Participating Annuity

Dear Mr Tan

Your blogspot is really helpful to the public. I have also been reading your recent articles on annuities in the Straits Times with great interest.

I have two annuities, both participating but with a refund feature, if I die within 15 years or less.

Upon reading your recommendation I asked my NTUC income agent if I could switch to a non refund policy and thus obtain increased monthly payouts. He said there is no such policy, ie without refund, right now.

When I bought my annuity, it projects a bonus of 2 to 2.75 % yearly. Can it exceed 2.75% in good years?

MY REPLY:

The two annuity policies that you bought gave good value. Although the guaranteed interest rate is around 2.5%, you will enjoy a variable bonus that is likely to increase the net return to around 5% per annum. The actual bonus depends on the investment yield in each year. It can exceed 2.75% in good years.

If you look at the illustration given to you at the time that you bought the annuity, you will see that the payout is projected to increase over the years due to the addition of the bonus.

Most people bought the annuity with the refund feature. Although it pays a slightly lower return, it is still quite attractive. It will take a few more years before people are familiar with the concept of the "no refund" annuity.

I advise you to keep these two annuity policies. They give good value. The Straits Times will soon be publishing another article about why the participating annuity is suitable for today's environment.