Saturday, August 29, 2009

A nation run by scholars

Two senior persons, a company director and a businessman, expressed a similar view. They are concerned that Singapore is now run by scholars who do not have experience about the business environment and try to solve the problems by writing papers.

The handling of the mini-bond crisis is an example. Although the initial response of the authority was appropriate, the subsequent events (especially after the Hong Kong settlement) needed a new response. But, the scholars were not able to handle this type of situation.

There were incidences of cheating in motor insurance claims. The situation is getting worse over the years. Reports made to the authority were not followed up or investigated, but were pushed aside. The insurance companies were asked to solve this problem, but they do not have the regulatory power.

Many foreign workers reported that they had to pay a large sum of money (USD 9,000) to get a permit to work in Singapore. There were a suspicion that a large part of this money goes to the pocket of the employer who held the work permits.
A minister was reported to have said that as the payment was made in a foreign country, it falls outside the jurisdiction of Singapore. Surely, an investigation can be done in Singapore to see if the employer had received some payments?

This lack of practical experience applies not only to the senior levels of the civil service, but higher up in the chain of command. We have to move away from writing papers to the real issues faced by the people in Singapore.

Tan Kin Lian

Jeddah - shopping during Ramadan

The shopping mall next to the hotel opened in the afternoon. I went into the supermarket to buy a few drinks and snacks. There was no staff at the checkout counters. Some customers, who had done their shopping, were waiting at the counter.

I learned that the counters were closed for 15 minutes, while the staff went for their prayers. They returned back later, and it became busy again. The customer told me that this would happen three times each day (even outside of Ramadan).

Opponent of US health reform yield fear weapon

Read this report.

* Fear motivates people more than facts
* Study shows people will seek facts to support beliefs
* Positive emotional appeals can counter the effect

Friday, August 28, 2009

Jeddah during Ramadan

I am now in Jeddah, Saudi Arabia. It is the month of Ramandan. The city is quiet and many business activities are scaled down. The fitness center in the hotel opens only at 9.30 am. The hotel coffee house is closed. Breakfast has to be taken through room service.

Regular update of bank deposit rates

A FISCA volunteer updates the bank interest rate on a regular basis. The latest update is shown here. I hope that you find it useful.

Asset share of your life insurance policy

The Monetary Authority of Singapore has stated that insurance companies are required to compute the asset share for each cohort of participating policies and that the insurer needs to have a "governance framework" to ensure that the bonuses are distributed fairly to policyholders. They also declared that the law has stated that all the assets in the participating funds belong to the policyholders and that there is no "orphaned money".

This approach has a fundamental weakness. It is possible for the insurer to under-declare the bonus or to pay less than a fair value to the policyholder of a terminated policy, and to accumulate the "surplus" (although known as the "estate" or "orphaned money") in the life insurance fund. This has been the practice over the past decades, prior to the introduction of the concept of "asset share".

The MAS approach relies on a "governance framework" involving the appointed actuary and the board of directors, who are made responsible for the "fair treatment of policyholders". There is no independent party representing the interest of the policyholders in this arrangement. Some people refer to this arrangement as appointing the fox to guard the hen house.

The regulator in Malaysia has adopted the concept of "asset share" in a simple and fair way. The key elements are:

a) The asset share has to be computed for each policy, taking the actual premium and investment income and deducting the actual expenses, based on the actual experience of the policy.
b) The insurer is free to declare the bonus in any appropriate manner, to ensure its future solvency.
c) The asset share has to be paid to the policyholder on the termination of the policy after a certain number of years, and on maturity.

I hope that MAS will adopt the approach used in Malaysia. It can be done quite easily and will produce fair results that do not rely on the honesty of the "governance framework".

Tan Kin Lian

Whistleblower tells of America's hidden nightmare for its sick poor

Read this story. This is what happens when companies chase for profits at the expense of service to the people. This is why President Obama wants to reform the health care system. There is a similar situation with the financial services industry.

new link

Thursday, August 27, 2009

Travel to Jeddah, Saudi Arabia

I will be in Jeddah in Saudi Arabia over the next four days. Jeddah is a city quite close to Mecca, where millions of Muslims visit each year on the pilgrimage.

On the banks of the Red Sea, Jeddah is a key port in Saudi Arabia and the world’s largest open-air art gallery. Landscaped with natural art depicting Arabic culture, the city is decorated with sculpture throughout the city.

Although I will be away for the next few days, I have created several postings which will appear in my blog on the days that I am away. I shall also log in at convenient times to moderate the comments in my blog.


I like to ask all visitors to my blog to join FISCA. Please give your support to this new association.

FISCA website
FISCA application

Low wages and purchasing power in Singapore

Read this article.

The high cost of living coupled with low wages and domestic purchasing power condemns the average Singapore worker to an ignonimous, monotonus and stressful working life. Singapore workers have to work harder to earn the same amount of money and save for a longer period to purchase the same product.

In 1991, then Prime Minister Goh Chok Tong promised Singaporeans that we will be able to achieve the “Swiss standard of living” within a decade. Ten years later, we have a living standard which is closer to Russia than Switzerland.

Like Singapore, the Russians has a low wage and domestic purchasing power and Russia, especially the city of Moscow, has one of the highest cost of living in the world.

Petition to the Prime Minister (2)

Some people were disappointed that the hard work in organising the Petition had been wasted, if the Prime Minister does not care and just passes the Petition to the Monetary Authority of Singapore.

We should look at this matter from a different angle. 777 people have studied the issue and signed the Petition. These people now know the issue more clearly. Other people who did not sign the Petiton (because they were not directly involved) also understand the issue better.

We should be patient and continue to find ways to put our views across. We should not expect miracle results. The bigger goal should be to change how things are run in Singapore. Every situation, such as this, add to the process of change.

Tan Kin Lian


Review of National Service

This letter was sent to the Straits Times Forum on 11 August, and placed under consideration for over 2 weeks (pehaps waiting for clearance from somewhere up there). I assume that it has been rejected, although there was no formal reply.

Straits Times

I refer to the letter by Xiao Fuchen entitled “NS for adult new citizens not practical” (ST 11 Aug).

I agree with Xiao Fuchen from another angle. If this is made mandatory, very few foreigners will want to take up citizenship, precisely for the reason that it will disrupt their careers and earning power. This is a burden that is now being shouldered by male Singaporeans, who are not given any choice on this matter.

After 44 years of independence and prosperity, I hope that it is time to review the role of national service. Perhaps we should now have a professional army to defend our nation. Already, we are spending a large budget on the purchase of military hardware. The current budget could be re-allocated to allow payment of competitive salaries to career soldiers. Modern defence does not require a large number of infantry soldiers anyway.

If there is still the need to continue with a citizen army, I argue that the citizens serving full time National Service should be paid an adequate allowance, similar to what they would earn in the private sector. They should not be required to shoulder an unfair burden to defend the nation, when citizenships are offered to foreigners without a similar responsibility.

If this increases the defence budget, I suggest that the Government considers adopting the Swiss model which requires residents exempt from the compulsory military service to pay a 3% additional annual income tax, popularly known as the “defence tax”, until the age of 30.

Tan Kin Lian

Challenges for the Free Market

The English Premium League (EPL) likes the telcos to compete for the rights to their shows, as the competition will increase the fees payable to them. SingTel and Starhub had been competing against each other for the rights, leading to higher charges payable by the viewing public.

There is some suggest that SingTel and Starhub will work together to submit a joint bid. EPL will object and may reject it. More importantly, is this a monopoly in reverse, where the combined buying power will bring down the price?

A similar situation has happened in the pricing of iron ore and other mineral products. China is a big buyer of these products. Two companies in Australia are big producers. There has been some dispute on the pricing of these products.

These are examples of the failure of the free market to determine the correct prices. When certain producers or buyers have a dominant share of the market, they can exercise pricing power to the detriment of the other party.

It is quite dangerous to rely on the free market for pricing, when it can be subject to many practical challenges. There must be some other ways to ensure a fair price, rather than depending on the free market blindly. The new approach requires the people in charge to exercise their judgement, using a more transparent process where all the affected parties are able to present their views.

There are many aspects of life in Singapore, where the reliance on the free market to determine prices has not worked well. They are in the public transport, power, water, health care and financial services. I hope that a new approach can be taken on these matters.

Tan Kin Lian

Wednesday, August 26, 2009

End of life issues need to be addressed

What is the difference between:
a) suicide
b) euthanasia
c) prolong life
d) prolong death?

Read this article.

How insurers do or don't compete

Read this article.

Petition to the Prime Minister

I have sent the Petition to the Prime Minister. It is dated 26 August and contained 777 signatures. The Prime Minister's Office has acknowledged the letter and sent it to the Monetary Authority of Singapore. I hope that they will pay attention to the Prime Minister's request.


St Times: Tan Kin Lian launches new consumer body

A NEW consumer body that aims to help educate retail investors and keep close tabs on financial institutions was launched yesterday.

Formed by former NTUC Income chief executive Tan Kin Lian, the Financial Services Consumers Association (Fisca) is an independent not-for-profit organisation.

Mr Tan, who has come out of retirement to act as president of Fisca, said the new association will focus on researching financial and investment products that are distributed here, and educating the public about saving and investing.

'The key aims of Fisca are to educate consumers on financial matters and to help them select financial products that give good value for their savings and investments,' said Mr Tan.

Fisca's formation comes after thousands of local investors lost millions of dollars from complex structured products that were linked to collapsed United States investment bank Lehman Brothers. These included DBS High Notes 5, Minibonds, Jubilee Linkearner and Pinnacle Notes.

Mr Tan said Fisca's aim will be to drive investor attention away from such glamourous products and encourage them to understand diversification, low-cost investing and the merits of looking for long-term returns.

The association, however, will not guide investors in their selection of stock or in their timing decisions, but instead will provide access to educational resources via its website and through workshops or short courses.

Fisca also plans to produce a white-list of financial products that have low charges, are well diversified and suitable for long-term investment.

'Our strategy is to educate consumers on the practical questions that face them every day like: How much should they save? Where should they put their money? Which are the safe and fair products?' added Mr Tan.

To join Fisca, individuals will have to pay an annual membership fee of $36 that will allow them to access the association's online resources and take part in the programmes.

A recent Fisca survey found that investors wanted a truly independent consumer watchdog that was not funded by any financial institution so as to avoid conflicts of interests.

To maintain its impartiality, Fisca will not seek funding from financial organisations and hopes instead to raise money from like-minded government agencies and philanthropic organisations.

The Fisca president said that the association, now run by a group of 12 volunteers, would need about 100 paying members to remain viable.

He added that Fisca plans to engage graduate volunteers and train them to become Fisca facilitators to help run upcoming financial literacy programmes.

Noting that Singapore already has a number of consumer bodies for investors such as the Consumers Association of Singapore and Securities Investors Association of Singapore, Mr Tan said he hopes to work with all of them in the future.

'We recognise that the needs of consumers are diverse and that the combined effort of all these bodies may still be insufficient to meet these needs,' he added.

FISCA website:

Survey: Political Party Blogs

You can read the blogs of the political parties using the links on the right panel. Please give your views about these blogs. Survey.

Tuesday, August 25, 2009

Orphan money at NTUC Income

Someone, posting anonymously, has attacked me a few times for my views on the treatment of orphaned money. He asked if there were orphaned money in NTUC Income during the time that I was the CEO.

During my time, we adopted a different approach. We distributed a high rate of reversionary bonus to each class of policy that could be supported by the actual long term investment yield of the fund. We kept a portion of the surplus to be paid as special bonus on the maturity or termination of the policy.

More importantly, we were able to distribute to the policyholders an attractive rate of return, which is now used by the new management in their advertisement. This attractive return was possible due to low expenses and a high payout to policyholders, i.e. not retained as orphaned money.

I became alarmed when NTUC Income decided to cut the reversionary bonus recently. Under the new structure, it is difficult for a policyholder to know if he or she is getting a fair payout on the maturity or termination of the policy. It now becomes important for an asset share should be calculated for each policy, to guide the final payout.

I decided to study the concept of asset share in more detail. I like the approach adopted in Malaysia. It requires an asset share to be calculated for each policy based on the actual experience of the fund. It credits the premiums paid and investment income earned and deducts the actual expenses and other charges. The regulator requires that the full asset share should be paid to the policyholder on the termination of the policy, after it has been in-force for a certain number of years.

This method is simple, transparent and fair. I hope that MAS will adopt this approach in Singapore.

Analogy - there are no poor people in Singapore

There is a debate in the Straits Times Forum about the existence of "orphaned money" in the participating fund of a life insurance company.

In my letter, I gave an example of a life insurance fund with assets of $15 billion and liabilities of $13 million (calculated from the individual liabilities of all individual policies), leaving "orphaned money" of $2 billion.

The reply of the Monetary Authority of Singapore, Life Insurance Association and Singapore Actuarial Society, is that under the law, all money in the participating fund belongs to the participating policyholders, hence the question of "orphaned money" does not arise.

This is similar to the argument that as Singapore is a wealthy nation, and as all the wealth of the state belongs to the people, there are no poor people in Singapore. Tell that to the people who cannot pay their electricity bill or buy food.

Orphaned money in Life Insurance Fund

There is some debate in the Straits Times Forum about "orphaned money" in the participating fund of a life insurance company.

The term "orphaned money" is coined by Larry Haverkamp (who writes as Dr. Money in The New Paper) to refer to the money that is left in the participating fund when a policyholder terminates his or her policy and receives less than the "asset share" under the policy. The asset share is calculated as the premiums received, investment income earned, less the charges taken from the policy.

The Monetary Authority of Singapore has stated that the insurance companies are required to use the concept of asset shares in the distribution of bonuses on participating policies and to follow an approved "governance framework" involving the appointed actuary and the top management.

I hope that the MAS can clarify how this arrangement works, and how the interest of the policyholders are protected under this framework. If the life insurance companies pays less than the asset share on the termination of the policy, what recourse does the policyholder have? Does the policyholder even know about this fact, as the asset share is not disclosed to him (i.e. lack of transparency).

Some jurisdiction requires the asset share to be calculated for each policyholder and for the full asset share to be paid to the policyholder on termination of the policy after it has been in force for a certain number of years. I suggest that Singapore should adopt this approach.

The Monetary Authority of Singapore, Life Insurance Association and the Singapore Actuarial Society have stated that under the law, all money in the participating fund belongs to the participating policyholders and, therefore, the existence of orphaned money does not arise.

I am not able to follow this reasoning. We know that there are orphans in Singapore. These are children whose parents are no longer around. Can we say that as these orphans are being cared for by the state, they are no longer "orphans"?

I am inclined to follow Larry Haverkamp's reasoning that money in the participating fund that is taken from the asset share of terminated policies should be termed as "orphan money". In actuarial literature, the term used is the "estate".

However, I wish to raise the following fundamental issues:

a) Currently, there is no legal requirement that the asset share attributed to an individual policy should be paid to the policyholder on the termination of the policy, even on maturity. It is possible for a policyholder, on maturity, to receive less than the asset share, on the reasoning that the money is required to "smooth" the bonus for the remaining participating policyholders?

b) Why is there a need to penalise the policyholder of a surrendered policy by paying less than the asset share, when the high expenses and other charges have already been deducted from the asset share of the policy? Already, the asset share for a policy in the early years may be less than half of the total premiums paid.

I hope that the Monetary Authority of Singapore will address these fundamental issues that affects the long term savings of over one million policyholders and their families.

Tan Kin Lian

Watchdog thinks $20m is in bag for Lehman fund

Phila Siu
Tuesday, August 25, 2009

The Consumer Council is confident it will get HK$20 million from the government to beef up its litigation fund as it prepares to take its first Lehman Brothers minibond case to court. The extra cash will increase its litigation fund to HK$35 million.
Chief executive Connie Lau Yin- hing said the Consumer Legal Action Fund will also be used for other litigation.

The first minibond case seeks to recover HK$500,000, but the council declined to name the bank involved and would not provide any information about the investor.
The council has received 11,919 minibond complaints so far and resolved 1,169 cases.

Lau said 20 cases were originally ready to proceed to litigation, but were settled out of court. She said the extra HK$20 million is needed because more cases will emerge if the test case is satisfactory. "Feedback from the government about the application is very positive. We are waiting for the approval," Lau said.

She said looking for a suitable lawyer took some time because many have connections with the big banks, and were not willing to represent the minibond investors.
The first case to go to court had to be carefully chosen because it has to be representative of most cases.

She also said staff have been working around the clock because getting the required documents from banks took a long time. "There are constraints, we cannot force the banks to give us the documents and information we need," she said.

But legislator Kam Nai-wai did not accept Lau's reason for the delay. He said the council's slow reaction has given the public the impression that the council is a toothless tiger.

"The council should have applied for funds long ago. It should have known Chief Executive Donald Tsang Yam- kuen has promised the government will do everything it can to help the minibond investors," Kam said. But he said he knew getting the documents from banks can be a headache as he had dealt with many angry investors.

Monday, August 24, 2009

Letter to MAS - Asset Share

Ms. Angelina Fernandez
Monetary Authority of Singapore

I refer to your reply that is published in the Straits Times today (24 August). I need to follow up with a few clarifications:

1. Can you confirm that the insurance company has specified an asset share for each individual participating policy
2. That the total of these individual liabilities equal to the total assets of the participating fund?
3. Is the insurance company required to pay out the full individual liability on the termination of a policy?
4. If the insurance company is allowed to pay less than the asset share, how is the money allocated to the remaining policyholders?

In my earlier letter, I stated that if the total of the individual liability is $13 billion and the total assets is $15 billion, the difference of $2 billion is "orphaned money". I do not get a clear explanation from your latest reply to this point.

Please call me at 81685485 if you wish to seek clarification to my question.

Tan Kin Lian

A Sense of Duty

We need to re-install in each person a sense of duty.

If you are a doctor, it is your duty to treat and cure the patient. If you are a teacher, it is your duty to teach the students well. You receive a salary or fee for your service. When you accept the job, you accept the terms of your engagement and undertake to carry out your duty to the best of your ability.

In a corrupt society, government officials need to be bribed to do their duty. They may be bribed to break the rules in favour of the briber or just to carry out their duty according to the rules or what is expected of them.

Singapore is fortunate to have stayed clear of corruption and to have a public administration that is largely free of bribery. The few cases of bribery are prosecuted.

However, in recent years, there is a worrying trend. The sense of duty seems to have been eroded. Many people now expect to be incentivised to do a job well.

Corporate executives, who already earn a high remuneration, are now given incentives (through profit sharing or stock options) to increase their company’s profits. If they want to, they can increase the profits in unethical ways, such as over-charging or cheating the customers, delivering a lower quality of product or exploiting the workers.

Financial advisers rush to sell financial products to earn an attractive commission. Many forget that it is their duty to understand the product and ensure its suitability for customers. The lure of earning the attractive commission overcomes the sense of duty. Many neglected their duty and unknowingly mis-represented the product. Some knew but joined the bandwagon anyway. A similar situation applies to the property market.

There has been a serious decline in the standard of protection for consumers and workers. The government authorities are now less active in prosecuting cases of public interest and prefer to leave these matters to be sorted out by free market.

Consumers are asked to take legal action to seek redress. But consumers do not have the financial means to take legal action against large businesses who have access to the best lawyers anyway.

Local workers are also affected by depressed wages due to the influx of foreign workers and are not protected by a minimum wage policy. Many have to accept wage rates that are inadequate to provide a decent standard of living and have to work long hours to make up.

In this pro-business environment, where consumers and workers are not adequately protected, it is not surprising that businesses can rake up high profits, giving million dollar income to their top executives. Successful professionals, such as lawyers and doctors, can also earn million dollar incomes.

It is rather sad that the remunerations of our government leaders are now benchmark against the earnings of these top business executives and professionals. If the leaders are chasing the top dollars, who will look after the interest of the ordinary workers, the consumers and the other weak people in our society?

Tan Kin Lian

Sunday, August 23, 2009

Protecting citizens

Mr Tan, I signed the online petition and was there yestderday. I want to thank you for taking your time and lead in our cause.

The Government can continue to ignore us and pay lip-service. But I am sure that a big group of people who vote otherwise in the next general election.

This whole saga has open my eyes - a hard-core supporter of the current government. I am no longer convince that the current government is best when it comes to protecting citizens.

Though my financial position has improve tremendously compare to the lowest point in the crisis, I will never forget how our elected establishment chose to side-step and ignore the very fact that the FIs had indeed sold some very complicated/toxic product that few, perhaps including the FIs, could understand.

The very fact that HK and Taiwan FIs settle the toxic products is a clear testimony and yet our financial regulator continues the wayang!

Let the coming General Election do the talking.

The Uninsured

Read this article for some lessons from USA.

Burden of National Service

Someone expressed surprise that Tan Kin Lian considers National Service to be a burden. Lest I be accused of being disloyal to Singapore, I wish to state my position.

A burden is defined as a heavy weight that is difficult to carry. It is a burden when a task is made compulsory; it is not a burden when it is performed voluntarily. Similarly, it is a burden to pay taxes. Like taxes, compulsory military service may be necessary, but it is still a burden anyway.

Any burden has to be shouldered fairly and equally by all parties who benefit from the outcome. It should not be shouldered only by only a segment of the population (i.e. male citizens) while other segments (i.e. females and non-citizens) are exempted. The burden becomes heavier when the burdened people (who are set back by two years or more) have to compete against the exempted people for the same jobs.

The burden can be lightened by reducing the period of compulsory military service or by giving the NS men an adequate pay, allowance or grant (call it what you will) for the duration that they have spent on National Service. Alternatively, the exempted parties can be required to carry out non-combat or community service for the same duration.

The disadvantage suffered by our male citizens have been aggravated in recent years through the large influx of foreign workers and professionals, who are allowed to work in Singapore to compete against them.

National defence is important for the security and prosperity of Singapore. This responsibility has to be shared fairly by all residents. By imposing this responsibility on only on some people and putting them at a disadvantage compared with other people, we face the risk that the people whom we rely to defend our nation will not carry out their duty (due to their feeling of injustice) at the time of need.

A recent
survey carried out by me among people who had completed National Service indicated that 72% would not volunteer for this duty, 91% were unhappy with the current arrangement and that 57% would not fight to defend Singapore at the time of war. This are worrying findings, even though the survey may not reflect a representative sample.

I have been writing on this matter for more than twenty years. I have asked for the burden of National Service to be shared more equally or fairly. My suggestions had been rebutted and ignored. I will continue to voice them. I hope that they will be heard and heeded one day.

Tan Kin Lian

Blog Archive