Look Towards A New Future

Aug 17, 2010

UK Investment Bonds 2010 now available at ReportsandReports

Dallas, TX: ReportsandReports announce Japanese UK Investment Bonds 2010 Market Research Report in its Store.

Browse complete UK Investment Bonds Market Report

Changes to the Capital Gains Tax regime have queried viability of the investment bond against a backdrop of financial markets emerging out of a recession. Providers are presented with a scenario for success if investors are made aware of clear circumstances where a bond is an advantageous investment.


  • Examines the current shape of the investment bond industry and explore factors that are currently limiting new business.
  • Analyzes the use of wrap platforms in the distribution of bonds with focus on how technological developments can enable better business.
  • Reviews tax and regulatory changes that are challenging the investment bond market.
  • Identifies key competitors and examines their differing strategies in the UK investment bond market.


Despite changes to CGT, the investment bond is still a viable part of an investment portfolio. The smoothing factor of with-profits bonds offers the nervous investor the opportunity to even out the volatility of returns from the stock market and other underlying investments.

Economic uncertainty is a key challenge faced by the investment bond market, although a changing regulatory and tax environment continues to bring new challenges to providers, IFAs and retail clients alike.

Reasons to Purchase

  • Gain unique insight into the tax and regulatory changes that are driving the investment bond market.
  • Understand the investment bond market, the distribution trends and the key technological developments driving new business.
  • Access Datamonitor’s forecasts for the market and valuable knowledge of how the sector is set to develop to 2014.

Table Of Contents




Executive Summary

The UK investment bond market declined at a CAGR of 15% over the past five years

Providers should make investors aware of clear circumstances in which a bond is an advantageous investment

Wrap platforms will shape the distribution of investment bonds

Table of Contents

Table of figures

Table of tables

Market Context

Introduction to investment bonds

Unit-linked bonds offer investors policies with a value that is directly linked to investment performance

Clients appreciate the flexibility and transparency of unit-linked bonds

With-profits bonds offer a smoothing mechanism, a unique attribute of the product

A distribution bond is recognized as a simple product that provides investors with a steady stream of income

Guaranteed bonds encompass the guaranteed income, guaranteed growth and guaranteed equity bonds

Guaranteed income and guaranteed growth bonds

Guaranteed equity bonds

Money market bonds are a new category of bonds introduced by the ABI in 2008

Sales of investment bonds in 2009 suffered at the hands of fallen stock markets

Unit-linked bonds immediately felt the positive effect of stock market rallies in 2009

The smoothing factor of with-profits bonds are attracting and calming the nervous investor, to generate healthy sales in 2009

With-profits bonds became unpopular after the stock market bubble burst in 2001

Guaranteed bonds were popular in 2008 but new business in 2009 declined heavily

Distribution bond sales continued to falter in 2009

Money market bonds lost favor in 2009, a year after being introduced as a new bond category

Investment bonds still remain a viable investment product but discerning the suitability of a bond for any individual will be more complex

Investors will still question the role of unit-linked bonds in the future as they lack elements of protection against market volatility

A with-profits revival will be seen over the next five years, at the expense of distribution bonds

Guaranteed bonds will continue to suffer a decline in sales in 2010

Money market bonds will lose their popularity among investors going forward

The best investment product depends on individual circumstances but there are three key facts which keep a bond broadly attractive as an investment

Only 5% of the population pays CGT

The majority of bond holders are basic rate taxpayers at the time of encashment and the changes to CGT make bonds even more attractive for these investors

An investment bond is a flexible product that can be adapted as an individual’s circumstances change

There are clear circumstances in which a bond is an advantageous investment

However, investment bonds are not favorable to all scenarios

Market Issues

Consumers’ low risk tolerance is affecting the investment bond market

Consumers are risk-averse and prefer safer or guaranteed returns

Investment bonds need to attract the less affluent consumer who is unwilling to take any risks with their cash

Prevailing economic conditions continue to pose a key challenge to investment bonds

Recent changes to taxation will impact the investment bond market

Changes to CGT announced in the June 2010 emergency budget may prove beneficial to the investment bond market

Under the old regime the tax structure gave a clearer advantage to investment bonds

A flat rate of 18% CGT was the prior arrangement that impacted the investment bond market

The changes to CGT in April 2008 were more far-reaching than their intended target

The tax treatment of investment bonds has not changed

Investment bonds are taxed within the income tax regime rather than as capital gains

An investment bond carries a 5% tax deferred withdrawal allowance

A tax charge can arise whenever a chargeable event occurred

Technological innovation centering on wraps is helping overcome the challenges of investment bonds

There are eight key areas where a wrap platform will help overcome challenges

The tax complexity of bonds and income-drawing options will drive growth in distributing investment bonds via wraps

Advisors are looking to actively move investment bonds onto wraps over the next 12 months

The full advantage of wrap platforms will be realized by placing legacy business such as with-profits bonds on platforms as well as new business

Wrap platforms have evolved from the fund supermarkets of the late 1990s

The Datamonitor definition of a ‘pure wrap’ has become a market standard

The Retail Distribution Review has inevitably affected the way in which investment bonds are sold and distributed

The RDR aims to increase consumer access to financial products and services by offering a tiered system of financial sales and advice

The RDR will address concerns about poor returns and high exit fees in the investment bond market

Poor returns and high exit fees in an underperforming market leave investors in an impossible situation

The Treating Customers Fairly initiative has helped to increase investor understanding about investment bond products and prevents the possibility of mis-selling

The TCF initiative aims to create a more efficient and effective market

The TCF initiative will filter out poorly structured and poorly performing providers to make investors aware of the risks involved in investment bonds

Competitor Dynamics

Providers should make investors aware of clear circumstances in which a bond is an advantageous investment

Investors in mutual funds pay tax on gains and on income, which gives bonds an advantage

A higher rate taxpayer can receive income from a bond and defer tax

Bonds can be assigned to avoid an income tax charge

A bond is an efficient investment for inheritance tax planning

Providers are offering product, service and technological innovations to help IFAs and clients understand the complexities of investment choices

Scottish Widows and Clerical Medical, with their full suite of online investment planning tools, are forging ahead in the innovation stakes

Scottish Widows and Clerical Medical offer online calculators to help IFA clients determine the appropriateness of bonds

The increasing importance of the peripheral features on an investment bond offering will emerge in a post-RDR landscape

Lloyds Banking Group wrote the highest investment bond new business in 2009

Distribution Dynamics

The sale of investment bonds is firmly focused through the IFA channel

Fluctuations have taken place in the distribution of unit-linked and non-unit-linked bonds

The distribution of unit-linked bonds migrated back to IFAs and whole of market advisors in 2009 after being picked up by non-bancassurance single tie channels in 2007

Non-unit-linked bond distribution through IFAs has grown rapidly and sharply

Wrap technology will be a key driver in the distribution of life products



Product definitions

Life-based savings products

Life assurance

Single premium life

With-profits bond

Unit-linked bond

Income and growth bonds

Guaranteed equity bonds

Distribution bonds

Purchased life annuities

Other bonds

Annual premium life

Endowment policy

Whole of life insurance

Term assurance

Income protection

Critical illness

Collective life


Personal pensions

Stakeholder pensions

Group personal pensions

Department for Work and Pensions (DWP) rebate

Employer-sponsored stakeholder (ESS) pension

Self-invested personal pensions (SIPPs)

Free-standing additional voluntary contributions (FSAVCs)

ABI definitions of distribution channels

Independent financial advisors (IFAs)

Direct sales forces

Tied agents

Multi-tied agents


Direct marketing



Further reading

Ask the analyst

Datamonitor consulting


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