Reply to Today: Cut in Annual Bonus

4 May 2008

Editor
Today Paper

Cut in annual bonus

I refer to your article entitled "Tan Kin Lian, an upset Income customer" (Today, 3 May 2008).

I have two life insurance polices with NTUC Income that are affected by the cut in annual bonus. The reduction in bonus is about 45%. This large cut will apply not just for one year but for every year into the future.

NTUC Income told me that, to compensate for the cut in annual bonus, they will be increasing the terminal bonus (previously called special bonus) payable on surrender, maturity or death. I have now received the scale of terminal bonuses which vary according to duration for my two policies. Each policy has an entirely different scale. They appear to be calculated to be slightly more than sufficient to compensate for the cut in the annual bonus.

I suspect that a different scale of terminal bonus will apply to other policies according to their type and year of entry.

I wish to raise the following issues:

1) How many scales of terminal bonuses will NTUC Income be using for the various policies affected by this cut in the annual bonuses?

2) How will the scales of terminal bonuses be changed in the future, to reflect changes in the investment yield?

3) What are the principles that will be followed to maintain fairness between the policyholders with different entry years and different policy types?

4) To what extent is the higher rate of special bonus guaranteed, as it is intended to compensate for the cut in the annual bonus?

5) Will NTUC Income be prepared to lay out these principles in a transparent manner to be disclosed to all affected policyholders?

6) For policyholders who have suffered a reduction in annual bonuses during the past years, does NTUC Income intend to use some of the exceptional
surplus in 2007 to pay additional bonuses to policyholders to make good their shortfall (as compared to the bonuses that were projected at the time of taking up the policies)?

7) Will NTUC Income give an option for policyholders to remain on the old bonus structure, if they do not accept the change to the new bonus structure?

When the policies were sold, each policyholder was given a benefit illustration showing how the future bonuses would be distributed. While the actual bonuses were not guaranteed, I expect that NTUC Income would honour the underlying promise to distribute the bonuses in the manner that was illustrated.

My personal preference is to stay with the old bonus structure, as it is more transparent and a higher proportion of the bonus is vested each year.

I do not like the new bonus structure as the terminal bonus can be withdrawn in the future. I am also less confident of getting a higher payout, if the investment yield improves.

I believe that this unilateral change is to the detriment of the policyholders. It contravenes the "reasonable expectation" of the policyholders. Many policyholders have written to me on this matter, as I was the former chief executive of NTUC Income. I consider it my duty to voice their concerns.

I suggest that NTUC Income should reverse the bonus cut and restore the bonus to at least the same level as for the previous year. In fact, the policyholders expect a higher annual bonus, due to the high investment yield achieved in 2007. It is disappointing to see the cut in bonus when the investment results justify an increase.

Tan Kin Lian