He Gave Up Annuity But She Didin't

Source : The Sunday Times, Sep 2, 2007

Finance Correspondent Lorna Tan talks to two retirees who bought annuities but have different tale to tell























Mr Rajamanickam & his wife Madam Sarojini -PHOTO: CAROLINE CHIA, GRAPHICS: MIKE M DIZON

ALL the current talk about annuities is rather painful for retiree S. Rajamanickam, 75.

He was one of a fairly small group of Singaporeans who bought this type of insurance voluntarily. Soon, annuities are expected to be compulsory for Central Provident Fund (CPF) members who are currently under 50.

Mr Rajamanickam bought his annuity in 1992 but changed his mind and cashed it in soon after and has lived to regret deeply the 'foolish' move.

The decision is costing him nearly $5,000 a year in lost income payments - which would have been guaranteed as long as he lived.

Mr Rajamanickam and his wife, Madam Sarojini, 75, have just celebrated their 50th wedding anniversary - a joyous occasion but one that underlines the fact that Singaporeans are living longer.

An annuity provides monthly or yearly income payments for as long as you live. It involves paying an insurer a one-off lump sum that is invested to provide this regular income.

Annuities have long proven to be unpopular among Singaporeans, as they have been little understood and tended to seem unnecessary to some.

Mr Rajamanickam was typical of the sceptics. Back in October 1992, the former primary school teacher reluctantly bought two annuities - one for himself and one for his wife. He was acting on the advice of a friend, a former colleague who became an NTUC Income insurance agent.

In an interview with The Sunday Times, Mr Rajamanickam recalled that his friend visited him at his Upper Bukit Timah home and recommended the Income Guaranteed Annuity Policy. This plan offered monthly or annual annuity payouts for the life of the policyholder. If the policyholder died within the first 15 years, a beneficiary would get the payouts for the rest of that 15-year period.

But if he died after the first 15 years, no payments go to the beneficiary.

Mr Rajamanickam had just retired from teaching at Marsiling Primary School and was sitting on a handsome pile of money. He had just received his teaching gratuity of $130,000, as well as his CPF savings of $115,000. He had to leave $35,000 as his CPF Minimum Sum, which provided monthly payouts of up to $292 for 15 years.

'I had just retired at 60, and my friend knew I had funds lying around,' he said.

Although he had already bought two small endowment life insurance policies, he had never heard of annuities. And even after his friend explained how an annuity worked, Mr Rajamanickam was not impressed.

'It didn't appear attractive. The returns of the annuity was about 5 per cent, similar to what the banks were offering then for fixed deposits. Secondly, I didn't expect to live past 70.

'So, I was reluctant to purchase the annuity, but I was persuaded to buy just to please him as he was a very good friend, and I figured I wouldn't make a loss,' he said. His friend suggested a single premium of $100,000 for each annuity, but Mr Rajamanickam decided he would invest only half the amount on each annuity.

The 15-year guarantee feature meant he - or his wife, if he died - was assured of getting more than the $50,000 premium he paid for each.

The couple opted for annual payouts that commenced in November 1993. The annual payouts were $4,800 for Mr Rajamanickam and $4,315 for his wife. The accumulated payouts worked out to $72,000 and $64,725 for Mr and Mrs Rajamanickam, respectively, after 15 years.

Mrs Rajamanickam, a housewife, usually leaves financial decisions to her husband. In this case, however, she talked him into selling his annuity after just three years.

'I didn't think then that he needed the annuity payouts, as he would be receiving a monthly teaching pension of about $2,339 till he dies.

'I thought the lump sum in cash he could obtain by terminating the annuity could be put to better use,' explained Mrs Rajamanickam.

He went ahead and terminated the annuity in 1996 after three annual payouts. For Mrs Rajamanickam, there was no question about maintaining her annuity as it would be her lifeline if her husband died before her.

So far, her payouts have amounted to $60,410.

Looking back, Mr Rajamanickam realises that his friend would have persuaded him to keep the annuity - but he had died by then.

The cash value of Mr Rajamanickam's annuity amounted to $36,000, which he placed in a fixed deposit.

He soon began to realise that it was an 'unwise' decision, as banks' interest rates started to drop. He said: 'I still regret my foolish action. Sometimes, God gives you a fishing rod and you throw it back because you didn't want to catch fish, and so it's gone. I tried to buy another annuity, but I can't get the payouts I was receiving.'

With declining interest rates, annuities in the current market give lower payouts than those sold in the 1990s.

Still, Mr Rajamanickam is grateful that he is in a more fortunate position than most people, despite the opportunity cost of terminating his annuity.

'I just do whatever comes naturally. I had no ambitions, no aspirations. I just do what I have to do. I'm surprised at what I am today. I didn't expect a life this comfortable, this good,' he said.

A Malaysian and now a Singapore permanent resident, he came to Singapore as a teacher when he was 19 in 1951. A fondness for landed houses led him to buy his present 6,750 sq ft, three-bedroom home, through a colleague, for a mere $18,000 in 1955. For 11 years, he rented it to soldiers of the Royal Air Force stationed at Tengah Airbase before moving his family in. The house was fully paid up in 1968.

Things also went well on the homefront. Last Wednesday was the couple's 50th wedding anniversary. They have two children - Mr Ramachandran, 48, a vice-president at Abbot Laboratories, and Ms Shakunthala, 43, a paediatrician living in the United States - and five grandchildren.

An avid nature lover, Mr Rajamanickam is a member of the Nature Society in Singapore and Malaysia and still leads groups for long treks in places such as the Taman Negara Nature Reserve in Pahang.

He keeps his mind active by teaching English, Mathematics and Science three times a week to students at the Chinese Development Assistance Council.

He and his wife could get by with about $1,000 a month for day-to-day expenses and twice-a-year travels. The couple does their marketing and refuels their car in Johor Bahru.