Following a period of waning sales, is the offshore bond sector now approaching light at the end of the tunnel? Deborah Benn reports
Offshore bonds have swung in and out of favour with professional advisers over the years prompting providers such as Aviva and, more recently, Scottish Widows via its CMI business to pull out of the market.
A longer than expected period of economic difficulty, as well as uncertainty in the run up to the Retail Distribution Review (RDR) has added further pressure leading to a decline in sales recently.
The latest statistics from the Association of British Insurers (ABI) based on sales figures from the main offshore bond providers to the UK market show that single premium sales, which make up the lion’s share of offshore bond sales in the UK, were £118.5m in Q3 2012, compared with £166.3m in Q3 2011, representing a year-on-year decline of just over 28%.
A ray of hope?
But there may be light at the end of the tunnel for the sector as Q3 2012 figures are slightly up on Q2 2012 sales of £110.6m. While it is not a large increase, it represents the reversal of a quarterly decline in sales since Q3 2011. Regular premium figures, albeit representing less than 1% of total offshore bond sales, mirror this trend.
So are we seeing an appetite for offshore bonds returning? While it may be too early to suggest a trend has emerged, as confidence in investment markets slowly climbs, and with RDR in full flow and compliance issues gradually ironed out, any rise in Q4 2012 figures could suggest a return to favour.
Certainly, for UK clients who are, or who plan to become, internationally mobile (especially high earners with significant portfolios) offshore bonds continue to offer a number of tax planning advantages.
Particularly when the opportunity to wrap together a number of investments to grow in a largely tax neutral environment outweighs the loss of any onshore tax reliefs and justifies bond establishment and ongoing charges incurred.
And while we may never see the heady sales of years gone by, it is hoped RDR will encourage a more circumspect approach by advisers to the types of UK clients offshore bonds suit most, which is healthier for the market overall.
The recent entrance of two non-UK insurers – Generali PanEurope and La Mondiale Europartner – with offshore bond offerings, alongside providers such as AXA Wealth International, Friends Provident International and Skandia International all launching new generation RDR-compliant portfolio bonds, also helps put the market on a more solid footing going forward.
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