the Young

In my educational talk, I give 3 tips to young people. They are worth at least $20,000. It could be worth as much as $150,000.

By choosing the right investment product, i.e. safe, well managed, low charges, a young person can earn up to $150,000 EXTRA over 30 years. This is the additional return, compared to investing in a low yielding investment.

The secret? Invest in a large, well-diversified, low charge fund. Invest in global equity. Invest for the long term.

I conduct a 2 hour educational talk every week. Here are the dates and venue. Just 2 hours, and you can earn $20,000 more. Or maybe, $150,000 more.

Title of talk: Financial Tips for the Young

09-05 7-9 pm Fengshan Community Club, Bedok North
13-05 2-4 pm NTUC Income Center, Bras Basah Road
25-05 7-9 pm HDB Hub, Toa Payoh (Chinese)
27-05 2-4 pm NTUC Income Center, Bras Basah Road

To attend: call 6877 3366. Bring your friend along.

My own flexible annuity

I have created my own flexible annuity.

I invest my savings in the Flexi-Link plan. It is invested in the combined fund (growth) and in Singapore equity. I may switch a portion into Global equity within two years.

I have started to make monthly withdrawal from my Flexilink. Since I am still working, I just make a token withdrawal of $100 each month. It is deducted from my Flexi-Link and credited to my bank account during the first week of each month.

This is working well. I get an e-mail each month saying that $100 is credited credited to my bank account, and x number of units are encashed. I checked my bank account (through the internet) and found the $100 has been credited.

When I retire in a few years time, I will increase the monthly withdrawal to $3,000. I may change it to a larger or smaller sum, according to my needs. It is flexible.

My investments produced a yield of about 15% per annum for the past three years. Wow!

Looking towards the future, I hope to get between 6% to 8% per annum over the long term. This is possible, based on the benchmark return on equity for the past 10, 20 and 30 years.

Lifestyle funds

Some fund managers advocate investing in lifestyle funds. For example:

- for young investors: high proportion of equities
- for older investors: high proportion of bonds

In my view, if the investment is for retirement needs, it is better to invest in equities, even for older people.

If you are now 60, the average lifespan is 20 years. If you draw down your retirement funds in monthly instalments, the average duration of your investments is more than 10 years. So, an equity fund is quite suitable.

When you reach age 70, you can consider to move some of the investments into a bond fund. At that time, you should choose the right time to make a switch. The stockmarket goes in cycles of 3 to 5 years. If you choose the right time during this cycle, you can get an attractive return.

Alternatively, you can cash out and invest in a life annuity.

Create a flexible annuity

Here is a simple way to create your own flexible annuity.

Invest your savings in a global equity fund. It should earn you between 6% to 8% per annum over the long term.

You can make a regular withdrawal of your investments, representing 6% to 10% of your principal.

Assume you invest $500,000 and you wish to withdraw 6%, ie $30,000 a year or $2,500 a month.

If your investments earn 6% or more, you capital will not deplete. In fact, it may grow after allowing for your withdrawal.

If you draw out more than the amount earned, your capital may reduce gradually. But if the excess withdrawal is small, the capital can last for a lifetime.

On death, there is a balance of the capital that can be distributed to your family.

You can have the flexibility to draw out a larger or smaller monthly sum to meet y our needs. You can also draw out an once off amount to meet medical expenses or for a vacation.

At any time, you can calculate how long your capital will last. You can make sure that it will last until you reach (say) 100 years old.

The Flexi-Link plan from NTUC Income allows you to specify a monthly withdrawal from your investments. It also allow you the change the amount.

Choose a low cost fund and earn $55,000 more!

Some equity funds charge an annual fee of 1%. Some charge 1.5% or even 2%. In some cases, the financial adviser charge a separate layer of fee (say 0.5%) in additional to the fee charged by the fund.

If you invest $100,000 for 20 years, the difference of 1% in annual fee can amount to $55,400. Here is how it works out.

Assume that the average yield on the fund is 7%.

If the net yield is 6% (ie deduct 1% fee), you will get $320,700.
If the net yield is 5% (ie deduct 2% fee), you will get $265,300.
The difference is $55,400.

Wow! That is a lot of money!

Is there a difference in the quality of fund managers?

If you invest in a large, well diversified and properly managed fund, the different funds should earn nearly the same yield over a long period. The higher fee goes to increase profits for shareholders.

So, take my advice. Choose a fund that charges an annual fee of 1% (instead of 2%).

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Here are the figures available from the website: www.askdrmoney.com

Best ILP (single premium)
Average Expense Ratio of equity fund

NTUC Income    1.0%
Company G      1.4 %
Company P      1.5 %
Company A      1.9 %
Other insurers 1.7%-2.2%

Flexi-Cash gets good response

I posted some details of an innovative new plan, called Flexi Cash. I received 3 e-mails from readers of my blog within one day. They were interested to find our more details. Wow!

Actually, the Flexi Cash plan will only be available from 1 June 2006. But, as there is strong interest, I shall try to speed it up.

Some details will appear soon in the website www.income.coop. If you are interested, you can register your name at the website. We will come back to you as soon as the details are ready.

Tips for the Young: Educational Talks

Learn about Tips for the Young.
The tips will be worth more than $20,000
Can be as much as $150,000!

Talks will be held on:

9 May
13 May
27 May

Call 6788 3366 (Act now - it is your financial future!)

Flexi-Cash: Earn 3% or more for your savings (low risk)

NOTE: This is a preliminary announcement. This product
is targetted to be available by 1 Jun3 2006. More
details will be provided later.

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An innovate plan from NTUC Income.
Allows you to earn an attractive rate of interest.
Currently, around 3% per annum.

The interest rate will adjust according to the market.
You can earn more, as interest rate is expected to increase.
Very low risk - as the fund is invested in interbank and well rated floating rate notes.
No lock-in period - can withdraw at any time, without penalty.

Footnote:
The return will be based on the money market fund, less 0.25% p.a
Initial spread of only 0.1% (during launch promotion)
Minimum investment of $5,000

Tip for the Young: You can get $48,000 more

You can get $48,000 more by investing in a fund with low charges. So pay attention.

You should invest in a large, well diversified fund, and for the long term. This allows you get an attractive rate of return.

You should choose a fund fund that charges you 1% per annum or less. Most funds have charges that amount to 1.5% or 2% per annum. Some funds have double layer of charges that can take away 2% or more.

If your fund earns an average of 7% per annum (before charges), and the fund charge is 1%, you will get a net return of 6%. If the fund charge is 2%, you get a net return of 5%.

What is the difference?

Assume that you save $300 per month over 30 years. The total saving is $108,000.

If the net return of 6% (ie 1% charge), your total amount will be $294,000. If the net return of 5% (ie 2% charge), your total amount will be $246,000. The difference is $48,000.

You can get $48,000 more, just by choosing a low charge fund. The gross earnings in both fund should be the same, as they are large, well diversified and managed by good fund managers.

Why do some funds charge 2%? They want to make more profit for their shareholders. So they pay less to the investors.

Look at the comparison in this website:
http://www.askdrmoney.com/Ins_ILP_SP.htm

Who provies a low cost fund of 1%? NTUC Income!

Tip for the Young: This tip is worth at least $20,000

This tip is worth at least $20,000. So, pay attention.

If you save invest in an investment-linked product (ILP), you should study the distribution cost. This is the amount of your savings that is taken away from you to pay the insurance agent.

The distribution charge is not told to you directly. Instead, the insurance company tells you that 20% (say) of your savings is invested for the 1st year, 60% is invested for the second and third year and 100% from the fourth year onwards.

In the above example, a total of 160% of your annual savings (ie 19 months) is used to pay for the distribution cost during the first 3 years.

Take a look at an analysis done in this website:
http://www.askdrmoney.com/Ins_ILP_RP.htm

The distribution cost varies from 7 months (ie NTUC Income) to 19 months (for most other insurers). The difference can be up to 12 months.

NTUC Income takes away less from your savings to pay our agents. A difference of 12 months means that we are investing an additional 12 months of your savings for you, compared to other insurers.

If you save $300 a month, you will get an additional $3,600 in savings by going through NTUC Income. Assuming an average investment yield of 6% per annum for the next 30 years, the additional savings of $1,800 will accumumulate to $20,600 on maturity.

Yes, this tip is worth $20,000 to you.

Here is another valuable tip. If you have recently committed to an expensive ILP plan that takes away up to 18 months of your savings, you have the choice to terminate that plan now. As the distribution cost is being taken away from your savings over 3 years, the actual "loss" to you by terminating now, is much less than 18 months.

You can move to a better plan from NTUC Income. Send an e-mail to me at tankl@income.com.sg.

Avoid investing in Complex Structured Products

Many banks are offering various variety of complex structured products. They advertise these products aggressively - to bring out the attractive features. But the advertisments do not tell the risk and the negative aspects of these products.

Dr Money (a financial columnist who writes for The New Paper) analyses these products and presents his views in his website:

http://www.askdrmoney.com/Bank_Products_analysis1.htm

It is probably the only place where people can go to find out the facts behind these complex structured products -- (which are practically impossible for the average person to understand).

Take the advice of the a top investment guru over the past decades, Warren Buffet:

"If you can't understand it, don't buy it" -- Warren Buffett

Tips for the Young: Earn $146,000 more on your savings

If you save $300 a month for 30 years, your total saving is $108,000.

The interest that you can earn depends on how your invest your savings.

If you invest in a low risk investment, such as bank deposit, and you earn 2% per annum, you will get $148,000.

If you invest in a large, well diversified fund, with low charges, and you earn 6% per annum, you will be $294,000.

The difference is $146,000. You can get $146,000 more, just by choosing the right type of investment.

If you look at the historical record of the return on equities for the past 10, 20 or 30 years, the average return is actually much higher than 6% per annum. In my view, it is quite safe to assume an average return of 6%, provided that you choose the right fund.

What is the right fund?

- choose a large, well diversified fund (preferably $500 million or more)
- preferably, invest in global equities
- choose a fund with low charges, say 1% per annum or less
- invest for the long term, say 10 to 30 years
- choose a right time to realise your investment (if necessary, wait 1, 2 or 3 years)
- choose an investment fund that acts in the interest of the investors and not the shareholders

Attend an educational seminar conducted by NTUC Income. Visit, http://www.income.coop/seminar/

Aggressive competition in Motor Insurance

QUESTION FROM JOURNALIST
REPLY BY TAN KIN LIAN

I am writing a story based on what the MAS said last month that motor insurers need to maintain underwriting and pricing discipline.

- Is maintainng underwriting and pricing discipline a challenge for the industry?

Reply: Yes. It is a challenge. Some insurers, with a small volume of risks, do not have adequate statistics on their own claims experience. They use the premium rates charged by other insurers and even give a discount. Their premium rates may not be adequate to cover their claims and expenses, especially if they cannot manage the inflated claims. The shortfall can be as much as 30%. They will suffer a loss and will have to increase their premium rates significantly in the future.

- What has NTUC done in this area?

Reply: NTUC Income review our claim experience every six months. We use the claim experiences to revise our premium rates. We are pro-activly in managing inflated claims and can bring down the claims to a lower level, compared to our competitors. We keep our expenses low and add a modest margin. We are generally able to offer the most competitive rates, and still keep to a modest profit.

- What is NTUC's average motor premium today and is it likely to go lower?

Reply: The average premium for private cars today is $807. This is a reduction of 15% compared to the average premium of 1 year ago.

- Why is there strong competition in motor?

Reply: There is strong competition in motor insurance. Several insurers are charging premium rates below their cost of claims and expenses. The difference can be as much as 30%. This is unsustainable and unsound. They will have to revise their premium rates significantly in the future. Their policyholders will be hit.

- What is NTUC's market share in terms of premiums and vehicles?

Reply: Our market share is now about 35%.

Can a bankrupt buy an insurance policy?

QUESTION

I came across your blog recently, and found out your contact. I would like to take this opportunity to clarify some doubts about certain insurance matters.

If one is declared bankrupt, is he still eligible to purchase insurance? Or does he need to seek permission from the relevant authority (Official Assignee) before doing so?

If one purchased insurance without the permission, what are the possible consequences? e.g. in the event of claims, would his claims be confiscated?

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REPLY

When a person becomes a bankrupt in law everything he owns (including his insurance policies) becomes the property of the Official Assignee.

He cannot buy an insurance policy without the permission of the Official Assignee.

The Official Assignee can and may give permission to a Bankrupt to buy a reasonable protection policy (i.e. a Term Policy) for the benefit of the bankrupt’s family. This permission has to be given in writing.

A simpler way to address the problem is to get the spouse to buy a policy on the life of the bankrupt. In which case the policy will be owned by the spouse and not the bankrupt and the official assignee will have no say over the policy.

Why do Singaporeans save so little for their retirement?

QUESTION FROM STRAITS TIMES JOURNALIST

A new survey shows that Singaporeans might not have enough money to last them through their retirement years. The research conducted with 1,000 working adults indicated that only one in ten Singaporeans has actively saved for retirement in the last year. The study also shows that 61 per cent are seriously concerned about having too little money during retirement, while 64 per cent of Singaporeans feel they themselves should bear the financial costs of their retirement.

Why do singaporeans save so little? Are singaporeans in deep trouble for their golden years?

REPLY

Ten years ago or earlier, the contribution to the Central Provident Fund was at a high rate. Most people could rely on the CPF for their retirement. Housing prices was at a more affordable level. After paying for their HDB flat, there was sufficient savings left for retirement.

The situation changed during the recent ten years. CPF contribution was reduced. A higher proportion of the contribution was set aside for medical expenses. Repayment for housing take a major portion of the CPF savings.

Many people did not realise the need to make additional savings. The financial products available to them was not satisfactory. The saving in a traditional life insurance product did not give a good return, as a proportion of the premium has to be set aside for the insurance coverage and to pay commission to the insurance agent.

Today, consumers have a better choice.

NTUC Income has launched our Ideal plan. It is an investment-linked plan that encourages regular savings. The savings can be invested in our large, well diversified fund to earn an attractive rate of return. The return during the past three years was exceptionally good, averaging about 15% per annum.

Looking towards the future, we hope that the fund can earn an average of 5% to 7% per annum over the long term. This is not guaranteed. The average return earned over a balanced fund of equity and bond over the past ten years has been about 6% per annum.

Another advantage of our Ideal plan is the flexibility. The consumer can change the amount of regular savings based on their personal circumstances. They can increase or reduce the regular savings, or to stop savings for a short period without suffering any penalty. They can even make cash withdrawals from the plan.

Other insurance companies offer similar products. However, the key advantage of our Ideal plan is the low distribution cost. It works out to an average of 7 months of premium, compared to between 11 to 19 months for similar plans from other insurers.

More details can be found in this website: http://www.askdrmoney.com/Ins_ILP_RP.htm

Our Ideal plan is now actively purchased by consumers as a means to make additional savings for their retirement. The sale of this product has inceased significantly in the past two years.

With a more attractive product, we believe that more people will make additional savings for their retirement. Our insurance advisers are reaching out to educate them on this need.

We also invite the public to learn about insurance in our educational website: www.knowyourinsurance.com.sg

I have another suggestion.

It will be helpful if the government allow a higher amount of tax relief for people to make additional savings for their retirement. Currently, the tax relief is $5,000 per year, inclusive of CPF contributions. If the tax relief is kept at $5,000 and is separate from CPF contribution, it will encourage more people to make this additional savings.

Guess who says that NTUC Income don't pay claims?

For the past 30 years, our competitors' agents have been trained by their sales managers to tell the customers, "NTUC Income does NOT pay claims".

Is this true? Of course, NOT.

NTUC Income has paid several hundred thousand of claims over the past years, and quite promptly. Our motto is: "Prompt and Fair Settlement of Claims".

Why do these competitors' agents target NTUC Income?

The answer is simple. NTUC Income offers better terms to our customers. It is a fact. The only way to get customers to buy their expensive products (ie pay higher premium to the competitor products) is to tell a lie.

Unfortunately, many Singaporeans believe the lie. They pay a higher premium for the privilege of being served by a more expensive insurance company.

But many more Singaporeans are savvy. They ignore the lie and take their insurance with NTUC Income. We have 1,200,000 policyholders who fit into this category. They know the real facts and make the right choice.

I repaired my new car at a quality workshop

I bought a new Mercedes E240 three months ago.

Someone knocked into my car at the car park. It damaged the door. He volunteered to pay for the repair under a private settlement.

I sent it for repair at our quality workshop. It cost $1,400 to change the front passenger door and paint work the side mirror. If my car were to be sent to the distributor, it would have cost $2,700 for the same scope of work.

Although the other party is paying for the repair, I did not send my car to the distributor.

I am not worried about the potential loss of warranty. I think that the distributor cannot enforce it.

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.