27 Mar 2009
Move made possible by 2008 bonus restructuring that allowed greater flexibiilty and resilience to financial shocks. Restructuring to be extended to all other participating policies.
Bonus rates for annuities adjusted to reflect increasing longevity. $1 million “Income Cares Fund” launched for Annuitants.
Singapore, 27 March 2009 – NTUC Income will maintain the yields and payouts of all its life insurance policies maturing or terminating this year, despite the financial crisis affecting the industry.
NTUC Income restructured its bonus rates last year for 310,000 policyholders by lowering its annual bonus rates to more sustainable levels, and raising special bonus rates so as to maintain the total bonus amount.
NTUC Income implemented the move to increase the flexibility, security and resilience of the Life Fund, and align its bonus practices with the rest of the industry. These measures have helped NTUC Income to protect policyholders’ returns during one of the most severe financial crises in recent times. As a result, about 15,000 policies that will mature or are expected to make claims this year will benefit from having their projected payouts maintained.
This year, NTUC Income will extend the bonus restructuring to all remaining life policies so that their value will be similarly protected against financial shocks. The company will be writing in stages to inform the affected 195,000 policyholders of this exercise.
NTUC Income Chief Executive Tan Suee Chieh explained that extending the bonus restructuring to other policies was a prudent, sound and a logical move, in view of the ongoing financial crisis.
He said: “Last year, I believed the right thing to do was to put the Life Fund on a sounder footing. This year, we continue to do the same.”
NTUC Income will be moderating the bonus rates for its 32,500 annuity policies to more sustainable levels. This takes into account the need to align future bonus rates to the greater longevity of the population and the lower investment returns from the financial crisis.
To help annuitants tide over this financial crisis, NTUC Income will introduce a $1 million “Income Cares Fund”. Under this fund, all policyholders who are receiving payouts will each receive a one-off payment of $60.
Commenting on the “Income Cares Fund”, Mr Tan said: “As a social enterprise where people are at the heart of our decision making, we are committed to placing policyholders’ interests first. Although this costs us $1 million, we believe this is the right thing to do in these extraordinary times.”
NTUC Income remains in a good and sound financial position, having had its AA rating re-affirmed by Standard and Poor’s most recently in October 2008. This rating, which NTUC Income has retained since 1999, makes it one of the strongest financial institutions both in Singapore and the region.
Your Guide to Key Terms Related to Participating Policies
A participating policy is an insurance plan where the premiums you pay go into a selected fund called the Life Participating Fund. This Fund invests in various assets to earn returns.
These returns are then given back to you in the form of bonuses. This is because this kind of policy enables you to “participate” in the returns from this Fund.
Life Participating Fund
A Life Participating Fund is a pool of money comprising premiums from participating policies. The Fund invests into different types of assets such as equities, property and bonds, to earn returns. The Fund tries to get stable returns in the medium to long term.
The Annual Bonuses are bonuses added to your policy every year. Once it is announced and added to your policy, it will become a permanent part of your policy.
The Special Bonus is a separate bonus which NTUC Income will pay when you take money out from your policy. This is usually taken out when someone makes a claim, when the policy matures or is surrendered. This type of bonus usually applies to whole life and endowment plans.
Bonus restructuring involves lowering the annual bonus and compensating policy holders by increasing the special bonus. The aim is to make sure that the overall policy value is unchanged. In the long term, there should be a higher chance of delivering better returns as it improves the flexibility and resilience of the Life Participating Fund.
Like the stock markets, the value of the investments in the Fund changes daily, sometimes rising and sometimes falling. These values may change a lot over a short period of time. What smoothing means is that when the investments in the Life Fund perform well, a part of investment returns is not declared immediately as bonuses. It is held back, so that in times of relatively poor investment performance, there are funds available to declare a higher bonus than would otherwise have been the case.
It is important to note that any funds held back during smoothing are kept entirely for the future benefit of policies invested in the fund. As a policyholder, you benefit by seeing that your policy is protected from the ups and downs of the stock market. It also allows returns on your policy to increase steadily, in a way that is in line with the long term return of the investments in the Fund.