Saturday, February 14, 2009

CPF Life Annuity - reduced to 4 plans

It is good news that the Government has reduced the CPF Life Annuity to 4 plans, from the original 12 plans.

I wonder why they decided on 12 plans in the first place. I have always felt that it was unnecessarily complicated and have given my views on this matter. Anyway, the earlier structure was recommended by a committee of distinguished people that met and received the feedback of a large number of people over several months. It seems that there must be something wrong with the way that decisions are taken in Singapore.

When I gave my feedback to the REACH forum, I suggested that the CPF Life Annuity should be made attractive, rather than compulsory. If it is attractive, many people will opt to join the scheme. It can be made attractive by co-funding  by the Government or earn an attractive (higher) rate of interest. The cost to the Government is small and could be easily afforded. (This was before the loss of hundred of billions on the investment of our reserves!)

I do not have the details of the 4 plans. I am not sure if they are placed on the right structure or are still flawed. I shall study it and give my views later.


Click on the label "Survey" on the right panel to take part in the various surveys (of interest to you) and to view the results. 

Survey: Central database of medical records

Should we have a central database of medical records? Will it lead to more efficient treatment and low medical cost? Give your views in this survey.

Here are the survey results.

Survey: Jobs Credit Scheme

Give your views on the Job Credit Scheme in this survey.

49 people responded to the survey within 12 hours. Here are the results. Most of the respondents do not like the scheme. They find the name of "job credit" to be misleading, as it is actually a wage subsidy and not a credit (that needs to be repaid). They prefer other ways to use the $4.5 billion.

Survey: Compensation for Credit Linked Notes

This survey is for you to share some information about the compensation offer given to you on the credit linked notes. 

As you are under a "no disclosure agreement", you do not have to provide your particulars. You can avoid giving personal details that can identify your case specifically.

Please provide general information that can be helpful to other customers who were misled into buying these notes in this survey.

Here are the survey results.

Visitors to Tan Kin Lian's blog

I like to ask the regular visitors to my blog to register your e-mail address in the Google Group shown at the top of the right panel. This will allow me to send an e-mail to notify you of matters that may be of interest to you.

Friday, February 13, 2009

Bought credit linked note from stockbroker

X approached me for advice. He bought the Minibond from his broker (i.e. securities firm). The broker telephoned him and advised me to buy the product. The broker gave him the wrong information about the product, but admitted that this was the same information provided by Lehman Brothers in the briefing.

X wanted to join a class action, but there were insufficient number of investors in the same category (i.e. approached by broker through the telephone) to form a class.  X decided that his best option was to file a complaint with FIDREC. He felt strongly that he had been misled, but he was not confident of presenting his case clearly.

It is important that X made his point of mis-selling clearly in the complaint filed with FIDREC. I advised X to approach Adrian Tan ( and seek his assistance to prepare the complaint. X should pay a fee for the time taken by Adrian to study and write the complaint, but this will be lower than the fee charged by a lawyer. Furthermore, Adrian Tan is more familiar with this matter. X was happy to take my suggestion.

I wish X all the best in lodging his complaint.

Thursday, February 12, 2009

Invest in Government Securities

Dear Mr. Tan,
I have written a series of posts this time on Singapore Government Securities i.e. SGS T-Bills and Bonds. Some of the topics I covered includes on an introduction to SGS, how to buy SGS and the advantages of SGS over fixed deposits. If you think it's useful for your readers, I would be glad if you can post on it on your blog. The link is Thanks.

See the contact person; read my blog

Dear Mr. Tan,
I have just received a rejection letter from the financial institution. What do I do? Who should I approach?
Please read my blog. I do not have the time to give individual advice. I cannot also find the time to search for information for you. You should contact the contact person for the product that you have bought (listed in my blog) and ask for his or her advice on the actions that they are planning.

Register for class action now

Dear Mr. Tan,
I have registered my complaint with FIDREC. Can I wait for their reply, before deciding on the class action? When is the closing date?
You must register for the class action now. The lawyer will accept your registration on a tentative basis, and allow you to withdraw if you accept an offer of settlement through FIDREC.  You should also learn about the advantages and risk of the class action now. 
If you wait for FIDREC's reply, it may be too late for you to join the class action. It is all too late for the lawyer to accept you at that time.
To register for the class action, you must see the contact person for the product that you have invested. This is shown in my blog. Search for it there. Please do not expect me to handle your individual request or to give individual advice, as I do not have the time to handle so many people.

Minibond Seminar - February 2009

The Minibond Victims Group will be organizing a seminar before the end of February under the theme "Rejected Or Partial Compensation: What Do You Do Next?"

We are expecting a Senior Counsel to be present during the seminar. Further details of the date, venue etc will be posted in Mr. Tan's blog as soon as possible. We will also be sending email updates to all those who have registered with us .

Minibond Victims Group

Standard Life to repay clients

Standard Life is to reimburse 97,000 customers who lost 5% of their money when the value of its Pension Sterling Fund, worth £2.1bn, was cut last month. Story.

Wednesday, February 11, 2009

Use CPF to repay education loans

Dear Mr. Tan,

Govt have been urging us to upgrade our skill etc. Since the global market is so bad now, why can't we use our CPF funds for our educations fees? Some of us hv to resort to taking loan from bank to service our edcuation. I feel we should be allowed to use CPF to service our education loanm, since the Government has also dipped in the country reserve. Do you think we can bring this up?

I suggest that you see your Member of Parliament.

Term insurance - for family protection

Dear Mr. Tan,
You advised a person to have life insurance for 5 to 10 years of earnings. If I earn $50,000 a year, do I need $500,000 of life insurance? How much will it cost? Can I afford it?
Assume that you have a young family and you are now 30 years old. If anything happens to you, you your family will need an income for the next 25 years (until the children are grown up). Let us assume that 60% of your income is set aside for the family expenses (i.e. 40% is for taxes, savings, and your personal expenses). Your family needs $30,000 yearly for the next 25 years.
Using a discount rate of 3%, the present value of the 25 year income stream is $538,000. This is 10 years of your income.
If you take a level term insurance for 25 years, you have to pay an annual premium of about $850 (male) or $475 (female). This are my indication of the fair premium rates. It represents less than 2% of your earings. You may be able to find an insurance company to offer a lower premium rate.  

You can set aside 10% to 15% of your earnings as savings. You can invest in a balanced fund comprising of bonds and equities. 
If you wish to pay a lower cost, you can buy a term insurance that reduces the sum assured gradually over the term. (As your children grows older, you will need less coverage to take care of their needs. Also, you savings would have increased each year). The cost of a decreasing term insurance is less than 50% of the level term insurance (indicative $425 for male, $240 for female).
I will be approaching a few insurance companies to offer attractive term insurance rates to members of FISCA (i.e. the financial services consumer association to be launched soon).

Blog will hit 1 million visitors by 28 February 2009

Earlier, I estimated that my blog will hit 1 million visitors by 23 February. I wish to change it to 28 February, as the visitors have slowed down during the past two weeks.

Apologies by the bank bosses

Sunday, February 08, 2009

SIAS COMMENT may be detriment to INVESTOR

Dear Mr. Tan Kin Lian

I have the worry that SIAS statement dated 7 February 2009 and MAS affirmation could actually weaken the investor position, un-wittily. As a result, the FI could corner the investor even if they are in the complete wrong.

Let me give you a HYPOTHETICAL illustration below.

1. FI offers 30% compensation

2. If the investor accepts, the investor will only get 30%. Investor will lose the possibility of full claim (the rest of 70%), reimbursement of costs and compensation for distress. The FI saves 70% of compensation and other related compensation. Most importantly, FI escapes being punished under the Financial Advisor Act.

3. If the investor rejects, the investors will have to fight on his own. That means investor forfeits the original 30% compensation. Investor will have to take out money and time to fight the case, and not to mention the stress and anguish of injustice investor has to go through. While the FI fight the case as an institution with full resource and support eg. full-time staff, corporate lawyer, financial advantage etc. Whilst, the investor has to fight as an individual with bare knuckle and with little knowledge and financial resource. This is another situation of “institution vs individual” and “strong vs weak”.

With the above illustration, FI stands on the upper hand.

If my analysis is correct, and if I were the advisor for the FI, I would be well rewarded by advising the FI to compensate all the investors with investment below $100,000 a compensation of 30%. I think more than 90% of the investors will accept it, as the investors are being cornered. The FI will amass their might to fight the remaining disgruntled 10% investors.

This is an effective strategy. Using the military metaphor, you have effectively segregated and castrated your opponents, thereafter using “an army of Goliaths to fight an infant David”.

If the FI chooses to take advantage of SIAS’s statement, I hope not. The investor will lose out greatly both in terms of unfairness and injustice.

It is unfair because the investor will likely be cornered to accept 30% compensation even if the FI is in the complete wrong. This is especially so when the investor invested less then $100,000 and below. The original words of comfort from MAS that “complaint handling should not be based on legality but guided by principle of fairness” will come to nothing. The investor is misled and suffered loss, he could only recover 30% compensation. Investor is unlikely to spend more than 100,000 legal costs (Note: Structured notes is complicated and legal will not be cheap.) to fight the remaining 70% or $70,000 claim.

It is unjust because investor who is being misled, if investor accepts 30% compensation would have to pay for “70% of the FI who misled”, suffer “anxiety and anguish” and see the FI “escapes punish by law under the Finance Advisor Act”. It is unjust because if investor rejects the 30% compensation, he stands alone fighting a disproportionate battle against the FI. Hopefully, the money invested is not the investor’s coffin money or cash reserved for children tertiary education.

I think FI will take maximum legal leverage. This is because admission to mis-selling is self-incriminating that FI contravenes provision of the Financial Advisor Act.

I really hope that my deepest fear of injustice will not occur to ordinary people.


The position stated by SIAS is correct. If the investor goes to FIDREC or take legal action, the offer by the financial institution is automatically withdrawn. 

I believe that a fair offer is 50% of the amount of the loss, i.e. that the loss should be shared equally between the distributor and the investor. I hope that the financial institution will agree to offer 50%, so that most of the investors will accept it as a fair offer.

Buying a life insurance policy

Dear Mr. Tan,
I read from your blog that the minibonds and other structured products, earning 5% yield, can be very risky.  I do not wish to take this kind of risk. Is it all right for me to buy a life insurnce product? Although the return is low, it is at least capital protected and relatively safe.

If you save $5,000 a year in a life insurance policy for 20 years, the total savings is $100,000. 
The benefit illustration shows the return that you can get assuming the gross return over the next 20 years to be 3.75% or 5.25%. The average is 4.5%. In my view, this is a reasonable projection for the next 20 years, assuming a balance mix of investments at moderate risk.
If you get an average return of 4.5%. you should get $164,000 at the end of 20 years. However, the actual return is lower, due to the charges taken away by the insurance company to cover marketing and other expenses and profit. In most cases, the charges is about 50% of the gain, i.e. $32,000. This leaves a maturity return of $132,000 or a net yield of 2.6%.
I consider a net yield of 2.6% to be unsatisfactory, as it may not be sufficient to cover the rate of inflation.
A good value policy will take away about 25% of the gain, leaving a return of $146,000 or a net yield of 3.5%. As a rule of thumb, the reduction in yield should not exceed 1%.
If you wish to invest in a life insurance policy, you should ask the following questions.
1. What is the projected return on my policy, based on the assumed yield on the investments?
2. What is the amount deducted in various charges to cover the death benefit and expenses?
3. How much, as a percentage of the assumed gain, is taken away by these charges?
4. What is the effecitve reduction in yield?
If the charges is more than 25% of the projected gain, the life insurance policy is high cost and does not give good value to the customer. It is better to buy term insurance for the life insurance cover and invest the savings in an indexed fund (such as the STI ETF). Alternatively, the reduction in yield should not exceed 1%,

Thought for the day - Justice

Contributed by Ho Cheow Seng

"Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe."
[Frederick Douglass]

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