TM Retirement PayCheck and PruGolden Income are both retirement products. These products are regular premium. In this article, I will provide a comparison between these two products against the regular premium competitions namely Aviva MyRetirement and NTUC Income SAIL (RP).
If you are looking for single premium retirement products, please refer to this blog article: Analysis of PruGolden Income Premier, Aviva MyIncomePlus and others.
Criteria used for product comparisons
In retirement products, I use 3 criteria in selection of a good retirement product. These 3 criteria are:
- Does the retirement product provide a good hedge against longevity risk? Longevity risk means the risk of outliving beyond your resources.
- Does the retirement product provide some kind of inflation hedging?
- Does the retirement product provide a high assurance of monthly payout? For a retiree, having a high retirement regular income is very important. On the other, living behind a bequest and having a large maturity benefit are unimportant. In fact, having a large maturity benefit can be a problem because that will mean the retiree is subjected to ‘reinvestment risk’. Reinvestment risk exists because when there is a large maturity benefit, the retiree has to find another product to buy when he is already very old. Most retirement products have a maximum entry age.
I do not use the IRR (Internal Rate of Return). Why? Consider two hypothetical products: Product X has an IRR of 2% which provides a monthly income for 30 years for the retiree. Product Y has an IRR of 5% that provides no monthly income for 30 years but has a very large maturity benefit. Product X is a more suitable retirement product because it produces an income but Y does not. Y is more suited as a wealth accumulation product. If the IRR is used as a criterion, the retiree will end up selecting Y which is clearly not a suitable.
|PruGolden Income Payout||TM Retirement PayCheck||Aviva MyRetirement||NTUC Income RP SAIL|
|Premium type||Regular premium||Regular premium||Regular premium||Regular premium|
|# of years to pay premium||6 years||5 years||8 years||10 years|
|Payout start age (next birthday)||62||65||65||66|
|Guaranteed Monthly Income||For 20 years, $400 every month increasing annually at 2% simple interest. Addition one-time lump sum $2400 (LifeStyle Multiplier Benefit) payable at 62.||$550 every month for 20 years.||$1,200 every month for 10 years.||6,413/12 = $534.42 every month for 20 years.|
|Total Guaranteed Income over the policy term||$117,192 (given by the benefit illustration)||550 x 12 x 20 = $132,000||1200 x 12 x 10 = $144,000||6,413 x 20 = $128,260|
|Total Guaranteed Income divided by Total Premiums||102% (given by the benefit illustration)||132000 / (22567.60 x 5) = 117%||144000/(14318.40 x 8) = 126%||128260/114790 = 118%|
|Any non-guaranteed payout?||Yes, there is a non-guaranteed monthly payout which depends on the performance of the participating fund.||Yes, there is a non-guaranteed yearly bonus which depends on the performance of the participating fund.||Yes, as maturity benefit at the end of policy term.||Yes.|
|Total Income (guaranteed + non guaranteed @ 4.75%) divided by total premiums||204% (given by the benefit illustration assuming payout mode).||234% (yearly non-guaranteed bonus is 12 x of guaranteed monthly benefit)||199% (assuming maturity benefit of $83,588).||214% (1,022 x 12 x20)/( 11,479x10)|
The table generated is for a female next age 51. I have tried to standardize the parameters but this could not be done for all parameters. However, the total premiums payable for all the above products were almost the same.
The PruGolden Income as shown above is a regular premium of 6 years. At the age of 62, a monthly income of $400 will be pay out to the retiree for 20 years. The monthly income increases at 2% per annum simple interest. There is also a non-guaranteed monthly payout which depends on the performance of the participating fund. There is also a one-time lump sum payout of $2400 at age 62.
As for TM Retirement PayCheck, it is a regular premium of 5 years. At the age of 65, the monthly income of $550 is payable to the retiree for 20 years. There is also a non-guaranteed payout.
Criterion 1 - Does the retirement product provide a good hedge against longevity risk?
Both products – PruGolden Income and TM Retirement PayCheck – only payout for 20 years. In fact, other competitions such as Aviva MyRetirement and NTUC Income SAIL also have the same problem of paying out for only 10 years and 20 years respectively. Therefore, all these products do not provide a hedge against longevity risk.
Criterion 2 - Does the retirement product provide some kind of inflation hedging?
PruGolden Income, TM Retirement PayCheck, Aviva MyRetirement and NTUC Income SAIL (RP) are participating product. They do have a non-guarantee component and hence provides some sort of inflation hedging. PruGolden Income monthly income does increase at 2% per annum (simple interest) and thus act as some kind of inflation protection.
Criterion 3 - Does the retirement product provide a high assurance of monthly payout?
For this criterion, we will need to calculate the guaranteed monthly payout to total premium ratio. For PruGolden Income, it provides a guaranteed total monthly payout of 102% which is terrible as it implies that the guaranteed payout is merely a return of capital. On the other hand, TM Retirement PayCheck monthly payout is guaranteed at 117% of the total premium paid. The best is from Aviva MyRetirement which guarantees a total monthly payout of 126% of the premium. NTUC Income SAIL is at 118% which is close to TM Retirement PayCheck’s. Clearly the winner for this criterion is Aviva MyRetirement.
Personally I do not recommend any of these products. The most important criterion is the ability to hedge against longevity risk which none of these products offer. However, from what I understand the insurance industry sold a huge number of such retirement products in the first half of this year.
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