Aviva’s Big e savings plan hit by plunge in interest rates - Singapore
Insurance group announces early redemption of popular CPF scheme
By Grace Ng
PLUMMETING interest rates have forced insurance group Aviva to announce an early redemption for its popular Big e savings plan.
This means that all Central Provident Fund (CPF) monies deposited with the plan will be returned to CPF members, and no new money can be put into the plan.
The single premium endowment plan, which is targeted at CPF members, guaranteed bigger returns than the prevailing CPF Ordinary Account rate of 2.5 per cent.
The year-old plan attracted thousands of investors keen on its initial rate of 3.5 per cent and features such as capital protection and no lock-in period.
CPF members preferred Big e’s stable and attractive interest rates and flexibility of withdrawal over the fixed deposits offered by banks.
The plan raised more than $50 million in just two months, and continued to attract significant sums in the following months.
But as interest rates began falling in the middle of last year, it became increasingly difficult for Aviva to generate enough returns to sustain the 3.5 per cent rate for Big e.
At the end of last year, Aviva lowered the Big e rate to 2.75 per cent, citing the ‘downward trend of interest rates’. This triggered withdrawals of between 15 per cent to 20 per cent of the total investment in Big e, Aviva Singapore managing director Chris Crowe said last week.
However, there were also customers who topped up their investments in Big e, reflecting their view at the time that the scheme was still attractive compared to some fixed deposits with comparable rates which imposed a lock-in period, he said.
But last month, Aviva found it tough to sustain even a 2.75 per cent rate following the drastic interest rate cuts by the US Federal Reserve to 3 per cent currently.
This, in turn, dragged down Singapore interbank rates (Sibor), which have plummeted from 3.375 per cent a year ago to 1.5 per cent currently.
Banks responded by slashing their fixed deposit rates. Returns on some banks’ 12-month deposits of $50,000 to $100,000, for instance, were cut by some 40 per cent in the past year to an average of 1.5 per cent.
Aviva also succumbed to the rate pressure and decided this month on an early redemption of Big e.
Mr Crowe told The Straits Times that the early redemption was ‘disappointing’, but pointed out that many of its customers had enjoyed good profits from keeping their CPF monies in the plan.
He said Aviva will not close Big e for good, and may revive the product later if the interest rate environment turns benign.
Aviva has started informing Big e investors that the fund will be cashed out on March 1.
The policy contract states that if early redemption occurs before the Big e policy expires, customers will be paid the full accumulated value of their investment plus all interest earned up to Feb 29.
The cash will be returned to each Big e customer via their CPF Investment Account or Supplementary Retirement Scheme (SRS) account on Feb 26.
Mr Crowe declined to disclose how many customers still have Big e investments or how much money is involved in the early redemption.
Banks have acknowledged that market volatility has led customers to abandon fixed deposits for alternative investments that protect their capital but offer higher yields.
As Sibor declines and inflation climbs, customers are earning less on their savings, said Mr Dennis Khoo, Standard Chartered Singapore’s general manager of wealth management.
This is why ‘there has been a large interest in high-yield guaranteed products in the past few months’ from conservative investors looking for better yields, he said.
Source : Straits Times - 18 Feb 2008
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