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.
Scope
- 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.
Highlights
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
Overview
Catalyst
Summary
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
Appendix
Data
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
ISAs
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
Bancassurance
Direct marketing
Telesales
Other
Further reading
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Datamonitor consulting
Disclaimer
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