Retirement Income

Part 3: Guide on choosing SRS-approved insurance products to meet your Retirement Needs


Article Author - Eddy Cheong
By Eddy Cheong
Dec 02, 2016

In our previous article, the 3-step approach provides a simple guide to identify types of products that suit your retirement needs. In this final part of our focus on the Supplementary Retirement Scheme (SRS), we compare products that are available. 

 

A: If you are looking for a product that pays a stream of income for life

We compare the following products that payout for life (annuities):

  • NTUC Income Guaranteed Life Annuity
  • Manulife Retire-Ready

Although both provide lifetime income, they have key differences as shown below:

Insurer / Plan Name

NTUC Income Guaranteed Life Annuity

Manulife Retire-Ready (lifetime option)

Does the income payout last for life?

Yes

Yes

Can the payout increase yearly?

Yes

No

Any special benefits?

-

Additional payout if one is severely disabled

NTUC Income Guaranteed Life Annuity: Having a yearly payout that increases (subject to NTUC Income’s performance) helps to take care of inflation otherwise the value of money will erode over time.

Example on the effects of inflation:
If inflation is at an average of 3% yearly, the real value of $1 now will turn into $0.50 after 24 years. In other words, you will need $2 in 24 years’ time to buy what you can with $1 today.

Manulife Retire-Ready: Although its payout does not increase yearly, it provides an extra yearly payout in the event of a severe disability (same definition used for ElderShield). This benefit is relevant to retirees as the risk of such disability increases as one grows older.

How do the products compare?

Using the example of a male, non-smoker, age last birthday 45, has $60,000 in SRS and preference for an income payout to start around age 65:

 

Insurer / Plan Name

NTUC Income
Guaranteed Life Annuity

Manulife
Retire-Ready (lifetime)

Single Premium

$60,000

$59,954

Income payout begins after reaching age

Age 64

Age 65

Snapshots of yearly payout at end of age:

Gtd
Amt

Non-Gtd Amt*

Total

Gtd
Amt

Non-Gtd Amt*

Total

64

4,493

1,792

6,285

-

-

-

65

4,493

1,918

6,411

3,600

3,470

7,070

66

4,493

2,046

6,539

3,600

3,470

7,070

67

4,493

2,177

6,670

3,600

3,470

7,070

:::

:::

:::

:::

:::

:::

:::

85

4,493

4,845

9,338

3,600

3,470

7,070

90

4,493

5,818

10,311

3,600

3,470

7,070

At age 85/90

Total Payout Benefits

$171,574* (age 85)
$222,139* (age 90)

$148,470* (age 85)
$183,820* (age 90)

Internal Return

3.49%* (age 85)
4.05%* (age 90)

3.02%* (age 85)
3.50%* (age 90)

Additional Benefits

-

Additional yearly payout of $3,600 if severely disabled#. This benefit is not factored above.

Some figures are estimated. Please refer to the product illustration for details.
* based on 4.75% projection (non-guaranteed)
# if unable to perform at least 3 out of 6 Activities of Daily Living, i.e. feeding, washing, dressing, toileting, transferring and mobility.
Gtd: Guaranteed

 

You will notice that the payout for NTUC begins one year earlier due to an inherent constraint of the product’s structure.

 

Key Observations

Nature of income payout: In the table, you will see how the yearly payout changes over time for the NTUC policy, while the Manulife policy remains the same. And even though age 90 is used for computation in the table, the payout from these policies would continue beyond age 90 as long as one is alive.

Yearly payout amount: The initial payout from NTUC ($6,285) is lower than Manulife ($7,070). However, at older ages the projected payout from NTUC can be quite high. At age 90, NTUC payout might increase to $10,311 while Manulife payout remains at $7,070.

Total amount of payouts: The total amount of payouts till age 85 and 90 show that NTUC policy offers higher projected payout than Manulife. At age 90, the internal return for NTUC policy is around 4% and Manulife is around 3.5%. A higher internal return means that you are getting more payout per dollar of premium paid.

Additional benefits: The additional benefit from Manulife is contingent of one suffering from a severe disability, when its payout would increase by $3,600/year. This narrows the differences between the two products.

Conclusion: From the above example, it would appear that NTUC Income Guaranteed Life Annuity offers better value.

 

B: If you prefer to have a plan with higher payout over a shorter and fixed number of years rather than a plan with lower payout over lifetime

In this category, you have plenty of choices to choose from. I will highlight 3 good products for comparison:

  • Manulife Retire-Ready (limited years)
  • NTUC Income SAIL
  • Tokio Marine TM Retirement @65

Structures and features of limited-pay SRS-approved plans:

Insurer / Plan Name

Manulife
Retire-Ready

NTUC Income
SAIL

Tokio Marine
Retirement@65

When can the income payout begin?

After reaching age 55, 60, 65 or 70

After 10, 15, 20, 25, 30 years or after reaching age 55, 60, 62, 65

After reaching age 63, 65 or 70

Number of years of income payout

Payout up to age 80, 90 or lifetime

Fixed 20 years of income payout

Choice of 10 or 20 years

Is the entire amount of income payout guaranteed?

No, the income payout has guaranteed and non-guaranteed components.

Is there additional payout at maturity of plan?

No

No

No

Special benefit

Additional payout if one is severely disabled

-

Can do SRS top up every year in the same policy

 

Every product is structured differently hence your choice of plan depends on when you prefer your income payout to begin and how long the payout should last. Fundamentally, these products are similar since the income payout comprises of both guaranteed and non-guaranteed amounts.

Tokio Marine’s plan allows you to do a yearly SRS contribution to the same policy so this provides you extra convenience when you top-up. For other insurers, you will need to go through the entire application process for every SRS top up.

 

How do these products compare?

Let’s take the example of a female, non-smoker, age 35 (last birthday), who wants to use around $30,000 in SRS to get a plan that starts paying an income stream around age 65.

 

Insurer / Plan Name

Manulife
Retire-Ready

NTUC Income
SAIL

Tokio Marine
Retirement@65

Single Premium

$30,000

$32,006

$30,000

Ages that income is payable for

Age 66 to 80
(15 years)

Age 66 to 85
(20 years)

Age 65 to 84
(20 years)

Breakdown of Yearly Payout:

  • Guaranteed amount
  • Non-Guaranteed amount

 

4,800

4,794*

 

1,760

6,490*

 

1,862

5,475*

Total Yearly Payout

$9,594

$8,250

$7,337

 

Analysis in terms of payout benefits

Total Payout Benefits

$143,910*
(9,594 x 15)

$165,000*
(8,250 x 20)

$146,740*
(7,337 x 20)

Internal Return (projected)

4.1%*

4.4%*

4.2%*

Additional Benefits (not factored in above analysis)

Additional $4,800 yearly payout if severely disabled #

-

-

Some figures are estimated. Please refer to the product illustration for details.
* based on 4.75% projection found in benefit illustration.
# if unable to perform at least 3 out of 6 Activities of Daily Living, i.e. feeding, washing, dressing, toileting, transferring and mobility.

 

Key Observations

Projected benefits:You would probably notice that their benefit projections are quite high. All 3 products offer a projected return of more than 4%, which I personally think is good for an insurance product. NTUC Income’s SAIL offers the highest at 4.4%. The differences in internal return between the products is quite small.  

Guaranteed payout: When you look at row of “Breakdown of Yearly Payout” in the table, Manulife policy offers the highest guaranteed portion. Half of the projected yearly payout for Manulife is guaranteed. For the other two plans, about 20 to 25 percent of the projected payout is guaranteed. Hence, for those who are risk averse, a higher guarantee portion will be more assuring.

Additional benefits: In the event one suffers a severe disability, Manulife’s policy will pay an additional annual income of $4,800 on top of the regular payout. When this occurs, the projected internal return would be even higher than the 4.1% as shown above.

Conclusion: In this comparison, I would think Manulife Retire-Ready policy offers better value.

 

In conclusion:

There are many options available to make your SRS funds work harder rather than just leaving it as bank deposit. Retirement income-based insurance is one of these options. You can click here to compare retirement income products or send us a Quote Request here. Alternatively, you may want to give us a call at 6309-2478 and we can guide you in the selection process.

Do note that you have only one month left to contribute to your SRS to enjoy tax-savings for 2017 if you have not already done so. Here’s wishing you Happy holidays!

Disclaimers:
The above examples are for illustration purpose only. Projections used are non-guaranteed and actual figures are dependent on the performance of their life funds. The above examples assume the insurers are able to deliver the 4.75% projection. If the actual payout is lower, the outcome of the analysis might be different. Do note that different parameters like age, premium amount, income start age, would change the outcome of the analysis. Hence, please seek advice before purchasing.



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