Towards better financial health

Office workers walking past the CPF building.
Office workers walking past the CPF building.PHOTO: ST FILE

A wish list for retail investors, institutions as well as the general public to act upon

With a new year upon us, there’s no better time to take stock of the 12 months that just passed and make plans for what is to come.

And what an eventful year 2016 turned out to be. Many investors endured a roller-coaster ride as markets rose and fell, partly due to the uncertainty surrounding events such as the Brexit referendum, the United States presidential election and US interest rate policy.

At home, Central Provident Fund (CPF)members were introduced to more initiatives, building on the slew of recommendations already announced.

These include a CPFLife plan with an escalating payout option and a new Lifetime Retirement Investment Scheme to help members grow their savings.

Sales of insurance products via banking channels continued to grow and therein lies the potential pitfall of buying unsuitable endowment plans, partly because they might be mis-represented as guaranteed savings products. There are many areas for improvement and here is my 2017 wish list.

Reining in rising healthcare costs

The moratorium on hikes in Integrated Shield Plan (IP) premiums ended on Oct 31, so many health insurance policyholders, particularly those with private hospitalisation plans, will be affected by premium hikes when their policies are up for renewal.

It will be a double whammy for Singaporeans like myself, because not only will my IP premium go up but the government subsidy on the MediShield Life component will also be reduced. So it is timely to review our healthcare needs and costs. For those with IPs, do we continue with our plan or downgrade to a lower ward plan and/or rider? What savings would we enjoy? What benefits would we have to forgo? Only a review will allow us to properly weigh up the benefits and savings.

It is also my wish that the Government, medical practitioners and insurers play their part in reining in runaway health costs.

Avoiding being a victim of financial scams

Faced with the dire prospect of significantly lower and volatile investment returns in the coming years,many retail investors threw caution to the wind and allowed themselves to be carried away by promises of high gains, only to realise too late that they have become victims.

Avoid financial scams by doing your own research on any investment scheme, particularly those with attractive returns and seemingly low risks.

One way is to ensure that they are regulated by the Monetary Authority of Singapore (MAS).

In fact, proposed changes are expected to be tabled in Parliament this month to allow MAS to regulate schemes such as gold buybacks and collective landbanking.

The proposed regulation covers collectively managed investment schemes that are in substance similar to traditional regulated investment funds such as mutual funds but do not pool investors’ contributions.

Traditional collective investment schemes involve investors pooling their funds to invest in an asset or a group of assets, while unregulated ones require each investor to buy his own direct stake in the asset, such as a small plot in a large tract of land or even specific trees on a plot of land.

If investors do not have day-to-day control of the property and the scheme is managed as a whole, like a collective investment scheme, it is likely to fall under the proposed MAS regulation.

Under the proposed rules,some schemes may no longer solicit funds from the public but only from investors deemed to be more sophisticated.

And keep an eye on the investor alert list on the MAS website. Other tips offered by the consumer watchdog include asking for brochures and documents such as sales agreements to be sent to you first so you can review them and check the legal terms. It is also prudent to find out the jurisdictions that the companies operate in.

Consider whether the investment is a good fit with your financial goals and circumstances.And remember that high returns are always accompanied by higher risks.

Avoid signing blank forms and consider how suitable a product is in meeting your financial needs.

Disclosure of financial disputes to aid consumer education

The Financial Industry Disputes Resolution Centre (Fidrec), which was set upin 2005 to handle disputes between consumers and financial institutions, could do much more in terms of disclosure to aid consumer education.

Its annual reports cover the number of customer complaints or issues under broad categories such as aggressive sales tactics, inappropriate advice and unauthorised transactions, but there ismore the centre can do.

There have been calls from the Consumer Association of Singapore (Case) and members of the public for Fidrec to disclose more details of financial disputes and claims. This much-needed transparency will help to increase consumer and business awareness of such disputes.

One suggestion is for Fidrec to publish dispute details showing a brief summary of the case, the dispute-resolution process and decision without naming the parties involved.

By providing details of claims settled, people can learn about financial regulations and the application of the law. Doing so also encourages consistency, in the same way that judges must be consistent in handing out sentences for criminal offences.

This is already done in countries like Britain, where the dispute and settlement details are publicly available on the Financial Ombudsman website so as to enhance transparency, increase the level of awareness and deter potential misrepresentations or mis-sellingamong retail investors and financial institutions.

In Britain, the financial institutions' details are given while the claimants' details are kept confidential. That way, the public knows if there is a pattern of claims or a large volume being made against certain institutions.

Such disclosures will also help the public avoid pitfalls.

Lasting power of attorney (LPA)

Although there has been a three fold rise in the number of LPA sign-ups- to 35,406 as of Oct 31 last year from 10,407 in 2014-many more people could find this a useful legacy planning tool.

The Office of the Public Guardian simplified the LPA Form 1 in 2014, and recently extended the Form1 $75 administrative fee waiver until Aug 31, 2018, for all Singapore citizens.

Unlike a will, which kicks in upon the death of an individual, an LPA allows a person to voluntarily appoint one or more persons (donees) to act on his behalf as a proxy decision-maker if he loses mental capacity.

An LPA allows donees to act in two broad areas- personal welfare and property. Naturally, it is unwise to wait until you are showing signs of physical or mental vulnerability before executing an LPA. Knowing that provision has been made for the future provides peace of mind, as noone can predict when illness or deterioration will take place.

While we can file LPA Form 1 applications for free till August next year, you will still have to pay fees charged by professionals engaged to witnessand certify the application, such as medical practitionersand lawyers.

There have been several letters to The Straits Times Forum lamenting the cost of certification, which ranges from$50 to $120.

However, few people are aware that the social service agency Life Point Centre, which offers help to senior citizens, organises LPA sessions (the next is on Feb 11) to educate the public. It also works with lawyers to help LPA applicants-regardless of age - get their forms certified at a lower flat fee of $60.

After attending an LPA session at Life Point, an appointment has to be scheduled for the certification to take place. Life Point is at Chinatown Point and can be contacted on 6538-9877.

Supplementary Retirement Scheme (SRS)

There is still much room for improvement in the SRS, which was introduced in 2001.

The voluntary programme complements the CPF by providing wage earners with an avenue to buildup nest eggs and get some tax relief at the sametime.

The SRS enables people to contribute varying amounts as often as they wish- subject to a yearly cap- before Dec 31 yearly.

The annual contributions are capped at $15,300 for Singaporeans and permanent residents (PRs) and $35,700 for foreigners.

Financial experts say it would be good if SRS members were given a longer period for spreading out withdrawals, which would spell greater flexibility and tax savings.

The scheme would likely enjoy a higher take-up rate among Singapore's one million-odd taxpayers if, for instance, the annual contribution cap could be raised and if there was no tax imposed on the withdrawals at retirement, the experts add.

Mr B. J. Ooi of KPMG in Singapore would like to see a higher contribution limit for Singaporeans and PRs.He pointed out that there is a discrepancy of more than $20,000 in the contribution cap between citizens and PRs, and foreigners.

A Ministry of Finance report noted that 96 per cent of the 116,466 SRS account holders as of Dec 31, 2015, were Singaporeans and PRs, with foreigners making up the rest.

Ms Wu Soo Mee of Ernst & Young Solutions recommends taxing only 50 percent of the principal portion of the SRS amount that is withdrawn. That would mean a full exemption on the earnings portion.

Currently, the individual is effectively being taxed on the capital gains and investment income during withdrawals, which if the investment is made outside of the SRS system, will not be subject to tax.

Mr Ooi also suggested that the scheme be expanded to allow people to make contributions to the SRS accounts of family members such as dependent spouses, in a manner similar to the CPF Retirement Topping-up Scheme.

He also suggested introducing a separate SRS contribution cap for employer contributions, instead of the current one cap regardless of the source of contributions.

Note that a new personal-relief cap of $80,000 per year of assessment will take effect from the Year of Assessment 2018. This means that for individuals who are already hitting the personal-relief cap- even before taking into account the SRS relief -there will be no tax relief for their SRS contributions.

A version of this article appeared in the print edition of The Sunday Times on January 01, 2017, with the headline 'Towards better financial health'. Print Edition | Subscribe