Avoid complex financial product

Dear Mr. Tan,
I purchased a Secure Retirement Plus (SRP) plan last year. This is a variable aunity which buys into one of the insurer's unit trust and offers lock-in of the unit trust value every 5 years (up to 85 years old). I have the option to top up my deposit within 1 year. This is a rather complex scheme, with 50% "virtual" bonus after 10 years, and 'virtual' lock-in of the account value of the unit trsut every 5 years. 


'Virtual' means that the insurer is committed to honour the payout based on the 'virtual' account amount, but if client wishes to close the account, he/she will get back only the actual value of the unit trust. It sounded like a good deal since the downside risk is the survivability of the insurance company itself (which I think is finanically sound) and the upside is growth of value of the unit trust that the funds is invested in, thereby indirectly assure that the payout grows with inflation (inflation likely to flollow market growth).

I have the following question.
1) Is this SRP annunity better than the annuity offered by other insurance companies?
2) I wish to invest 40% of my retirement fund in this scheme (remaining money in unit trust, stocks and cash) Is this a good proportion?
3) Does MAS mandate that insurance company in Singapore must maintain a certain amount of capital to honor the annuity payout? 

REPLY
I avoid complex financial products that are designed with features that are not clear to the consumer. This allows the product issuer to interpret the features to its advantage, and take a large share of the investment gains from the consumer. The product that you described falls in this category.


If you wish to invest in a variable annuity, you should just buy into the STI ETF and make a monthly withdrawal to meet your needs. If you withdrawal is modest, relative to the amount that you have invested, it is likely to last for your lifetime, and leave some balance remaining for your children. You will get the average market return, which is likely to be around 6% per annum. I am not sure how much you can get from this complex product after deducting the charges.