TOC is happy to welcome Mr Tan Kin Lian on board as the latest addition to our writing team. He is the former chief executive of NTUC Income, an insurance cooperative in Singapore.
Lessons from the general election in Malaysia
The Malaysian general election held in March 2008 produced results that surprised not only the politicians but ordinary voters as well. A Malaysian friend told me that the ordinary people wanted to send a message to the ruling Barisan National, which had governed the country for over 50 years, about their unhappiness with the current situation. They did not expect to see a change in five state governments to the Pakatan Rakyat.
One key issue that contributed to this unexpected election results appears to be the high cost of living. It is not sufficient for the Government to explain that the higher prices are due to external factors. The people expect the Government to find effective ways to deal with this problem. This is what they elected the Government to do.
This election result has lessons for Singapore. What can the Government do about the high cost of living in Singapore?
Here are two key factors that make it difficult for many people to cope with the cost of living in Singapore:
Many people earn a low rate of interest on bank deposits. The bank interest rate, which has been less than 2% for several years and now less than 1%, is insufficient to cover the rate of inflation, which has now increased to more than 5%. If they invest in other financial products, they have to pay high charges and get a poor yield.
Many people invested several billions of dollars in structured financial products in the hope of getting a better yield than bank deposits. They were taken to the cleaners. Many housewives and retirees told me about their investments in the capital guaranteed products that were heavily advertised and sold by our trusted banks. After locking up their principal for five years, they get a total return of less than 1% per year, worse than bank deposits. They missed the chance of earning more than 10% per annum on the booming stockmarket.
For most people who invested in unit trusts and investment funds offered by life insurance companies, the outcome was not much better. They have to suffer an upfront charge of 3% to 7% on their investment and an annual charge of 1% to 3%. After deducting these high charges, the net yield on their investment is mediocre and is not commensurate with the risk. The fund managers and other financial intermediaries have taken away most of the gains.
The worst cases are the hundreds of thousands of people who invested their regular savings in an investment-linked product sold by the life insurance companies. In addition to the high charges mentioned above, they have to suffer “allocation rates” that takes away two years of their savings to pay commissions to the insurance agents. Many were not aware of the financial impact of these predatory “allocation rates”.
Many people have to pay high cost for their daily commute to and from work.
If they live in a place that is not conveniently served by public transport, they would have to use a private car. The cost of driving has gone through the roof due to high petrol prices, a wider network of gantry points and higher ERP charges implemented over more hours in the day and night.
Those who use taxis for their transport have seen the cost increased by 30 percent.
A friend of mine once decided to take a taxi from Pasir Ris for a meeting in town, instead of driving. She was shocked that it cost $27. This was the highest taxi fare that she has paid in her life in Singapore. It will be the last time that she takes a taxi. Not all the $27 goes to the taxi driver. ERP charges takes up a few dollars.
If you have to take public transport, it could mean a bus to the MRT station, a ride in a train, and another bus ride to the destination. The total cost of three legs of the journey is not cheap. And the rides are not comfortable, due to crowded buses and trains and long unreliable waiting times.
Apart from the high cost, the commuters have to bear with long travelling time of more than one hour at times.
The regular increase in bus and train fares, needed to keep pace with higher petrol and other operating costs, is never welcomed. The commuters read that the large publicly listed transport operators continue to make hefty and increasing profits for their shareholders.
In a recent survey carried out in my blog, www.tankinlian.com, I was surprised that the cost of transport was rated to be the highest concern among my readers.
Here are my suggestions on how to help people to cope with the cost of living in Singapore.
We have to give people a fair return on their investments.
The regulator should disallow financial and insurance products that have excessive charges and offer unfair terms to consumers. The product issuers should not be allowed to design complex products that skim off the consumers. The financial institutions can compete to provide products to consumers on the basis of their efficiency and quality of service.
We need a stronger consumer association to play this role of educating the public and taking care of the public interest. The consumer association needs to be adequately funded by the Government and to be provided with adequate resources to play this role, which is normally expected of the Government.
In many countries, the media and independent minded journalists help to educate the public and prevent the abuses of businesses in taking advantage of consumers. In Singapore, we have the unfortunate situation that many questionable products are advertised in full pages in the newspapers. They are an important source of revenue to the newspapers which, in turn, reward the advertisers with friendly coverage.
The Government can take a pro-active approach to reduce the cost of public transport. It is a necessity for daily living, just like fresh air. People do not consume public transport for enjoyment.
The cost of public transport cost can be reduced by waiving ERP charges, road tax and other levies. It can be brought down to the marginal operating cost to cover energy, wages and depreciation.
We have to find ways to reduce the need for commuting. People should be encouraged to find work near their homes or to move their homes closer to their place of work. Students should be encouraged to study in a school near their home.
We should reduce the transaction cost for a person to sell a house and buy a new house that is close to the place of work. Stamp duty should be waived. Lawyers and broker fees can be reduced by simplifying the work and creating a more efficient system.
Apart from reducing the transport cost, this will save travelling time and improve the quality of life.
The Government has already announced several measures to address these two issues. A new transport blueprint has been published. The Monetary Authority of Singapore has invited public views on a consultation paper dealing with the conduct of financial institutions.
I hope that the Government will consider the additional measures that are suggested in this article.
About the author:
Mr Tan Kin Lian started his insurance career in 1966 in a local life insurance company. He qualified as a Fellow of the Institute of Actuaries in 1975.
He joined NTUC Income in 1977 as the chief executive officer. From a base of $28 million, the total assets increased to over $18 billion when he retired in April 2007. NTUC Income is a leading life and general insurance co-operative in Singapore.
From 1992 to 1997, he was Chairman of the International Co-operative and Mutual Insurance Federation (ICMIF), an international organisation representing 123 insurance groups in 65 countries.
He now works as a consultant to insurance companies and maintains a website here: www.tankinlian.com