What is social insurance?
It is an compulsory insurance scheme provided by the state and covers a defined group of people (eg citizens or permanent residents). The cost of the scheme can be fully paid by compulsory contributions or partly funded by general taxation.
What are the risks that can be covered by social insurance?
Here are some examples:
* unemployment
* sickness
* health care
* injuries
* old age pension
In the past, the governments in many countries were active in providing fairly generous benefits under the umbrella of the welfare state. Due to abuse, the governments scaled back these welfare benefits. They prefered to let the citizens take care of these matters on their own, through private insurance.
The disadvantage of private insurance are:
* it is costly
* some groups of people cannot be covered (due to their existing condition)
We should strike a right balance. Some types of benefits should be covered by social insurance, eg catastropic payments for accidents and costly medical treatment, or for living too long. The other payments can be covered by private insurance.
Thursday, June 14, 2007
BIGe
Hi Mr Tan,
I've just placed $X of my CPF ordinary account into Aviva's BIGe single premium endowment. It gives a guaranteed interest rate of 3.5% p.a. for 3 months. In your view, how does Aviva's BIGe compares to Income's Flexi-Cash?
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REPLY
Aviva's Big-e gives a guaranteed return of 3.5%. This is higher than Flexi-Cash in NTUC Income, which earns between 3% and 3.5% (not guaranteed).
If Aviva keeps the interest at 3.5% beyond 3 months, it is attractive. If it drops below 2.5%, then it is not attractive. Between 2.5% and 3.5%, it is marginal.
I've just placed $X of my CPF ordinary account into Aviva's BIGe single premium endowment. It gives a guaranteed interest rate of 3.5% p.a. for 3 months. In your view, how does Aviva's BIGe compares to Income's Flexi-Cash?
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REPLY
Aviva's Big-e gives a guaranteed return of 3.5%. This is higher than Flexi-Cash in NTUC Income, which earns between 3% and 3.5% (not guaranteed).
If Aviva keeps the interest at 3.5% beyond 3 months, it is attractive. If it drops below 2.5%, then it is not attractive. Between 2.5% and 3.5%, it is marginal.
Invest your CPF ordinary account in BIGe
Dear Mr Tan,
I read your blog everyday without fail. It is so informative and covered a large variety of topics which are very relevant to ordinary retirees like us.
I would like to seek your advice on a product being marketed by Aviva Pte Ltd.
3.5% pa guaranteed for 3 months on your CPF savings. The BIG e is a single endowment plan that offers :
(a) Interest that's always higher than CPF's existing rate of 2.5% pa.
(b) 100% capital sum guaranteed.
(c) No lock-in period.
(d) No sales charges and withdrawal fees.
I have some CPF left and would like to invest in this endowment plan. Would appreciate your advice and comments.
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REPLY:
This is a good plan for a CPF member. If I have money in the CPF ordinary account earning 2.5%, I would probably have opted for the BIGe myself.
To my knowledge, there is nothing adverse about it.
I read your blog everyday without fail. It is so informative and covered a large variety of topics which are very relevant to ordinary retirees like us.
I would like to seek your advice on a product being marketed by Aviva Pte Ltd.
3.5% pa guaranteed for 3 months on your CPF savings. The BIG e is a single endowment plan that offers :
(a) Interest that's always higher than CPF's existing rate of 2.5% pa.
(b) 100% capital sum guaranteed.
(c) No lock-in period.
(d) No sales charges and withdrawal fees.
I have some CPF left and would like to invest in this endowment plan. Would appreciate your advice and comments.
-------------
REPLY:
This is a good plan for a CPF member. If I have money in the CPF ordinary account earning 2.5%, I would probably have opted for the BIGe myself.
To my knowledge, there is nothing adverse about it.
Avoid betting on financial products
Many new financial products are advertised in the daily newspapers. Most of them involve an element of betting. Your return depends on the performance of various shares over the next few years.
You should avoid "investing" in these products. Often, the bet is to the consumer's disadvantage. The regulator does not vet that the risk and reward has been designed fairly for the consumer.
You can read my views of these structured products in my website.
If you wish to take a bet, it is better to go to the casino or to Singapore Pools. You will probably get better odds for the bet.
Lesson: To get a better return on your investments, you should choose an equity fund, bond fund or money market fund. You will get the actual returns from the fund, less the charges. You should find out what the charges are. Make sure that it is not more than 1.5% per annum. Better still, go for charges that are less than 1%.
You should avoid "investing" in these products. Often, the bet is to the consumer's disadvantage. The regulator does not vet that the risk and reward has been designed fairly for the consumer.
You can read my views of these structured products in my website.
If you wish to take a bet, it is better to go to the casino or to Singapore Pools. You will probably get better odds for the bet.
Lesson: To get a better return on your investments, you should choose an equity fund, bond fund or money market fund. You will get the actual returns from the fund, less the charges. You should find out what the charges are. Make sure that it is not more than 1.5% per annum. Better still, go for charges that are less than 1%.
Choice of Workshop
Dear Mr Tan,
NTUC Income advertises a motor insurance plan that gives the choice of workshop to repair the car. Is this a better plan?
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REPLY:
You have to pay a higher premium when you select the plan that offers you a choice of workshop. The difference could be 10% to 20% higher.
Most customers prefer the normal plan that charges a lower premium. In most cases, they do not make any claim. If they have an accident, it is better to let NTUC Income handle the repair at their quality workshop. The customer feedback on service and quality of repair has been good.
My suggestion: Go for the normal plan. Enjoy a lower premium (10% to 20% lower). Let NTUC Income handle the repair for you. You can save the hassle.
Exception: If you own a new car (1 or 2 years old) and you are fussy about the repair, then pay 20% more and take the "choice of workshop" plan.
NTUC Income advertises a motor insurance plan that gives the choice of workshop to repair the car. Is this a better plan?
-------------------------
REPLY:
You have to pay a higher premium when you select the plan that offers you a choice of workshop. The difference could be 10% to 20% higher.
Most customers prefer the normal plan that charges a lower premium. In most cases, they do not make any claim. If they have an accident, it is better to let NTUC Income handle the repair at their quality workshop. The customer feedback on service and quality of repair has been good.
My suggestion: Go for the normal plan. Enjoy a lower premium (10% to 20% lower). Let NTUC Income handle the repair for you. You can save the hassle.
Exception: If you own a new car (1 or 2 years old) and you are fussy about the repair, then pay 20% more and take the "choice of workshop" plan.
Business simulation game
Dear Mr Tan,
I read that you are involved in developing a business simulation game. What does it do? What can I learn from this game?
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REPLY:
The simulation games teaches the participants on how to run a business. Each team (comprising of up to 4 members) will run a company and decide on the price of its products, its marketing expenditure and the production capacity for the following year.
The game comprises of 5 to 7 virtual years and can be completed within 2 hours. The game is more interesteding when there are several teams competing against each other in a market environment.
You can find out more from this game from this webpage.
The game can be organised for students in a class, or colleagues in a workplace. You can choose from a range of scenarios and business sectors, eg insurance, banking, hotel, airline and retail.
I read that you are involved in developing a business simulation game. What does it do? What can I learn from this game?
-----------------
REPLY:
The simulation games teaches the participants on how to run a business. Each team (comprising of up to 4 members) will run a company and decide on the price of its products, its marketing expenditure and the production capacity for the following year.
The game comprises of 5 to 7 virtual years and can be completed within 2 hours. The game is more interesteding when there are several teams competing against each other in a market environment.
You can find out more from this game from this webpage.
The game can be organised for students in a class, or colleagues in a workplace. You can choose from a range of scenarios and business sectors, eg insurance, banking, hotel, airline and retail.
How to invest $40,000 now
Dear Mr Tan,
My wife and I have about $40K (in fixed deposit). We are less than 30 years old.
We are keen to put this money into good investment, as the payout from fixed deposit is really too low. We are not well versed with shares. We like to invest in the financial products from NTUC Income.
Can you advise how best we can invest this 40K?
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REPLY:
I will ask an insurance adviser to give you some information on how you can invest in the combined fund (growth or balanced) of NTUC Income. I suggest that you invest the lump sum in installments over the next 5 months, to get the effect of averaging of the cost of your investment.
If you are investing for the next 10 to 20 years, it is all right to invest in the combined fund.
My wife and I have about $40K (in fixed deposit). We are less than 30 years old.
We are keen to put this money into good investment, as the payout from fixed deposit is really too low. We are not well versed with shares. We like to invest in the financial products from NTUC Income.
Can you advise how best we can invest this 40K?
----------------------
REPLY:
I will ask an insurance adviser to give you some information on how you can invest in the combined fund (growth or balanced) of NTUC Income. I suggest that you invest the lump sum in installments over the next 5 months, to get the effect of averaging of the cost of your investment.
If you are investing for the next 10 to 20 years, it is all right to invest in the combined fund.
Flexi-cash from NTUC Income
Dear Mr Tan,
You have mentioned that you keep 50% of your investments in the money market. I would be grateful if you can tell me more about the money market. Is fixed deposit part of the money market? What else?
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REPLY:
My investment is in the money market fund of NTUC Income. It is called Flexi Cash. You can read about it in www.income.com.sg/faq
You have mentioned that you keep 50% of your investments in the money market. I would be grateful if you can tell me more about the money market. Is fixed deposit part of the money market? What else?
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REPLY:
My investment is in the money market fund of NTUC Income. It is called Flexi Cash. You can read about it in www.income.com.sg/faq
10 year bond yields
Here are the yields on 10 year government securities in various currencies:
Generally, we are in a low interest rate environment across the world (except for Australia and New Zealand).
For every 1% increase in the yield, the bond prices may fall about 8%.
As inflation is expected to increase in many cuntries, it is better to invest in the money market.
Japan JYP 2%
Singapore SGD 3%
Germany DM 4.6%
Hong Kong HKD 5%
US USD 5.25
UK GBP 5.5%
Australia AUD 6.3%
Generally, we are in a low interest rate environment across the world (except for Australia and New Zealand).
For every 1% increase in the yield, the bond prices may fall about 8%.
As inflation is expected to increase in many cuntries, it is better to invest in the money market.
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