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Tokio retirement product features some firsts

Payment can be by instalment; spouses can be covered
Thursday, August 21, 2014 - 06:00

[SINGAPORE] Amid strong demand for retirement products here, Tokio Marine Life Insurance Singapore (TMLS) has launched a whole life insurance product that pays customers a stream of monthly income for life from age 55, 60 or 65.

Financial planners told The Business Times that a unique feature of the product, dubbed TM Retirement PaycheckLife, is how husband and wife can both be covered. If one passes on, the survivor can continue to receive payouts.

Another feature is that the product can be paid for in instalments over five, 10 or 15 years, much like a typical whole life insurance policy. Existing annuities in the market typically require the customer to pay in one lump sum to get a stream of income for life.

TMLS chief executive Lance Tay told The Business Times: "We're targeting consumers who want a lifetime income stream, an annuity-type product, on top of CPF Life."

CPF Life is the government-run lifelong annuity scheme that insurers themselves and financial planners say is superior to all annuity products in the market, because of guaranteed interest rates and a lack of distribution costs.

But only a limited amount of money can be put in. A 50-year-old Singaporean male with next year's Minimum Sum of S$161,000 will get S$1,243 to S$1,377 per month for life from age 65 - hardly enough for a typical middle-class Singaporean, based on existing spending patterns.

Those who want a higher payout will have to turn to private annuity products, offered by many insurance houses here like NTUC Income and Great Eastern Life. For example, a Great Eastern Lifetime Income Plan guarantees a monthly income of S$537.50 for a male from age 62, who puts S$100,000 into the plan at age 55.

Traditional private annuity providers are facing challenges. While annuities are useful in supplementing retirement income, low interest rates are making annuities unappealing for both insurers and consumers, said Brian Goh, associate director of private wealth management at Financial Alliance.

Another issue with annuities is how they are purchased with a lump sum of money, which younger adults might not have.

Said Michael Lee, managing director of independent financial adviser Cornerstone Planners: "This one (Tokio's product), you can buy when you're young. I believe it should be well received. We would recommend this to clients who are risk-averse, who want to find somewhere to put their money in and don't need to worry too much about the market moving up and down, and get an annuity."

According to a Tokio Marine brochure, a hypothetical Mr Lim is aged 40 when he buys the product with his wife aged 35. He pays an annual premium of S$39,571 for five years, or a total of almost S$200,000.

This guarantees him a monthly payout of S$1,000 from age 65, or S$12,000 a year. He can get another potential payout of S$12,000 a year in bonuses. This assumes a rate of return of 4.75 per cent a year on TMLS' fund, known in insurance jargon as the participating fund.

After Mr Lim passes away at age 90, Mrs Lim continues to receive similar payouts until she passes away five years later at age 90 as well. Total potential benefits are about S$828,000 in the illustration.

This illustration (based on a 4.75 per cent return on the par fund) implies an internal rate of return of 3.86 per cent a year, according to a Business Times calculation.

If both pass away before age 65, then a death benefit of 101 per cent of all premiums paid and a non-guaranteed terminal dividend will be paid.