Bad advice on switching

Hi Mr. Tan,
I visited your blog and enjoy reading it. I need your advice on the following. Currently, I have (details of 4 policies provided)


Recently my new agent does an analysis and advise me that I required a life-policy. The agent suggested me to terminate the investment policy and get a life policy. The agent informed me that the premium paid till date is around $X and the surrender value is $Y (slightly more than $X). The agent cited that part of the investment profit are paid for the administration charge and others benefit like Death Cover, TPD and CCP.


I'm reluctant because I do not intend to terminate the investment policy but instead thinking of reducing the coverage amount so that the investment policy is indeed an investment policy not anything else. Please advise.

REPLY
It is bad to terminate an existing policy and buy a new policy. Do not buy a life policy that has high upfront charge. If you need additional cover, just buy a term insurance policy, e.g. available from Aviva (e.g. SAF scheme). If you need less cover, you can reduce the sum insured on the investment policy.

Get the benefit illustration from the agent (for the new policy) and show to me. I will tell you if the agent has given proper advice to you.

You can read my book, Practical Guide on Financial Planning. There is a chapter on how to deal with existing insurance policy, and a warning to avoid switching to a new policy.

The book is available here for $12, www.easysearch.sg/ishop

Mobile apps developer

I wish to look for mobile apps developer to take projects under the following platforms - Apple, Android, Windows, Nokia. If you are interested, send message to kinlian@gmail.com.

High earnings of new CEO

Someone told me that the annual report of a listed insurance company showed that its recently recruited CEO earned $2.6 million in 2009. This remuneration was twice of the remuneration of the previous CEO who headed the company for 10 years. The insurance company had cut its policyholders' bonus two years ago due to market conditions and had still not restored the bonus cut.

He asked, "Mr. Tan, is this fair to the policyholders? Why is the company allowed to increase its management salaries by so much, while policyholders are still suffering the bonus cut?" He also pointed out that the previous CEO was a Singaporean and that the new CEO was a foreigner.

Foreigner first policy rankes

Here is an article by Seah Cheang Nee.

Investment in land banking in Canada

Dear Sir,
My family and I bought some land in Canada 7 years ago and have yet to see our profits actualised. Is this investment a scam? We haven't tried asking for our money back but reading about the same company being raided in Malaysia makes me think it may be one.

REPLY
It is difficult for the investors to get back their money from land banking projects. Many investors have waited a long time, and have now given up hope of getting back their money.

Law on found items

The Police told me that I am not allowed to keep found items and that these items have to be reported to a neighborhood police station. The officer asked, "Did I consult a lawyer about my Lost & Found portal?"

I am not aware that there is a law regarding the return of found items to the Police. The Police officer was not able to point out the law to me anyway. If the Police does not know, how do you expect the citizens to know about such a law?

I searched the Internet to look for the existence of such a law in Singapore. I could not find any mention of it. I know that there is a law against theft of property. If somone finds a property that could be traced to the owner, e.g. car, computer, mobile phone, and keeps the property or sells it away, the finder could be guilty of stealing the property. In that case, it is better for the finder to report the found item and hand it over to the Police to be kept in its centralised store.

But the Police should make it clear to the public that they can report a lost item to be traced. The Police needs an efficient matching system. Perhaps they can use my portal or create one of their own.

There is the concept of "finders keepers". I believe that if an item is lost and it is not possible for the finder to trace the owner, the finder is entitled to keep the item. However, if the owner comes back one day to claim the item, and assuming that the owner is able to prove ownership, then the item has to be returned to the owner.

Tan Kin Lian

Monitor my blog

Someone asked me, "How did the Police learn about my Lost and Found portal?". I suspect that they are instructed to monitor my blog to look for seditious or defamatory statements.

Various categories of public housing

Our HDB flats have become expensive and is now a burden for many young people to start their first home.

To solve this problem, I have suggested that a new category of HDB housing be offered based on cost of the flat. This could bring down the price by 30% to 50%. The resale value of this new category will be based on the cost of a new flat (which will increase with inflation) less depreciation of the flat.

I believe that it is possible to have the various categories of HDB flats to co-exist side by side. Right now, we have HDB and executive apartments. What is wrong with a third category, with different conditions?

Some people may choose to pay more for the "market based" HDB flats. Other people may prefer to pay less for the "cost plus" HDB flats. Give them a choice. From my survey, the demand for "cost plus" flat is likely to be higher than "market based". It does not matter how the final choice will turn out. It is good to offer the choice.

Tan Kin Lian

Video: How to solve the Shape Quiz

Watch this video on the technique to solve the Shape Quiz.
It is good to develop your child's creativity and thinking process and confidence to solve a problem.
It is also good for seniors to keep their mind alert.
You can order the mini-pak or book here.

Lesson from Mao

Someone told this story to me. Mao Tse Tung was admired and loved by the people of China for his contributions to building the nation during the first three decades of his leadership. During the last decade, he lost the respect of the people due to many mistakes that were made in his attempt to perpetuate his power, which worsen the living conditions for the people.

Treat people equally

DPM Teo Chee Hean is quoted to have said, "A company that does not discriminate against any particular age group or gender will naturally have access to a large pool of potential hires".

I agree with this concept of non-discrimination and ask that it be applied to all aspects of Singapore life. We should treat people equally in respect of the following (just a few examples):

- school fees
- medical fees at government facilities
- income tax relief for children
- contribution to CPF

We are so used to being differentiated according to our residential status, employment status, educational level, education level of our mother, year of birth and other factors that it becomes part of our daily lives. It is not only unfair to those in the wrong groups - it also makes life complicated in Singapore.

Tan Kin Lian

Political implication

The GPC Chairman for Transport said that increased (COE) premium could be seen as a "cost of living" issue for current and future car owners. He said that any price increase, from COE to HDB prices, will have a "political implication".

I have heard the term "political implication" used many times by politicians from the ruling party over the past years. It is a necessary vocabulary to show their understanding of the ideology of our great leader.

There is another way to make decisions that is not based on "political implications". It is based on what is right and wrong, what is good and bad. It is right and good to take care of the welfare of the people, to maintain an affordable cost of living and to a comfortable and secure life to the people. It is not necessary to do them based on "political implications".

Tan Kin Lian

Big rats and fat cats

How is this relevant to Singapore? What is the role of government? Read this article by Dr. Wong Wee Nam.

Quote
Role of Government

The poor will only get a fair share of the economic pie through a just re-distribution of income. The only way to re-distribute income is through public policies and laws. Unfortunately the problem is that most of the people who are in the position to influence, initiate or implement the changes are members of the tiny apex who have the largest share of the national income. Unless one is very altruistic, who would want to come out with an equitable system especially when it means affecting one’s self-interest? It is natural for anyone in this position to believe completely the virtue of Adam Smith’s “invisible hand”.


Big businesses and corporations love to wave the flag of globalisation, free market and competitiveness. This is because the wages of the workers can always be kept low by making them compete against foreign workers that can be imported from the part of the world where many people are still hungry. They can easily wring concessions from workers with the threat of relocation. Conversely, no worker can hope to wring concession from the bosses with the threat of resignation or emigration.


The power of big corporations and businesses can also be be seen in Singapore. Thus when companies do not make profit, they can put pressure to cut the workers’ salaries so that they can still be profitable. If the profit is not attractive enough, they can exert pressure to bring down the corporate tax rates.


In the end not only do they pay lower taxes, the tax payers’ money that is used to produce skilled workers, good infrastructure and a safe environment for these companies will be raised through the GST that is paid by everyone.


In a just and equal society, the role of the government should be to act as a regulator to balance the needs of the people and the greed the big businesses. Its job should be to iron out any kinks that may give rise to injustice and conflict and to re-distribute wealth in a fair manner. Its policies should not favour one side or the other. It cannot play such role if it decides to go into business and become a Fat Cat itself.


For a just an equal society, a government must be able to control the greed of the Big Rats and trim the fat of the Fat Cats instead of justifying the necessity of their existence

Make a date with FISCA on 8 May 2010

Make a date with FiSCA on 8 May 2010 from 3pm to 6pm. Talk on "Financial Planning - A Practical Guide"

Note this down in your diary. Put it in your calendar. Register now! It's free to all FiSCA members. Also, a free copy of the Practical Guide on Financial Planning book will be given out to all members who attend the talk.

The public is welcome to join in as well. Public participation fee is $30. For this event only, the public who attends the talk will also get a copy of the Practical Guide on Financial Planning book worth $12.

Group insurance rates

You can view the group insurance rates charged by Aviva for SAF members and dependents here. These rates can be used as a benchmark to compare the rates offered by other insurance companies for term life, critical illness and personal accident insurance.

The rates for term life (payable on death) and personal accident (payable on death or injury by accident) is the same regardless of age.

The rates for critical illness increase sharply after age 45. If you find them to be expensive, you do not need to have this insurance, if you already have sufficient savings by that time. You can draw down on your savings in the event of a critical illness.

Example
Assume that you are 30 years old, earn $3,000 a month and wish to insure for the following:
Term life $200,000 premium $25.60
Critical illness $100,000 premium $10.00
Personal accident $100,000 premium $4.17
Total premium $39.17

The premium is about 1.3% of your earnings. This rate will remain unchanged until you reach age 45. After that, you have to pay a higher premium for critical illness, but you can discontinue it at that time.

CNBC Interview with Roger Kirby

 The US law firm Kirby McInerney will be speaking at a seminar on 13 April about class action in the USA to recover losses due to securities fraud. You can watch an interview with Roger Kirby in this CNBC video.

Investing and the casino

This article is quite frank. It says that investing is like the casino. The lessons from the casino can be applied to investing. I agree.

Lost & Found Service

I have launched the Lost & Found website.

I sent this media release, but the newspapers did not cover it. I have approached several transport companies and educational institutions to tell them about this service and to encourage them to report the lost & found items in this website, to make it easy for the items to be matched. Two of them have responded positively.

The Police called my office to tell me that under the law, I am not allowed to keep the found item. They said that the found item has to be reported to a neighborhood police station and kept in a central store. This works fine for me and save me the hassle. I will post more details about this service in the website.

I hope that my readers can help to promote this website through Facebook and other social media.

Tan Kin Lian

Affordable housing

Read this article in the blog: Diary of a Singapore Mind

My comment:
The problem has reach a stage which is difficult to solve. Housing price is too high. People are unclear about how to treat housing - is it an investment or a cost of living? One party blames the other party.

My preferred approach is to create a new type of housing based on controlled price, i.e. cost plus. This can be adjusted with inflation and reduced by depreciation. Give people a choice whether they wish to treat housing as an investment (i.e. based on the current market pricing) or as a cost of living (i.e. based on the controlled pricing).

Tell a blatant lie

The benefit illustration of a life insurance policy showed the distribution cost to be 7.3% of the total premium paid over 25 years. If the total premium amounted to $100,000, the distribution cost was $7,300. The insurance agent twisted the figures and said that the cost was only $292 a year and amount to 0.3% of the invested sum (i.e. similar to the cost of investing in a exchange traded fund).

This is a blatant lie, as the annual cost of $292 is still 7.3% of the annual investment of $4,000. The agent twisted the figure to confuse the clients.

How many agents adopt this type of dishonest way to sell their high cost life insurance policy? Is this type of blatant lie being taught to the insurance agent by their training managers?

Do you know which agent you can trust, and which agent to avoid? It is important for consumers to be educated and avoid falling into this type of trap. Spend $12 to buy my book, Practical Guide on Financial Planning, and learn a better way to manage your savings and investments through an exchange traded fund. Do not spend $7.300 as distribution cost in a financial product that gives you poor value.

Tan Kin Lian

Group insurance from Aviva

Aviva has offered attract group insurance - term, critical illness and personal accident - to their existing policyholders under the SAF scheme and their spouses. I have looked at the premium rates and found them to be quite attractive.

I have recommended to consumers to buy term insurance (including critical illness and personal accident riders) and to invest their savings in a low cost investment fund. The group insurance offered by Aviva under the SAF scheme is suitable and get my endorsement.

If you are not an existing policyholder under the Aviva SAF scheme, you can get similar group insurance under the SAFRA scheme offered by NTUC Income - if you are a SAFRA member (and most Singaporeans are).

For the low cost investments, it is best to invest in the STI ETF managed by State Street (lot size is 1,000 shares or about $2900) or the fund managed by DBS (lot size is 100 shares or about $290). The transaction cost and expense ratios are quite similar in both cases. The DBS fund has the advantage of being in smaller lots. (Note: there is a minimum brokerage of 40% and a higher brokerage rate for smaller transactions, so it is not feasible to invest in 100 shares lot of DBS STI ETF. It is better to invest in the Statestreet 1000 shares lot.)

If you buy term insurance for protection and invest in a low cost investment fund, you will get a much higher return from this investment strategy compared to the high cost life insurance policies that are offered in the market now. This concept is explained in my book, Practical Guide on Financial Planning ($12) available here.

Tan Kin Lian

Platform fee on Fundsupermart (2)

Some investors are unhappy with the platform fee of 0.5% that is being imposed by Fund Supermart. They have two options of responding:
- move to another platform, e.g. Dollar Dex or POEMS]
- sell their unit trusts

They should consider the second option for the following reasons:
- they probably make a profit from the high stockmarket prices now
- by selling the funds, the fund managers may ask FSM to remove their platform fee.

The underlying unit trusts already pay a share of their annual fee to FSM. It is not fair for FSM to add a new layer of fee.

Deflation

When the Japanese economy busted at the end of the 1980s, it went through a deflation that has lasted nearly 20 years. Some commentators said that the US economy may go through a period of deflation but they are optimistic that the economy is more robust and will recover. I am less optimistic. I think that the underlying weakness of the free market system , which contributed to asset bubbles, may affect the US economy as badly as it had affected the Japan economy.

During a period of economy growth, people are willing to borrow and invest in assets, leading to inflation. During a period of deflation, people are not willing to borrow and invest and the excess capacity will take a long time to be utilized. More people will remain unemployed and this will worsen the deflationary cycle.

The second world war ended the deflation of the 1930s. We may need a third world war to end this deflation. But it is also possible to find a more peaceful solution - and that requires to restructure the global economic system into a more socialist type, using the Keynesian approach or its modern version.

Tan Kin Lian

Chance for change in Singapore

Read this article by Yoong Siew Wah.

My comment:
I believe that change will be good for Singapore. Several of the old economic and social policies have not been good for the people and need to be changed.

More business for taxi drivers

A taxi company boss told me that the business for taxi drivers has picked up significantly since the opening of the Sentosa integrated resort (aka casino). The average earnings of taxi drivers has increased to $2,500 compared to $2,000 previously. Some taxi companies have applied to the Government for work permits for taxi drivers from overseas - due to shortage of locals willing to be taxi drivers. I hope that more unemployed workers will come forward to try driving a taxi.

Employ adequate public officers

We need sufficient people working in the public sector to deliver public services to the people. We need adequate numbers of  teachers, nurses, doctors and policemen, in proportion to the population. If the population increases, we have to employ more public officers. In particular, we need more people in the police force to keep law and order, to investigate crime and fraud and to prosecute criminals. If the increase in public officers is in line with the popular, the total cost of public service will still remain at the same share of the national spending.

We should not try to keep down cost by employing insufficient public officers. We need sufficient manpower to maintain the standard of public service. We cannot expect over-worked officers to deliver the expected standard of service.

If we do not provide sufficient employment in the public sector, there will be insufficient jobs in the private sector to absorb the excess manpower. We should not have too many people selling insurance, property and financial products, as they do not add to the real wealth of the country, although they may create false wealth through asset bubbles.

We should also avoid paying high salaries to the top levels of the public sector to match the salaries in the private sector. The private sector salaries are likely to be excessive anyway, and should be moderated in some suitable way, e.g. to impose a high rate of tax on extremely high earnings. If we remove one top earner, we may be able to create jobs for 50 people at the working level.

Let us have a fair balance. We need adequate people in the public sector to provide an adequate level of service while keeping the cost at an acceptable level.

Tan Kin Lian

Quick action could have reduced number of spa victims

http://www.straitstimes.com/STForum/Story/STIStory_510873.html

My comment:
It is important for the Police to investigate a potential fraudulent practice promptly, rather than expect the public to provide evidence. The public do not have the resources and the power to carry out an investigation to produce the evidence.

There are several potentially fraudulent practices, such as land banking and get rick quick schemes. If the Police does not investigate, more people will fall victim to the frauds.

Unethical opt-out mailer on insurance

http://www.straitstimes.com/STForum/OnlineStory/STIStory_510787.html

Kirby McInerney on CNBC

Dear Best Friends and Business Associates,

Roger Kirby will be appearing on CNBC Asia Squawk Box Wednesday morning at 7:30AM Singapore time.  He'll be interviewed from NY, and the anchors will be Martin Soong and Karen Tso.  The topics that he will be discussing include:
1)      What does your firm do for Asian investors?

2)      What rights to Asian investors have in a US court?

3)      What results have Asian investors received/could receive in a US court?

4)      Are these cases worth it financially given the time involved in reaching a resolution?

5)      Do you expect more cases to be brought?

6)      Is fraud on the rise? In what sectors?  In what ways?

7)      What kind of regulation will prevent the fraud that has been committed?

Teo Guan Hock

Do not trust unrealistic projections

Dear Mr. Tan,
I would like to seek your advice on a policy which I had signed up, which is still within the 14 day free look period.


1) The benefit illustration of my policy showed that the "effect of deduction" drops significantly in the 25th year as compared to the 20th year. Would you know the reason for this?


Reply: I do not trust this type of projection where the effect of deduction drop "magically" after 20 years, i.e. the maturity value increases "magically" on the 25th year. When the time comes, the insurance company will find many excuses to tell you whey they are not able to pay out the "magical" increase. Remember, these figures are not guaranteed.


2) I am a bit confused as to which year I should take to calculate the "effect of deduction". Assuming 5.25% Investment Return, the effect of deduction at the 20th year is 37% while at the 25th year, it is 17%. The difference is vast and if I take the 20th year calculation, the policy is obviously too expensive but if I take the 25th year calculation, the policy appears reasonable. Can you advise which is the correct figure I should use?


Reply: Do not trust the "magical" figure shown on the 25th year.


3) I informed my agent that distribution cost works out to be 7.3% which is quite high in my opinion. However, he informed me that over 25 years, the distribution cost only works out to be 0.3% a year and that if I buy ETF yearly, the transaction costs will work to be around there. Is this argument valid?


Reply: If you invest in ETF, the distribution cost is 0.3% of the total invested sum, compared to 7.3% for the life insurance policy. It is dishonest for the agent to divide the 7.3% by 25 years and say that the cost is the same. The agent is telling you a blatant lie.


4) I informed my agent that I have heard horror stories of policies falling way off projected returns upon maturity. However, he mentioned that in the past, the projections were very high and that now, MAS has regulated the projections to be a very reasonable and definitely acheivable 5.25%. Again, is this true?


Reply: The horror story will happen again in the future, due to the unrealistic projection on the 25th year.


5) I highlighted that saving through ETF or investing in equities may yield more but my agent informed me that it is easier said than done and it takes a lot of discipline to keep investing and monitoring shares and buying the policy would be a disciplined way to save for the future. What do you think of this?


Reply: It is easy to keep investing in ETF. You will have better control of your money. There is no need to monitor the ETF as it is well diversified and invested in 30 large shares.


6) Finally, do you think that this policy is reasonable and I should keep it or is it too expensive and I should terminate it while I still can?


Reply: I would take advantage of the 14 day free look period, and give up the policy for a full refund.

You can buy my book, Practical Guide on Financial Planning here. Spend $12 and save a few thousand dollars. Be educated. Do not be misled by dishonest agents.

CNA More quit workforce in their 50s

Read this article in Channel News Asia.

My comment:
I believe that most people want to work to an older age, but they are likely to be retrenched due to restructuring of the company, the desire of the company to increase their profits by employing lower cost workers and the weak protection of workers' rights.

Different management style

Dear Mr Tan,

After serving NTUC for 30 years, I must say that we have lost a caring leader that really look after the welfare and investment of policy holders. With the new comer, all the existing management staff who have followed you for many years have to give way !!! One of the “victim” is a friend of mine and I could not believe the way he has been treated. After spending almost all his life in this career, learning from your style of hard working and not to waste unnecessary money for any expenses related to work, he has to face a new comer after you left. With a promise of two years  contract, he was asked to leave only half a year later after he has given his full collaboration to new staff understudy from him !

It appears the new management style of working is totally different from yours and the new policy is no longer “attractive” as before ! It is unfortunate to see such things happened in one of the most modern city in the world.

G

Time to review COE system?

Published in Straits Times on 5 April 2010

The current system of bidding for Certificates of Entitlement has been operating for more than twenty years. When it was first introduced, it was envisaged that the end buyers would be bidding for the certificates.

Over the years, the bidding for these certificates appear to be dominated by the motor dealers who make a large profit on the trading of these certificates, adding to the total cost of ownership of a vehicle. The bidding system also encourages speculation and price volatility due to greed and fear.

One obstacle for the end buyer to bid directly is the high price of the certificate and the lack of financing for this item.

I wish to suggest the following modifications to the system reduce the speculative activity:

- Allow the successful bidder up to of six months to find a suitable vehicle
- Require the successful bidder to pay only 10% at the time of bidding and the remaining 90% on purchase of the vehicle
- Change the bidding cycle to three months (instead of the current one month).

The proposed changes will create a fairer and more transparent market for the certificate of entitlements and remove the unhealthy speculation.

Tan Kin Lian

Dear Mr Tan,
I saw your letter to the ST Forum today. I applaud you that you raised this issue for consumers like me. I was held captive by the COE system. The COE bidding discourages end users to bid due to the high upfront cash layout as deposit. Genuine bidders with limited cash will be left out. We are left at the mercy of the car companies who do not provide transparent cost structure.


Very often, you will not get a good car price if you got for your own COE. LTA insists that COE is transparent but COE is obviously a tool for car company to hide profits. I do not have the history of when COE started, (how many people have? we buy cars at most 5 times in our life time?) e.g. why there is this 'Open Category' where car companies can hold them and trade later, exchanging hands ... There seems to be more happening than we, as consumers, know. This is not transparent and definitely unfair.


S Y Tan

Role of insurance agents

Insurance agents can play a useful role in marketing insurance to consumers. However, the insurance products must be designed to be fairly priced and to give good value to consumers. The design of the product is the responsibility of the management and the actuary.

Many general insurance products carry a commission rate of 10% to 15% of the premium. This is acceptable, if the premium is based on the risk that is covered by the policy. This rate of commission can be applied to health and term insurance policies.

For savings and investment policies, the commission rate should be much lower, e.g. similar to the chargespayable for the purchase of shares and bonds, e.g. brokerage is 0.3% of the amount invested. It is wrong for the commission and distribution cost to take away one or two years of the savings.

I hope that the life insurance companies and their management and agents change their practice to offer life insurance products that are fair and good for consumers. This will allow insurance agents to hold their heads high that they are serving their clients well.

I like to ask my readers to be fair in making your comments and not to use this blog to  "bash" insurance agents. Please state your views objectively.

Tan Kin Lian

Book-keeping scam

A FEW weeks ago, two Republican House members asked Ben Bernanke, the chairman of the Federal Reserve, whether the Fed knew — before Lehman’s bankruptcy examiner revealed it — about the bookkeeping scam at Lehman known as “Repo 105.”

Well, the truth is this: The collapse of Enron back in 2001 revealed that the biggest financial institutions, here and abroad,were busy creating products whose sole purpose was to help companies magically transform their debt into capital or revenue ...

http://www.nytimes.com/2010/04/04/opinion/04koniak.html?pagewanted=all

High rate of tax

America is discussing how to curb the high salaries of top CEOs.

In my view, the best way is to impose tax of 90% on salaries above 50 times of the average national wage. The current average net compensation in America is $40,000. This will mean that the special tax will apply to salary above $2 million. The salary of the President of America is only $400,000.

There is an argument that high tax will drive away the top CEOs. I disagree. The top CEOs have to work in a company that is likely to use the human resources or market of the domicile country. It is not easy for the top CEOs to relocate to another country. For example, the health care companies in America make their profit in that country and cannot be relocated overseas. This also applies to the profits from the other big professions, such as law and accountancy.

The financial services industry may be one that can be relocated overseas. However, the top bankers and financial traders make their profits from excessive speculation and leverage, which is likely to be curbed and is not sustainable anyway.

The wonderful outcomes of a high tax on excessive earnings are:
- prevent the rampant profiteering at the expense of consumers
- can abolish the wasteful  and unfair Goods and Services Tax.

There should also be an international agreement among the countries to prevent the use of a tax haven strategy to attract the high income earners to move their profits or earnings into that country. It is almost like cheating other countries of their tax revenue.

Tan Kin Lian

Lost & Found Portal

Have you lost a mobile phone, notebook computer, pet or other item. Report it at the Lost & Found portal. If you have found an item, you can also report it here. Our staff will match the reports and contact the owner and the finder. This service is free. Click here.

Please help to publicise this service through your blog, twitter, facebook and other social media.

Astroturfing

Here is an explanation of this new term.

Al Jazeera English TV

Al Jazeera English TV is dropped from SingTel Mio TV from April 1, 2010. Here is a selection of some of their videos

http://dlzj.wordpress.com/2010/04/03/al-jazeera-english-dropped-from-singtel-mio-tv-from-april-1st/

Microsoft .NET developer

I wish to look for developer who is familiar with Microsoft .NET to work on a project or to work at my office. Preference will be given to a person living in or near Ang Mo Kio. If you are interested, send an email with your resume to kinlian@gmail.com.

If you wish to attend a course, there may be a government scheme to give you a training allowance and work for me after completing the training course.

Private medical practice

Some of the trends in USA may come to Singapore. Read the views of some doctors here.

Modify the COE system

The COE system for allocating licences for new vehicles has been used for more than 20 years in Singapore. It is a crude system that produces the following negative impacts:

- it encourages speculation on the COE prices and lead to price escalation due to fear of further increases
- the motor dealers take advantage of the system to make speculative profits at the expense of consumers.

Is there a better system? I like to propose the following modification to smoothen price volatility, reduce speculation and allow consumers to bid directly:

- have COE bidding for six months (and not monthly)
- the car owner is allowed six months to buy a car (and the COE will start from the date of purchase)
- the car owner needs to pay a deposit of 10% to make a bid and the balance on receiving the COE
- an owner who sells a new car within one year has to pay a levy (to prevent speculation)

Tan Kin Lian

Great websites

I wish to look for great websites on the following:
- financial education
- education (popular universities)
- travel (great places to visti)

I will put the links in this page:
http://www.easysearch.sg/Links.aspx

If you know of these websites, please send a link to kinlian@gmail.com or post them as a comment. I will put them as links in my portal.

Unconscionable remuneration

U.S. health insurance giant WellPoint Inc. revealed Friday that it boosted its chief executive's compensation 51% last year. Chief Executive Angela F. Braly saw her total compensation shoot to $13.1 million, from $8.7 million a year earlier. "It's unconscionable," said Mark Weiss, a Century City podiatrist whose policy will jump 35%.. "How much more does somebody need?"

http://www.latimes.com/features/health/la-fi-wellpoint3-2010apr03,0,3259739.story

Someone complained to me that top executives in life insurance companies in Singapore are getting big salary increases while the bonuses to policyholders are being cut. It is sad that the regulator does not realize that they have a responsibility to protect the welfare of policyholders in getting a fair return on their long term savings.

Electric vehicles for short distance travel

More people are now using bicycles for short trips, e.g. to the MRT station. They have to use pedestrian walkways as there are no separate lanes for bicycles and it is dangerous to cycle on the main roads. Pedestrians have complained about the safety hazard.

Some cyclists have asked for separate lanes to be provided for them. However, this is not an efficient solution. If more people cycle to the MRT station, there will be insufficient parking space for the bicycles and the risk of theft and vandalism. Bicycles are not suitable for rainy days.

A better system is to use small electrically driven vehicles (like a golf cart) on a for time based hiring.  The vehicles can be parked in various locations in a town and used by the public (who have to register as members) to move from one station to another. This system requires the initiative of the town council to provide parking spaces and to have separate paths for the vehicles.

Paris is implementing such a system.

Tan Kin Lian

Investing in Foreign Currency

Some people like to invest in foreign currencies to earn a higher yield. For example, they can earn 3.1% on Australian dollars (1 month deposit) compared to 0.2% on Singapore dollars. However, they have to consider the spread of 1.7% in converting to Australian dollars and back. The higher interest rate is taken away entirely by the spread for short time deposits.

You can reduce the spread to 0.1% by investing in Australian dollars through the forex trading market. For example, if you wish to invest in AUD 50,000 you can buy the same amount in the forex market. Although you have to put in a margin of only 2%, i.e. AUD 1,000, you can keep the remaining 98% of the invested sum in Singapore deposit and enjoy the same investment result.

Credit risk in making advanced payments

Many customers paid a few thousand dollars on spa packages and lose the money when the spas closed  down. If you have to pay in advance to enjoy a discount, do not pay for more than three months of services. Do not take the risk of paying for one or two years.

I do not know if the spa closed down due to bad business, or they were set up to deceive the customers. I hope that the authority will investigate if the owners had intended to collect deposits and run away with the money. If money is taken out by the directors for unauthorised purposes, it would amount to cheating. We should not allow this type of cheating to go unchecked.

Tan Kin Lian

Training video on Forex Trading

Here are excellent training videos on Forex Trading.

Singapore health care system

Here is an article published in Temasek Review.

It's more than just shopping in Johor

Read this article by Seah Cheang Nee.
http://www.thestar.com.my/columnists/story.asp?col=insightdownsouth&file=/2010/4/3/columnists/insightdownsouth/5981516&sec=Insight

Poor financial future for Singaporeans

I feel sad for the people of Singapore. Most of them work hard and are frugal. They save for their future and for their children. But, when they come to retire, you do not have enough savings and are asked to continue to work longer.

What went wrong? Most of them get a poor deal from the financial products that they invested in. Take an example of a family which saves $500 a month over 35 years. They should have earned a return of 5% p.a. and received $570,000 for retirement,. But the yield obtained by most of them would probably be 2% p.a. giving them only $306,000 (or 54%). The difference of $264,000 (i.e. 46% of the total) went to pay the high earnings and profits of the financial services industry. I am not aware of any other country in the developed world where as much as 46% is taken away from the hard earned life time savings of the people.

If each family contribute $7,500 a year (i.e. $264,000 over 35 years), the total contribution from one million families would amount to  nearly $8 billion a year. This is a lot of money. This is why the top executives in banks and life insurance companies can earn several million dollars a year. And in recent years, higher salaries are being paid for top executives who are willing to be unscrupulous in over-charging customers and giving them a poorer deal.

This arrangement works well for the board of directors, as their fees are benchmarked to the profits and to the government leaders whose remuneration are benchmarked to the top earners in the country. Of course, the people are condemned to a bleak financial future, but the government leaders do not seem to care.

Tan Kin Lian

Singapore Goal 2010

In 1998, Prime Minister Goh Chok Tong said in a National Day speech that one day Singapore could qualify to play in the World Cup. The Football Association of Singapore set Goal 2010 as the year that Singapore could achieve this dream. We are now at year 2010 and this dream is still far away. It seems that the last 10 years have been quite disappointing for Singapore on many angles, including sports. More information here.

Develop your child's thinking with the shape quiz

The shape quiz can help your child's thinking, creativity and problem solving. Watch the video here:
www.easysearch.sg/videos

Special promotion. Buy 10 mini-paks for $15  (usual price $20) as a gift for children and friends.
To order: www.easysearch.sg/ishop

A valuable gift to your children or friend

If you invest $12 and 6 hours in my book, Practical Guide on Financial Planning, you will be able to save $12,000 by avoiding the wrong type of investment. For example, if you save $500 a month in a life insurance policy and the distribution cost is 24 months, you will be losing $12,000 of your savings.

You can also help your children or friend to avoid wasting their savings on the wrong financial product. Present them with this book for them to read and keep. This may be a much appreciated gift.

Order here. www.easysearch.sg/ishop

Hub and spoke system for public transport

A few people have written to the newspaper to complain about the proposed change to the hub and spoke system for public transport. They do not like having to transfer from one bus to another. They prefer the current system of many buses that travel long distance.

I believe that the hub and spoke system is more efficient and will benefit commuters as a whole. It will simplify the transport system and encourage more people to take public transport. The only drawback is the need to make a transfer, but this can be an advantage as the short walk will be good for health.

Commuters do not like to spend 10 minutes to wait for a transfer. When the new system if fully implemented, I expect that the waiting time will be shorter as there will be more buses to run the shorter routes.

Some people argued that the elderly and disabled will be inconvenienced. I believe that it is better for some other arrangements should be made for them, instead of using public transport.

Tan Kin Lian

Platform fee on Fundsupermart

Hi Mr Tan,
I am unsure if you are aware that the famous online Unit Trust distributor Fundsupermart is imposing a platform fee in a month's time.
http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=4035

Many retail investors are very unhappy about this new fee to be implemented in such a short notice. In addition, we always try to keep our cost down but FSM, due to various reasons, go in different direction as its clients.

I have not receive any email or letter regarding this change in fee structure until a forumer alerted the rest.

JL


REPLY
Please ask Fundsupermart to show you where, in the contract, they have the legal right to impose such a fee. If you withdraw from this platform, are you able to keep your record directly with the unit trust or move the units to another platform? You can also ask the unit trust that you invested in.


UPDATE
Fundsupermart plans to levy a quarterly fee of 0.125% (0.5% p.a.) plus GST for equity funds. A lower charge applies for investments above $500,000. This is rather high, as the investor has to bear a management fee to the asset manager as well.


An investor told me that she plans to transfer her funds to Dollar Dex. There is no transfer charge. Dollar Dex indicated in their website that they do not plan to implement a platform fee. She said another option is to tranfer to POEMS.

Goods and services tax (GST)

The Goods & Services Tax is a bad tax in the following ways:

- it is a regressive tax and hits the people at lower income most
- it is a wasteful tax as it incurs a heavy administrative cost to the tax collector and the payer

A better solution is to abolish GST and have higher income tax. If a country needs to lower income tax to attract higher income earners (a strategy for which I personally disagree) and needs to find an alternative source of revenue,  here is a better approach to GST:

- levy a flat rate tax of 4% on payroll and investment income (which produce the same revenue than 7% GST)
- the payroll tax is a cost to the employer but can be recovered from employees earning above a threshold salary

There is a mistaken concept that GST is fair as it is imposed on consumption and encourages savings. A better way to encourage savings it to pay a higher rate of interest (which can be achieved through monetary policy) or to exempt interest from tax. Many retirees earns a low rate of interest on their savings and yet have to pay higher prices through GST.

GST has become so complicated, costly and open to abuse that it is time to abolish it and replace it with a more efficient tax.

Tan Kin Lian

Cost of a home

Every family needs a home to live in. A high property price translates into the high cost of a home and a high cost of living. When a family buys a costly property, they have to work hard for many years to pay off the mortgage to the home. They cannot afford to be unemployed or to have reduced earnings, as they cannot afford to pay the mortgage.

There was a mistaken belief that high property prices benefit the people at large, as the value of their asset has increased. In reality, they are paying a higher cost of living and have to work harder to survive. They are not able to unlock the value of their asset, as they still need a place to live in (unless they move to a smaller size property).

A small number of people benefit from the escalating property prices - people who own land and properties that they can sell to those who need a home. The families that need a home suffer from the higher cost.

Tan Kin Lian

Work-life balance and the economics of workplace flexibility

Here is a report prepared by the Presidential Council of Economic Advisers in the USA.

NATO: No action talk only

Someone passed a cynical comment that the comments on land banking in this blog is "no action, talk only". This person posted anonymously and did not indicate whether he is a land banking investor or cynic or just a nuisance. If he is willing to come forward and propose some concrete action, I would be happy to post his offer.

Someone suggested that a rally be held in Hong Lim Park about land banking. Another person suggested to protest against the lavish spending at the annual general meeting of NTUC Income. Can the people who make these suggestions offer to arrange the rally or attendance?

On a positive note, a few investors in land banking are now in contact with each other and discussing some form of collective action, including visiting the office of the land banking company together to ask for re-payment of their investment. However, some investors still think that they will have a better chance to be re-paid if they give the land banking company more time to sell their land.

Tan Kin Lian

Painful experience of land banking investor

This message has been edited by Tan Kin Lian. Other investors who wish to join this action to visit the office of X collectively can send an e-mail to kinlian@gmail.com.

Hi 
I wish to share my experience. X (land banking company) is not interested or motivated in repaying the investors. Their main focus currently is to hold more road shows to attract more new and unsuspecting investors so as to further line their own pockets.


In my case, I have personally went down to CAD a couple of times and also seen my MP twice to try to recover my money since August last year. However, till today I am still at a loss as to when I could ever recover my money from X.


I also went down to X's office many times to recover my money but they kept giving excuses and use all sorts of ways and excuses to delay payment. I have also called up X 'hundreds of times' but they simply either refused to take my calls or give excuses that their directors are out of town (their directors are basically out of town 365 days in a year).


Personally I think that the best way to get my money is to constantly 'harass' X for payment personally at their office. In fact, that could be the only way to get our money back unless CAD decides to take action against X.


However, X would not be bothered with our 'harassment' if we go to their office individually. Therefore I suggest that if we are serious in getting our money back, maybe we could gather more investors like ourselves and together pay X a visit to settle payment dued to us once and for all. We need to really force X to pay us back our hard-earned money before it is too late.

UK - action taken against land banking companies

Comment: surely it is time for the Singapore authorities to act against similar shady practices in Singapore?


http://www.creditman.biz/uk/members/news-view.asp?newsviewID=11496

....were all involved in operating an unscrupulous land investment business. The companies falsely claimed to provide the best land and property in the UK with future development potential and the capacity to deliver maximum returns to investors including selling land they had no right to.

The grounds for winding up the companies were that they made misleading and unfounded statements in marketing the plots of land to the public; sold land on two sites (Worplesdon and Thorndon) that they had no right to sell and that over a third of company receipts were found to have gone to those involved in the running the business, namely.....

In ordering the companies into liquidation Registrar said: “This is a very serious case where considerable amounts of money have been obtained from members of the public. I am satisfied that the evidence, based on a very full report, substantiates all of the allegations. The evidence shows diversion of funds and the intermingling of funds by the companies that can’t be unravelled. I am satisfied that Mr .... and Mr ..... have demonstrated complete lack of co-operation and that this is very obviously a case where winding up orders should be made.”

The investigation also found that the companies had failed to keep proper accounting records; had failed to comply with Companies Act requirements; failed to co-operate fully with the investigation and operated with a serious lack of transparency as to who controlled the companies and with a lack of clarity regarding the structure and roles of the companies.

Coping with a critical illness

When a person meets with a critical illness, there are two financial losses:
- medical expenses to treat the critical illness
- loss of earnings

The medical expenses have to be managed in a sensible manner. I know of a few people that spent a lot of money on treating the critical illness, usually at private hospitals and specialists. In many cases, the large sum that was spent did not make any difference. If the illness was serious, the patient died.

I also know of other people who survived cancer or heart surgery. Those who were treated in a restructured hospital did not spend a lot of money as they benefited from the government subsidy. They were also covered by catastrophic insurance (i.e. MediShield or private Shield).

The best way to handle the loss of income is through personal savings that can be drawn down in an emergency. You do not need to depend on critical illness insurance to give a lump sum payment. If you put all your money in a critical illness policy, you may find your claim to be rejected for some technical reason, at a time when you need the money most. It is better to invest the savings on your own and be free of this uncertainty.

The proportion of people that suffered from a critical illness during the working life is estimated to be less than 10%. More than 90% will retire without suffering from a critical illness.

Tip: Spend less than 2% of your earnings on insurance against death or critical illness. Invest the rest of your savings in a low cost investment fund.

Read my book on "Practical Guide on Financial Planning". Spend $12 and save a lot of money (say $12,000) on wasted premiums.

Tan Kin Lian

Personal risk management

We need to accumulate savings and invest them wisely to get an adequate return that is higher than inflation. Most people invest too much of their savings in a life insurance policy that locks them up for 20 years or longer, is inflexible and gives a poor return. When they need cash for emergencies, they have to borrow on credit cards or on their own policy and pay a high interest rate.

Most insurance agents frighten them about the risk of premature death or critical illness (which is less than 10% during their working life) but did not tell them about the risk of insufficient savings for retirement or future emergencies (which represents more than 90% chance of occurrence).

The solution is to buy a low cost term assurance (covering death and critical illness) or personal accident policy (with less than 2% of your earnings) and invest the rest of your savings in a low cost investment fund. If the insurance cover is not available at a low price, it is more important to take care of the 90% risk and have adequate savings for the future.

What are your views about this approach to personal risk management? Share your personal experience.

Tan Kin Lian

Public transport in Singapore

What percentage of people in Singapore uses public transport to go to work? I guess that it must be 80%, but I wonder if the proportion is lower? Can someone help to do some research?

Old fashion investment advice

Jack Bogle has been giving the same advice for 50 years. Read this article.

His advice, in short: Invest consistently and for the long haul in a widely diversified portfolio of stocks and bonds. Pay attention to taxes and costs. But leave your investments alone.

Day trading is a bad idea

Read this article. This includes day trading in the stock broker's office.

15 money rules for children

Read this article.

UK - Bank staff mis-selling to be scrutinized under government plans

By Victoria Bischoff  25 March 2010


Financial services firms that force staff to promote and sell products to consumers in order to meet sales targets will be reformed, under plans revealed in the budget this week.


The government has said it will set up a ‘working group’ to consider how staff targets and incentives might lead to poor outcomes for consumers and employees.


This is building on the Retail Financial Services Forum’s remit to make financial services work better for consumers.


The group will meet with a number of banks, consumer groups and trade unions, to discuss the need for reform, before reporting to the Chancellor in time for the Pre-Budget Report.


Unite Union has welcomed this investigation into bank sales culture, describing it as a ‘victory’ for staff in banks across the UK.


Rob MacGregor, Unite national officer said: ‘There is now an opportunity to eradicate the murky practices which put pressure on staff and customers. This new examination by the Government is a win for consumers and a win for those workers on the front line of the banking sector.’


‘Unite members feel uncomfortable with having to pressure customers to invest in products which they often don’t feel they need, simply because the staff have to meet unreasonable sales targets,’ he added.


Consumer champion Which? recently sent out mystery consumers to 37 branches of banks and building societies, and found just four gave consumers good advice to consumers investing a lump sum. Meanwhile, the remaining 33 banks often recommended inappropriate products, failed to properly explain the risks or simply couldn’t get the basics of good advice right.


Which? chief executive, Peter Vicary-Smith, said: ‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products’.


A spokesperson for the British Banker’s Association said they are not currently aware of any invitation to the new group on remuneration and incentives, but they will be pleased to participate if asked.

Estate duty in US on non-residents

Dear Mr Tan

I'm a keen follower of your blog and appreciate your efforts in educating the public on financial planning.

I attended a will writing talk recently and was informed that the US estate tax on assets such as stocks bought in the NYSE can be as high as 55%!  I have invested quite a bit in the ETFs listed on the NYSE and needless to say, I was quite stunned to hear about that.  I did some research about this and it seems there is an exemption provided the total value of assets owned is less than US$60,000 based on fair market value.

I have asked my broker about this, but they claimed that there won't be any estate duties on US stocks.  But this doesn't seem to be the case based on what is stated on these 2 sites:

http://www.irs.gov/businesses/small/international/article/0,,id=156329,00.html (official word from the Internal Revenue Service)

http://www.ifa-sg.com/abolishment-estate-duty/ (opinion from a local Independent Financial Advisor)

If this estate tax does apply to Singaporeans owning US stocks, you might want to blog about this to inform the public as I believe there are quite a number of people who own them but are not aware of the tax.

REPLY
 I am not familiar with estate duty in US on non-resident. I shall post your email in my blog and see if there is some response from the experts.

Practical Guide on Financial Planning

Nearly 1,000 copies of the book has been sold during the past few weeks. All my stock in the office has run out. I have to retrieve some stock from FISCA, while waiting for the re-print. They are still available at most bookstores.

The response to this book has been better than expected. Most people sent me their feedback that they find the book to be easy to read and useful.

Order here.

Customer service at call center

Here is a simple way for any call center to improve its customer service.

If the call center staff meets with a problem that they cannot answer (which represents about 10% of incoming calls), they should record the nature of the problem and the contact of the customer. This call should be passed to a specialist to call back the customer.

This method will improve customer service significantly. It will also improve life for the staff handling the incoming calls.

Tan Kin Lian

Educate the public and decision makers

The postings in my blog are intended to educate the public and the decision makers on various issues involving financial, social and economic matters affecting the future of our country, including productivity, quality of service and treatment of the public.

I believe that the decision makers are monitoring this blog and that my postings, together with the comments, will be read by them. (For example, where I have made factual errors, these have been politely corrected in my blog from knowledgeable people - posting anonymously). I have also forwarded some of these postings to the relevant decision makers. The mainstream media also took up some of these points and contacted me for more information.

Some cynical people asked, "what is the point of making complaints in this blog?" Their cynical attitude is  wrong - this is not a place for complaints, but is a place for positive contribution to educate the public and decision makers and improve the quality of life in Singapore.

There are many things that are not moving in the right direction in Singapore, as the decision makers are out of touch with the reality. I hope that this blog will help to bring these points to their attention.

For example, I have posted articles about how other countries approach their issues, especially where their approach is different from Singapore. I hope that this will allow the public and decision makers to consider the merits of the different approaches.

Tan Kin Lian

Australian Associated Press Financial News Wire: Lehman's victims seek damages following High Court decision

LEHMAN MELBOURNE, March 30 AAP - Local councils and other investors who suffered losses of over $600 million from Lehman Brothers Australia Ltd's liquidation can still seek damages following a decision by the High Court of Australia.

The High Court on Tuesday dismissed two appeals against a judgment of the Federal Court of Australia which found that a deed of company arrangement approved by Lehman Australia's creditors on June 12, 2009, was void and of no effect.

Reasons for the decision will be delivered at a later date, the Court said in a statement.

The decision against Lehman Brothers Asia Holdings and Lehman Brothers Holdings Inc means investors in Lehman Australia and other companies in the Lehman Group can commence litigation to recover hundreds of millions of dollars in losses.

The investors, including about 90 local councils, are owed over $600 million in investments that went bad following Lehman Brothers' collapse in New York in September 2008 under debts of $613 billion.

Lehman's collapse was the the biggest US bankruptcy in history, and subsidiaries around the world followed suit as their source of funding disappeared during the credit crisis of September 2008.

Listed litigation funder IMF (Australia) Ltd on Tuesday said claims made by 70 of its clients against Lehman Australia now would proceed following the High Court's decision.

The decision confirms that the deed is ineffective and Lehman Australia will remain in liquidation, IMF said in a statement.

The deed was proposed in early 2009 by Lehman Brothers Asia Holdings, Lehman Australia's single biggest creditor, which itself went into liquidation. The deed was recommended by Lehman's administrators, Stephen Parbery and Neil Singleton of liquidation firm PPB.

Wingecarribee council and others had begun legal action against the investment bank, arguing Lehman Australia engaged in misleading and deceptive conduct.

Wingecarribee council crystallised its losses of $4 million by selling its soured investment products.

At the time, Mr Singleton told AAP that the deed should bring litigation to an end.

"The benefit of that is it enables us to pay the employees and general creditors in full, early, and it provides a very reasonable return to the contingent creditors (the former investors including councils and charities)," he said on May 28, 2009.

But several creditors of Lehman Australia later later brought proceedings before the Federal Court claiming they were not bound by the deed and that it would extinguish their rights to sue other companies in the Lehman Group.

On September 25, 2009, the Federal Court found that the deed was void and of no effect, before ordering that Lehman Australia be wound up by the Court.

Lehman Asia and Lehman Brothers Holdings Inc then appealed the decision in the High Court.

Western Australia Business News: Councils win Lehman court case

Councils and charities involved in the collapse of Lehman Brothers Australia have had a win in the High Court today.

Litigation funder IMF (Australia) said the High Court dismissed an appeal against a Federal Court judgement that found the deed of company arrangement approved by creditors of Lehman Bros Australia was void and of no effect.

"It was argued by the Councils seeking to have the DOCA set aside that the DOCA was unfair and particularly prejudicial to the interests of those creditors with damages claims against Lehman Australia, principally being the local councils, charities and other investors in collateralised debt obligations marketed by Lehman Australia," IMF said.

"In particular, the councils argued that the DOCA could not contain terms which required creditors to release claims against other Lehman Group companies."

The High Court win now paves the way for the councils and charities, as clients of IMF to proceed action against Lehman Australia and other companies within the group.

The City of Melville was one council which used to be advised by Lehman and had paid more than $20 million for a portfolio of CDOs.

Stability and choice

This political situation in Tunisia is described to me by my host in Tunisia. The current government in Tunisia has been in power for many years and has produced stability and economic progress. The government has strong links to most of the organisations in the country, that it is difficult for other political parties to compete with the ruling party. The people are not unhappy with the current situation but they would prefer to have more freedom and choice. There is much similarity with the situation in Singapore.

Tan Kin Lian

Improve online service

I wish to quote this real life example for government agencies to improve their online service. Although this case involves the CPF board, the same type of situation occurs with other big organisations.

I wanted to top up the special account for my wife. I had to go through the spider-web of the CPF board. I finally managed to submit an online application.

I did not receive any news for 1 week. I did not know if anyone is responding to my application and how I would be informed. I sent a follow up enquiry. I managed to get an approval a few days later. I send the top up amount by cheque to CPF board.

I received a communication that my cheque was received after the expiry of the approval. They gave me only 5 days to respond. I had to submit a new application.

Surely the CPF board knows that it would take a few days for a person to prepare and mail the cheque and for their big organisation to open the letter? Five days is far too short. Even if the approval has expired, there has been no change to the application, and there is no need to ask the member to submit a new application - which is a lot of hassle to go through their spider web.

Perhaps the CPF board is not aware that their members have many other things to attend to, and that the cannot spend a lot of time to meet their bureaucratic and unreasonable process.

I find the CPF board to be quite helpful and responsive on many matters, so this is an exception. Furthermore, this type of inconsiderate approach is quite applicable in many large organisations (and is not confined only to CPF). We need a process in Singapore for the people who designs websites and online applications to be more responsive to feedback and to make things simple for the public.

Tan Kin Lian

Customer service at call center

I had difficulty to access the Internet. I called Starhub. The hotline staff transferred me to a technical expert. I was left holding on to the line for 5 minutes waiting for the technical expert to receive the call. As I was using my mobile phone, it was quite costly to be holding on.  I gave up.

The call center staff should ask for my mobile phone and get the technical expert to call me. This is only fair to the customer. But most call centers have a policy not to call the customer. This policy should be changed.

Low yield for a 5 year investment

Dear Mr. Tan,
My mother is thinking of buying a 5 years insurance plan with a single premium of $10,000. She is still in good health and the reason she's buying is to get safe returns that are higher than the bank interest. I've attached the
benefit illustrations and hope you can give your view on this.


REPLY
The non-guaranteed yield varies from 1.55% to 2.8% p.a. for 5 years. It is rather low for an investment that is locked up for 5 years. However, I am not able to suggest any better investment.  Let me post this in my blog and see if someone else has better suggstion.

Insurance for taxis

Hi Mr Tan
What are your views about the taxi driver who discharge his insurance company from paying a third party claim for damage to their car? It is not fair to the third party who have to sue the taxi driver to recover the repair cost of $2,000. The offer of $300 by the taxi driver is ridiculously low.

REPLY
Currently, it is compulsory for a car owner to have insurance for third party injury, but not damage. In granting the licence to the taxi company, the Land Transport Authority should make it mandatory for the taxi to have insurance for third party damage as well.

The cost of insuring a car is about $1,000. The cost of insuring a taxi should be about $3,000 a year. This will add $10 a day to the cost of renting a taxi. I think that the taxi company should be required to buy the insurance and add this to the cost of the rental. The taxi should not be inadequately insured for property damage.

Life insurance in Asia

Extracted from Economist magazine:
http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=15772822&subjectID=348960&fsrc=nwl

Stephan Binder of McKinsey, a consultancy, thinks that people should be insured for 10-12 times their annual income. By this measure, Asians (and, for that matter, everybody else) are woefully underinsured. What’s more, social-security entitlements in the region are paltry compared with other rich countries. So annuity schemes are a natural supplement for retirement income. Japan, the greyest of the Asian countries, is already seeing the effects of demographic change. The dankai generation—which refers to the 8m people born between 1947 and 1949—spent 14.5 trillion yen ($125 billion) on insurance with individual annuities in 2006. And that was before most of them had retired.
Another avenue for growth is in health-care plans, which are undersupplied. In the Japanese market, over half of new policies cover medical costs such as cancer. Other Asian countries are sure to follow as the savvy pre-retirement generation—who no longer believe that their families will care for them, and do not think government schemes will suffice—start to think about their future. Joseph Ngai of McKinsey reckons that rich Asia could see 11-12% growth in insurance premiums

Insurance loophole? Cabby refuses to pay up for car accident

http://motoring.asiaone.com/print/Motoring/Drivers/Story/A1Story20100325-206694.html

Cabby refuses to pay up for car accident and discharges insurance firm from payment but he is only willing to pay $300 out of a $2,000 bill.

Invest your savings in a low cost investment fund

Hi Mr Tan, 
I have read your article on not buying Critical illness insurance. Recently my insurance agent has been advising me to embark on a 15 year limited Critical illness Insurance of coverage 100K, premium of 4.6k per year. I will be paying only for 15 yr, but the coverage will still continue. The return is 131.5k (total premium paid is 70.3K) after 30 yrs should I surrender then.

I have told my agent that Medishield or private shield should be enough to cover should a critical illness strike, this is what he said:


1) Shield covers hospitalization but does not cover all kind of medications as well as recuperative treatments, for eg.TCM, hospice care, medical equipment, and all miscellenous charges.  For eg, it does not cover shots of Herceptin which cost $4k per shot to kill cancer cell. This shot need to be administer 17 times, once every 3 weeks to tackle breasts cancer.

2) Many long term illnesses like heart attack, stroke, paralysis, brain diseases total permanent disability and cancers require long term medication and aftercare. These if not hospitalised will never be taken care by Shield plans.

3) Shield requires co-insurance. Co-insurance can be a huge amount. For eg, chemotherapy is charged on a package by doctors depending on different conditions. On avg, it comes in 8, 12, 16,24 cycles which avg cost around $25,000 -$60,000 over a 2-3 month period. A min 10% co-insurance will be at least $2500 to $6000 every 3 months. If chemo treatments consistently needed, they can come up to more than 32K -50K per year just on co-insurance and misc expenses.

 I would really like to have your comments on this.

REPLY
If you invest $4,600 for 15 years in a low cost investment fund and is able to earn 5% p.a. the accumulated sum at the end of 15 years is $104,000 and at end of 30 years is $216,000. The chance of making a critical illness claim in 30 years is likely to be less than 10% and this is likely to occur towards the end of this period (when you get older). For these people, the accumulated sum may be more than the payout under the critical illness policy.

The chance of surviving 30 years without a claim is more than 90%. For these people, they will get the projected sum of $131,000 and lose $75,000 (compared to $216,000). Both figures are not guaranteed.

The people who benefit from a critical illness policy are those who contracted it within the first 15 years, and the chance is small. I would prefer to take this chance than to have a 90% chance of losing out on one third of the accumulated savings.

It is better to buy a rider to cover critical illness for 15 years (and you can get it from a policy under SAFRA, for example)  and invest your savings  in a low cost investment fund., If this cover is not available at a low cost, it is better to take the risk of not having a criticial illness cover.