By Non-Constituency MP, Yee Jenn Jong
[Delivered in Parliament on 11 May 2015]
Madam Speaker, as the Senior Minister of State had explained, the amendment to this Bill is to prepare for the recently announced Singapore Saving Bond. The Senior Minister of State had also explained the mechanisms of the Saving Bonds. These bonds have 10 years term with step-up interests and which rates are linked to the long-term Singapore Government Securities (SGS) rates. Unlike existing SGS, the new Saving Bond will not be transferrable, hence necessitating this amendment to the Bill.
Madam, I support the Bill.
Interest rates in Singapore have been low. The average member of the public has few alternatives to invest in very safe asset classes to meet their long term financial goals and to save extra for retirement needs. Yields on bank savings have been extremely low. Fixed term deposits (FDs) with bank have slightly better rates but are of relatively short duration of up to around 2 years. Even with their better yields, fixed term deposits rates from banks have lagged behind inflation rate for many years already.
Corporate bonds have better yield, but most require investments of $250,000 and above per transaction. More retail corporate bonds have recently been launched since changes to our policy on corporate bonds which have made it easier for companies to issue retail bonds, but interests by companies to issue such bonds are still low. There are also risks in corporate bonds as it is primarily based on the financial stability of the issuing company.
10-year SGS, whose recent yield have been between 2-3% p.a., can already be purchased in tranches of $1,000 and above. However, there appears to be low interest in SGS by the retail investors. Not many understand the mechanism and how to trade them on the secondary market if they wish to cash out before the maturity. Plus, there may be capital loss when bonds are sold in the secondary market.
In the search for better returns on savings in this period of low interest rates and high liquidity, many small investors have sometimes dabble in risky instruments or penny stocks without fully understanding their risks, and with some losing a good part of their hard-earned savings while trying to beat returns from banks savings.
The to-be-launched Singapore Saving Bond is a useful new instrument that can help the average small investor save for the long term and get yields close to inflation rate. Investors should keep the Saving Bonds to maturity to maximise the returns, but can sell back to the government at any time at a lower interest rates, depending on the duration that the bonds had been kept for. They act like the FDs offered by banks but have more flexibility in withdrawal. The Singapore Saving Bonds could push banks to work harder on making their FDs more competitive.
I have three questions for the Minister regarding the Saving Bonds.
First, I’d like to know what will happen should a person who owns such Saving Bonds pass on. The bonds would form part of his estate. However, this Bill makes such bonds non-transferrable. The bonds would then have to be sold to the government and the monies returned to the estate. However, the family members would then lose the advantage of the step-up interest rates. Can the bonds be transferrable in the event of death if one wishes to hold on to the bonds received through inheritance? Are there special circumstances where the bonds can be made transferrable?
Second, I’d like to know how investors’ education will be conducted with the launch of the Saving Bonds and how purchases can be made easily. I think the bonds can encourage people with spare cash to save more for retirement in a very safe instrument while maintaining the flexibility to cash out on the investment if needed. It will be a pity if the take-up is low due to a lack of understanding of the product and also if due to the lack of avenues for easy purchase. The bonds can be sold through existing financial institutions as the Senior Minister of State had said. Are the incentives attractive enough for banks to promote these bonds given that they may sell other instruments that pays better commission but may be risker for the investors? Furthermore, the Saving Bonds competes directly with FDs offered by banks, so banks may not be keen to market these.
Third, I understand from reports that there is a cap on the amount that can be invested on the Saving Bonds. I’d like to know how the cap will be set, because if it is set too low, it may not be attractive enough to encourage retail investors to bother with having yet another investment to keep track of. If the yield on Saving Bonds is equivalent to that of SGS 10-year bonds, may I know why there is a need to restrict the amount that can be invested by any one person?