Collective Protest - set aside for the time being

I discussed with NTUC Income's management to seek an amicable solution that will be in the best interest of policyholders and the reputation of NTUC Income. I communicated two concerns on behalf of the policyholders:

1. The restucture of the bonus system results in a lower annual bonus distributed yearly to policyholders, to be compensated by a higher rate of special bonus (which is not guaranteed). I ask that there should be satisfactory assurance on the payment of the special bonus on surrenders and claims, so that the policyholders will not lose out on the restructuring of the bonus.

2. In some past years, policyholders received a bonus cut (compared to what was illustrated at the point of sale) when the investment yield was low. As NTUC Income had earned a good yield of 7.8% earned during the past 10 years, I suggest that the shortfall in the bonus for the poor years be restored as early as possible, subject to financial solvency. I pointed out that the actual yield is higher than the projected yield at the point of sale.

To allow more time to find a settlement, I indicated that I will set aside the Collective Protest for the time being. I hope that an amicable solution can be found, so that the protest will not be necessary.

The Straits Times reported that Income had issued a statement that the old bonus structure is unsustainable. I disagree. For policies taken in the earlier years, they were based on a projected yield of 6.5%. For policies issued in the later years, they were based on a projected yield of 5.25%. These were realistic estimates of the future yield made at that time. The actual yield earned over the last 10 years turned out to be higher, at 7.8%.

Under the old bonus system adopted by NTUC Income, the sustainable rate of bonus is not a rate that is fixed. It is a rate that is adjusted from time to time, to reflect any change in the projected yield. If the yield goes up, the rate of bonus is adjusted upwards. If it comes down, it is adjusted downwards.

During the 1970s and 1980s, the bonus rates were adjusted upwards very few years. During the late 1990s, in the low interest rate environment, the bonus rates were adjusted downwards. In recent years, there is a case for the bonus to be adjusted upwards.

I believe that this system is fairer to policyholders and allows them to enjoy a higher vested bonus each year. This increases their cash value and reduces their loss, if they have to terminate the policies in the earlier years.

Tan Suee Chieh said that my change of tone was probably due to a better appreciation of issues behind the bonus structure. This is not the case - and I had told Tan Suee Chieh about it earlier. I had understood the issues earlier and had concerns about the change. My wish now is to find a solution that is in the best interests of the policyholders and the reputation of NTUC Income.

Some policyholders have asked me to insist that they be given the right to choose between the new and old bonus structure. I hope that this is possible and believe that it is the best option.

If NTUC Income's managment is convinced that the new bonus structure is likely to give a better return to the policyholders, they should be able to convince most policyholders to move to the new structure.