TR EMERITUS

I have done a quick analysis of the increase in coverage and premiums under the newly introduced Medishield Life, based on this TRE article. Tan Kin Lian For the 3 examples, the current and revised payouts (as a percentage of the hospital bill) are: Example Current New Increase 1 43% 70% 63% 2 52% 75% 44% 3 73% 90% 23% Taking a rough average, the increase in payout is about 43%. The monthly premium payable under the current scheme, and the revised premium (after the four year transitional period) under Medishield Life are: Family Current Revised Increase Lower income nuclear 26 55 102% Middle income nuclear 26 59 125% Middle income extended 102 147 44% A rough average of the increase in premium is 90%, which is much higher than the increase of 43% in benefits. This seems to be excessive. I can understand the need for a higher increase in premium (compared to payout) if Medishield is now operating at a loss. But, I recall reading a statement made in Parliament that the current claim payout is only 75% of the premium - which means it is running at a good surplus. I have verfiied this ratio from the CPF annual report. It is a bad practice for a national insurance scheme to be charging a higher premium than is necessary to accumulate a surplus, especially as the people are already finding it difficult to meet the cost of living. One possible reason for charging a higher premium is the expansion of the scheme to cover pre-existing illness and to take in unhealthy people who are not covered under the existing scheme. I recall reading a statement that the government intends to meet the additional cost of insuring these people. It does not seem to be necessary for the premium charged to the members to be increased so substantially. Tan Kin Lian * Kin Lian retired from NTUC Income on 28 February 2007, after heading the cooperative for 30 years. He was a candidate in the 2011 Presidential Election. He now runs a consultancy company. He blogs at www.tankinlian.com and www.facebook.com/kinlian to give his views on insurance, investment and financial planning for the benefit of consumers.  Read More →

Here is my brief interpretation of the Temasek statement released on June 4th on what was said about CPF as the Temasek spokesman has spoken outside his remit. Stephen Forshaw: “Temasek does not invest or manage the savings of CPF members.” The writer agrees with the spokesman even though the final outcome can only be absolutely proved by an audit. First the writer will give his reasons intuitively and then mathematically. Intuitively, given the fine record of the government of keeping the goodies to itself, the writer finds it hard to believe that the superior returns of Temasek are not kept all to itself rather than have it pay for the interests the government owes to CPF, however paltry these interests may be. Then mathematically, Temasek generated a 20-year rolling rate of return of 14%. This is clearly reported in the Temasek Review and explained by the Ministry of Finance. Temasek delivers 50% of its Net Income not net returns to the government for spending under the Net Investment Returns Contribution framework. Net income is different from net returns and is comprised of the dividends it receives from its portfolio companies and any realised profit or loss resulting from sale minus cost of running Temasek. Unlike an investment fund like GIC, Temasek cannot monetise its returns because to do so will change its majority control of its portfolio companies. After deducting the NIRC and keeping the rest of its income and valuations, the writer surmised that Temasek balance sheet grows at a pace of 9% pa over 20 years. So let us discount the current balance sheet of $215b at 9% pa over 20 years to arrive at the starting point 20 years ago. The number is $41b. Does this look like CPF monies to anyone? At least to the writer, it does look very much like the value of GLCs transferred to Temasek at nominal prices, having that value boosted to $41b by IPOs. Finally, let us read carefully what the MOF says about the NIRC: ...comprised up to 50% of the net investment returns on the net assets managed by MAS and GIC and up to 50% of the investment income from the remaining assets which includes Temasek”. The crucial words in the paragraph are net assets, in which liabilities are netted out of the returns from MAS and GIC. Liabilities are what the Government owed to CPF via the purchase of SSGS and investors in SGS. Notice the change of language as these words are not cited in relation to Temasek. This tells us that CPF monies are not in Temasek. After all, one pays interests only to one’s debtors, right? By the way, the $8.1b Pioneer Generation Package is paid out of the NIRC as stated by DPM Tharman in Parliament. There are some in the public who hold suspicions that CPF monies “are gone”. If the monies are really gone, all the remaining returns have to pay CPF interest if the government is to avoid a debt default. This leaves nothing for the NIRC and the PGP would not have been funded. Stephen Forshaw: "We thank readers for their interest in Temasek, and look forward to the day when it is practical for us to issue Temasek Bonds to retail investors to give them another option to save for their retirement." No thanks, you are saying little. But the writer wishes to draw your attention to the issue of Temasek Bonds to retail investors. Presently, Temasek Bonds have about $10b of bonds outstanding, some of which has a high coupon rate of 5%. Do note these are denominated in foreign currencies like GBP and USD – these currencies command higher interest rates. Now if Temasek were to reduce the certificate size of their bonds from 100,000 to 1,000 – the bonds are within reach of retail investors. However, do not hold your breath, any S$ bonds aimed at retail investor will have more or less the low rates of SGS. The more interesting issue about retail bonds is that Temasek already have structures which allow co-investments by outside investors; asset managers and private equity funds to enjoy the superior returns of Temasek whatever that may mean. But readers should ask this question, why are foreigners allowed to benefit from Temasek’s returns but not citizens? If Temasek were to launch retail bonds that are linked to co-investments or to the underlying performance of its portfolio, then the next question: should CPF not invest in these to generate better returns for its members than the poor returns provided by SSGS? In conclusion, the writer provides 10-year comparative rates of return of GIC and Temasek in excess over the average CPF OA and SMRA rates. 10 year return Excess over OA Rate Excess over SMRA Rate GIC 5.3% +2.8% +1.3% Temasek 7.5% +5% +2.5% Notes: The writer uses the 10-year to avoid IPOs from skewing Temasek’s results upwards. GIC returns is reported at 8.8% in USD terms, in S$ terms it should be 5.3%. Temasek’s 7.5% (estimated) pertains to its net income, not its net return. Chris K * Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.  Read More →

MP Denise Phua (Photo: Asiaone) Last Tuesday (27 May) during the Parliamentary debate on the President's address, Moulmein-Kallang GRC MP Denise Phua called for the scrapping of the elected presidency and a return to a ceremonial role for the head of state. "If the conditions under which (the elected presidency, Non-Constituency MP and the Nominated MP schemes) have changed, let us have the courage to slay these sacred cows before they become obese and unhealthy," she said. She expressed her concerns over the powers given to the President, such as control over the Government's financial reserves and key public office appointments. "He holds the executive right to block attempts by the Government of the day including specified statutory boards to draw down reserves that it did not accumulate," Ms Phua added. "If the government of the day is elected by popular vote, the electorate has to live with its elected candidates and remove them at the next General Elections should there be better choices." Ms Phua also criticised the scheme for having "admitted candidates who were non-executive chairmen of companies or portfolio managers with no strong solid executive experience, expecting them to exercise the very critical executive functions expected of the Elected President". "I long for the day of senior statesman who can represent our country as a head of state in the like of ex-Presidents Yusof Bin Ishak and Dr Benjamin Sheares; statesmen who need not be slugged through yet another political campaigning process that divides the country instead of healing and uniting the people of Singapore," she said. In 1991, the Elected President scheme was instituted through a constitutional amendment, which transformed the office of President into one directly elected by the people. The scheme conferred additional powers on the President that enabled him to act as a safeguard or "second key" over Singapore's rich financial reserves. He also exercises a custodial role over the integrity of the public service with the power to veto public appointments and check against abuses of power by the government. During a dialogue in 2009 between Ms Catherine Lim and Lee Kuan Yew [Link], Mr Lee revealed his inner thoughts on why he wanted to have the Elected President scheme. Mr Lee said: "What if we have a freak election, as we may well have? Many voters say openly: ‘In my family, three of us voted for you but two voted against, just to let you know that we want an opposition voice.’ In that situation, you may have a freak result. That worries me. So we’ve set in place a President with blocking powers. Any opposition that comes in will find that he cannot touch the reserves, otherwise you can promise the sky and spend the money. And all our hard-earned savings will go in five years. Second, you cannot change the top officials without the President’s consent. Any raiding of the funds must be approved by the President who has a council of presidential advisers to advise him yes or no. Now, why should we do all these if we expect to overturn an election? We expect that if we are voted out, to stay out, and hope that within one term, that new government, incompetent and unable to deliver, will be out. And there’s enough core competencies and the funds to enable a fresh PAP government to revive the system. I spent 15 years thinking about these safeguards and finally persuaded my younger colleagues that we needed these because they can’t guarantee that each time they will produce a better team than the opposition just because you’ve done so in the past. I don’t see any problem in the next election (2011), and probably the election after that (2016). But if we don’t get a good team in the election after that and the opposition does get a good team together, we’re at risk. One of the first lessons I learnt in politics was from Harold Laski. He said if you don’t have a system that allows fundamental change by consent, you will have a revolution by violence. If we block all possibilities, we must expect violence. In that violence, eventually the army won’t shoot because you are in the wrong. That’s what happens in Africa, the army goes in and holds up the president and often shoots him. If we had not these thoughts at the back of our minds, why do we do these things? Just to bluff the people? Doesn’t make sense. An army commander, air force or police, has to be approved by a committee and the President must agree. Why? Because we will appoint the commanders? No, because a stupid government will do the wrong things and when we return, we may find the whole machinery has collapsed, as often is the case. Simple." It appears that Mr Lee Kuan Yew had spent 15 years carefully crafting up the Elected Presidency scheme for Singapore. Does Ms Phua know something better than the PAP stalwart, Mr Lee, knows? What do you think?  Read More →