offshore companies need to make themselves relevant to financial advisers who, once caught in the net, will bring their clients too
One way to encourage offshore sales is for offshore companies to make their offering as relevant as possible to financial advisers and their clients - to tune in to the right wavelength.
A good example is retirement planning - an area very relevant to most advisers. Many commentators have identified that there are advantages to offshore contracts when clients are considering retirement options such as tax benefits and greater freedom on how and when to take their benefits.
The tax arguments for investing in an offshore contract become even stronger for those clients who will be above the lifetime limit when the new pension simplification rules come into force in April 2006, as they will be liable to pay a lifetime charge.
The challenge is to make the offshore life contract fit with clients' retirement planning needs as closely as possible. In retirement planning terms, this means having an offering that has the option for the employer to pay the contributions and has a regular contribution facility. It also means identifying an investment choice that is attractive. The launch of our Flexible Investment Plan, which accepts regular contributions, and the recent launch of an offshore version of the Universal Balanced Collection, our most popular pension fund choice, are examples of this thinking.
The Universal Balanced Collection is an externally managed fund with both passive and active elements, and has an annual management charge of 1%. It will be interesting to see if the 1% annual management charge (albeit with other product charges) proves to be a key criterion for offshore contracts in the retirement planning arena.
There is no doubt that financial advisers are looking for options in retirement planning beyond pensions contracts. Offshore regular contribution contracts have an appeal in the high net worth market, where the individuals are unable or unwilling to put more into pensions.
A further opportunity is that self-invested personal pensions (SIPPs) can invest in offshore bonds that can otherwise only currently be offered by EU-based providers. This opens up investment choice for the SIPP beyond that which is normally available.
There are indications that the importance of offshore bonds in retirement planning will continue to grow. Two of these indications are pension simplification and the growing trend for UK residents to retire abroad.
For pensions simplification, as well as the opportunity to avoid the lifetime charge, there is also the opportunity linked to the increase in age when clients can take benefits. For those who are thinking of retiring abroad, the onshore bond with its non-deductible tax does not seem to hold the same planning flexibility of the offshore bond where tax is not deducted at source (except for withholding tax) and the tax position may well depend upon the tax regulations in the country in which they decide to stay.
This communication is directed at professional financial advisers. It should not be distributed to, or relied upon by, private customers.
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