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Sunday, June 01, 2008

NTUC Income Reasons Behind Bonus Restructure

Mr Tan Suee Chieh, Chief Executive of NTUC Income, has published an article on his reasons behind the recent bonus restructure. The recent issues raised by ex-CEO, Mr Tan Kin Lian, on the restructure must have caused an impact if not NTUC Income would not have made the press statement on their homepage itself. To read the press statement, just visit the home page at

I copied and paste the entire press statement below.

I would like to respond to a number issues raised by Mr Tan Kin Lian in public forums in relation to the bonus re-structure at NTUC Income.

Since February 2007, NTUC Income has been undergoing a review of all aspects of our business with the aim of strengthening NTUC Income and to achieve the best standards of governance and professional practices.

With that, NTUC Income would be in a better and stronger position to compete and meet the needs of a changing generation of Singaporeans, and to fulfil our social purpose of making insurance affordable, accessible and sustainable.

As a social enterprise, our first responsibility is to protect the interests of our policyholders, individually and as a whole, before taking into account the interests of our employees and shareholders.

One of the practices which NTUC Income reviewed was the bonus structure of participating life policies. The Appointed Actuary was of the opinion that under the existing structure, the company would be less likely to meet policyholders’ expected payouts when they make a claim, surrender their policy or when the policy matures. It was also his opinion that the current structure would weaken our financial position in the long term. NTUC Income would become increasingly less competitive and be unable to meet or protect policyholders’ interests.

Bonus policy and bonus declarations are serious matters subject to the highest level of corporate governance. Principles of bonus policy are approved by the Board of Directors. MAS regulations set out clear requirements for these.

From as early as August 2006, NTUC Income’s Board of Directors recognised that the financial position of NTUC Income needed to be strengthened. Starting in the second quarter of 2007, much research, discussion and debate took place within the management team and in August 2007, this issue was extensively discussed at the Board level. This continued until February 2008, when a decision was taken to re-structure the bonus scale.

Local and global industry practices were considered and we were convinced that the bonus re-structure is in the best interest of policyholders.

I would like to bring your attention to the following salient points.
  1. The bonus re-structure is the right decision and our position on it remains unchanged.
  2. We will not be giving an option to policyholders to remain in the old structure.
  3. The old structure was not sustainable and will undermine our ability to deliver total returns, which are ultimately more important to policyholders.
  4. There is now a better chance for NTUC Income to not only deliver returns as illustrated to policyholders, but to deliver even better returns.
  5. The new structure will reduce the likelihood of the bonus cuts that we had witnessed in the past.
  6. This bonus re-structure will strengthen the life fund for the increased security of all.
  7. Shareholders do not benefit from this re-structure, except to see a strengthened NTUC Income.
We engaged Mr Nick Dumbreck, the President of the Institute of Actuaries and a Consultant with the global financial management firm, Watson Wyatt, for a professional and independent opinion.

His professional opinion was that the bonus re-structure was sound and the right thing for NTUC Income. He categorically stated that our old annual bonus was too high given the bond returns available in our market.

However, I do want to address some of the concerns raised.
  1. We will work always with customers’ interests at heart. Every decision we take is calculated to protect their interests individually and as a whole. What we seek to do is to deliver the best possible returns to policyholders, now and also in the future.
  2. Although special bonuses are not guaranteed, they are set to ensure that the reduction in annual bonus is fully compensated. Where the strength of the Fund and investment outlook permits, this will continue in future. Should this compensatory special bonus reduce in future due to poor investment conditions, we are committed to restoration when conditions improve.
  3. We will ensure that the bonus allocated to policyholders result in payouts which are fair and consistent with the experience of the fund.
Above quoted from website:

My personal concern is if they were to cut 5% bonus to 1.3%, the reduced 3.7% bonus with compound interest taken away can be quite substantial.


  1. Having high return on the annual bonus reduced the possibility for NTUC to invest in other instruments other than bonds. In past few years, bond rates are not in favour. With them giving more at the end of the policy as special bonus, they will have more cash on hand to invest in instruments that gives higher return.

  2. I do agree with you but there are certainly pros and cons in high return on annual bonus.

    NTUC Income being a cooperative should not be focusing too much on profitability but rather, they should be looking at affordability and ensuring the lower income people are not left out. Having products structured in less complex form make cheaper products possible.

    If one wishes to go for higher returns, then they can opt for other products offered by a different company.

    As a cooperative, its initial objective must always be recalled, reminded and followed. It is a different ball game between a cooperative and a commercialised for profit company.



Do provide your constructive comment. I appreciate that.

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