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New Retirement Savings Plan MyRetirement by Aviva

04.13.2012 · Posted in Budgeting & Portfolio

 

Aviva recently launched a new retirement savings plan MyRetirement to help Singaporeans plan for their retirement. Basically, you choose your retirement age and whether you want to receive your income in a lump sum or spread over 10 years in monthly payouts. With that, the adviser will be able to calculate your premiums which you will need to pay based on the number of years which you would like to spread your premium over.

The reason Aviva came up with this plan is because most Singaporeans find financial planning for retirement to be complicated. The question is, is it that complicated?

 

Some Details About The Retirement Savings Plan Based on the Brochure

Choice of Retirement Age – 50, 55, 60, 65

Monthly Guaranteed Retirement Income for 10 Years Starting 1 month from Retirement

Capital Guaranteed If Held Until Retirement

Guaranteed Returns of Up To 2.38% Per Annum

Choice of Premium Payment Terms

 

Low Returns Savings Plan

On first glance, it is a very simple savings plan which encourages people to set aside money for retirement.   Based on the maximum of 2.38% per annum return, I consider the returns to be too low, almost comparable to some of the whole life insurance policies out there. Furthermore, there is no insurance protection with this plan. I took a look at the footnotes, it says that 2.38% assumes that entry age is at 17 and retirement at 65, so anybody who goes into this plan above the age of 17 or older could be looking at a lower rate of return.With proper knowledge in investment, one can easily attain conservative returns of at least 5% and higher returns per annum. Even the Genting retail bonds give at least 5.125% returns per annum.

 

You Only Live 10 Years After Retirement?

You are basically investing your money in an annuity which starts paying from retirement for a time period of 10 years. If retirement age is 60, do you think you will only live for 10 years until 70? What happens if you live until 80? This does not sound like a good retirement plan when you run out of income after just 10 years. If you have to invest in an annuity, life annuities might be a better option, although I personally prefer to do my own investment.

 

Not Accounting For Inflation

The brochure makes a very compelling case of inflation. How about the 10 years during retirement when the payout from the MyRetirement is fixed and expenses continue to grow at a rate of 2-4% per year? At 2.38% (the maximum return), you are hardly beating inflation and I expect your money to be worth a lot less in purchasing power if you invested in the MyRetirement plan.

 

If you read my website long enough, you will know that I am a proponent of buy term insurance and invest the rest. By investing, I do not mean locking your money in meaningless annuities or savings plans but rather investing in proper investment assets.

 

For further reading, you may be interested in:

Book Review: Get Value from Your Life Insurance by Mr Tan Kin Lian

Personal Financial Statements Part 1 Personal Accounting 101

Chinese New Year 2012 and Thoughts on Financial Planning

Beating Inflation with Savvy Investments and Prudent Spending

My Journey to Financial Freedom

Should I Invest The Money Intended to Purchase My Home In Stocks While Waiting For a Market Correction?

22 Responses to “New Retirement Savings Plan MyRetirement by Aviva”

  1. Thanks for another great review of investment products. Cheers!

  2. SnOOpy168 says:

    Good review. Another bad/silly product by Insurance company for those not in the know (wouldn’t call them stupid as I could be one of them too).

    Seriously, I’d rather park my cash in an INCOME immediate-annuity with 10 years Guaranteed payout. Makes more sense.

    • Hi Snoopy168, for people nearing retirement, the income immediate annuity is a reasonable option if they are nearing retirement. However, as stated it’s better to go for life annuities as 10 years is simply too short if the idea is to address retirement needs.

      One reason for the popularity of life annuities in other countries such as the US is that the tax advantages is substantial where tax brackets are in the regions of 30 to >40%. Given the low tax rates of Singapore however, it is pointless.

  3. Toally agree with Calvin’s view.

    I would rather invest some money in STI ETF for long term investment and retirement planning. Beside potential capital appreciation in the long run, it also give out 3~4% dividend every year.

    • Hi Ray168,

      Yup, for more risk adverse individuals, with minimal knowledge of stock investing or simply no time to do analysis, ETFs serve as a viable option. Stocks as an asset class is up in the long trend, choosing an ETF reduces individual stock risks or what we call unsystematic risk.

      In fact, I do recommend index funds / ETF investments as a way to easily diversify an asset portfolio.

  4. NTUC income also offer a similar product (The SAIL) but at a much higher return of about 5.07%

    • Hi Jason,

      Sounds like a good idea to do some cross references. Thanks for bringing that up!

    • 5.07% is a audited return that they have being paying out based on pass performances pay-out (Guaranteed + Non-Guaranteed) , the 2.38% is just a guaranteed portion.

      • Hi a, they are just marketing based on the guaranteed portion. No mention of the 5% whatsoever and I wouldn’t consider the 5% as a base case when deciding what investments tools to invest in.

  5. serendib says:

    while not perfect, I think the target-date funds like those by Vanguard in the US would give a better return. The MAS should do more to develop the low-cost/index fund business here.

    • Hi serendib,

      Totally Agreed! There is a lack of index tracking funds / ETFs with focused on local assets, such as corporate bonds, sector based ETFs, market cap based ETFs etc. While there a few ETFs available from Blackrock and ABF, the market is very small, there is not enough liquidity and simply not enough investor knowledge.

      MAS can definitely do more to promote such funds instead of the unit trusts / mutual funds.

      Vanguard should also look at the index fund business in Singapore and SEA.

  6. Calvin, Thanks for the great advice. It is of great help to novice like me. I thought I could invest it for my children.

  7. Gary Tiah says:

    Hi Calvin,

    What do u think about NTUC Income Vivo Care and Vivo Life ?? As i know it is a wholelife insurance plus saving. what is your point of view as compared to other policies.

    Gary Tiah

    • Hi Gary,

      I would advise against whole life insurance as the premiums are too high for the protection level extended. Also, significant amounts of money will be stuck in the policy with very low returns, sometimes not even beating inflation. See

      http://www.investinpassiveincome.com/singapore-financial-services-sector-to-face-dramatic-changes/

      It is better to get a level term insurance such as the I-term or SAFRA Term Insurance. You can add in the rider to Dread Disease under the Term Insurance instead of getting a separate one. However, there are several restrictions to the SAFRA Term Insurance such as maximum $300k sum assured, a better insurance to get will be the Aviva NSMen Term policy, which has a maximum sum assured of $600k.

      • Gary Tiah says:

        Calvin,

        thanks for your info! if i am looking basically for saving plan what kind of plan would u recommend?

        Gary

        • Hi Gary,

          Firstly, why do you need a savings plan? Specifically, what are you saving for?

          Secondly, what kind of returns are you looking for in a savings plan? (As in % return per year)

          • Gary Tiah says:

            Hi Calvin,

            i am planning for a retirement plan. the return must be more the 4+% so as to curb the inflation.

            Gary

          • Hi Gary,

            For retirement plans, you would be hard pressed to find any savings plans which can exceed guaranteed returns of 3% p.a.

            For any plan to have potentially more than 4% returns, it would have to be investment linked, as such the returns will not be guaranteed. However, there are costs involved and there is little transparency in the performance. Investing in index tracking funds or ETFs will be a better bet if you are not interested in tracking individual stocks.

            Email me at calvin@investinpassiveincome.com if you need more information.

            Rgds,
            Calvin

  8. PKhunter says:

    I know someone who works in Aviva marketing. I asked them why this bad return rate? She said it’s because Aviva is basically a strong marketing company and they need the money for marketing budgets.

    It sounds like circular logic.

    • Retirement plans tend have low returns in general due to the high cost structure and the difficulty of generating returns in excess of the costs. DIY retirement investments will easily beat any retirement plans sold insurance companies as long as it is executed in a disciplined manner.

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