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Investment Bonds - UK - February 2011

Since its 2007 peak, the UK onshore bond market has been in decline, to the point where total sales in 2010 were three fifths down on the volume achieved in 2007. The sub-prime crisis and ensuing economic downturn were partly responsible for this fall, but a more detrimental factor was the change to capital gains tax (CGT) in April 2008, which made rival products, such as unit trusts and OEICs, more favourable in comparison.

  • The UK onshore bond market has been in decline over the past few years, having come under greater competition from collective investments, such as unit trusts and OEICs.
  • Recovery is in sight, but new business levels over the next few years are unlikely to reach the heights seen in 2006 and 2007. Competition between providers will likely intensify as a result.
  • Product charges will also come under increasing pressure from 2013, as new regulation linked to the Retail Distribution Review ensures greater price transparency across the retail investment industry.
  • The offshore sector will remain a growth area for providers, albeit with demand still mainly coming from the high net worth.
  • The majority of investment bonds are sold with advice and, most often, sales are generated through the traditional IFA channel.
  • There is considerable scope to develop new product propositions linked to open-architecture platforms, especially in the onshore market.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Market background and definitions
          • Main product categories
            • Key selling point
              • Top-slicing relief
                • Offshore bonds
                  • Charges
                    • Commission
                      • Report scope
                        • Abbreviations
                        • Future Opportunities

                            • Trend: More people working in retirement
                              • Trend: Increasing longevity is challenging the traditional view of age-related asset allocation
                              • Market in Brief

                                • New business
                                  • Market outlook
                                    • Key drivers
                                      • Regulatory and legislative developments
                                        • Rival sectors and products
                                          • Product innovation
                                            • Competitive context and key players
                                              • Distribution trends
                                                • Adspend on investment products
                                                  • The key findings of Mintel’s consumer research: product penetration
                                                    • Asset ownership
                                                      • Motivations to save
                                                      • Internal Market Environment

                                                        • Key points
                                                          • Investment bonds have a number of distinct target markets
                                                            • Key factors influencing the market
                                                              • Countdown to RDR implementation
                                                                • Government’s review of tax reliefs could have consequences for investment bonds
                                                                • Broader Market Environment

                                                                  • Key points
                                                                    • Over three million higher-rate taxpayers in the UK
                                                                      • Figure 1: Total number of taxpayers and number on higher rate, 1990/91-2010/11
                                                                    • Strong growth in the size of the retired population predicted
                                                                      • Figure 2: Size of the UK population, by age, 2001-20
                                                                    • Low base rate and high inflation is not a good mix for savers
                                                                      • Figure 3: Average annual changes in the Bank of England base rate, CPI and RPI – UK, 2001-10
                                                                    • Despite a number of setbacks the FTSE 100 grew 9% in 2010
                                                                      • Figure 4: FTSE 100 and FTSE All-Share – daily index movements, December 2001-December 2010
                                                                  • Competitive Context

                                                                    • Key points
                                                                      • Unit trusts and OEICs are the main rival products to investment bonds
                                                                        • Gross sales of unit trusts and OEICs grow up by a quarter in 2010
                                                                          • Figure 5: Retail sales of unit trusts and OEICs – UK-domiciled, 2006-10
                                                                        • Comparing investment bonds with unit trusts and OEICs
                                                                          • Figure 6: New investment bond premiums versus gross retail unit trust/OEIC sales, 2006-10
                                                                          • Figure 7: Comparison of investment bonds and unit trusts/OEICs, 2011
                                                                        • Investment trusts
                                                                          • The rise of ETFs
                                                                          • Market SWOT Analysis

                                                                              • Figure 8: UK investment bond market – SWOT analysis, 2011
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • Limited scope for real innovation
                                                                                • Recent product launches
                                                                                  • Offshore market continues to offer opportunities
                                                                                  • Trade Perspective

                                                                                      • About the participating companies
                                                                                        • Volatile markets and CGT changes were behind the recent fall in onshore sales
                                                                                          • Providers expect the onshore market to stabilise in 2011
                                                                                            • Onshore and offshore bonds cater for discrete markets
                                                                                              • RDR will lead to lower product charges
                                                                                                • Providers enhance their offerings with new innovative funds and RDR-friendly structures
                                                                                                  • Other issues and final thoughts
                                                                                                  • Market Size and Forecast

                                                                                                    • Key points
                                                                                                      • Onshore investment bond sales fell again in 2010
                                                                                                        • Figure 9: New onshore investment bond sales, by volume and value, 2005-10
                                                                                                      • In contrast, the offshore sector rebounded in 2010
                                                                                                        • Figure 10: Size of the onshore versus UK-distributed offshore investment bond market, by new premiums, 2005-10
                                                                                                      • Mintel expects the onshore market to start to recover in 2011
                                                                                                        • Figure 11: Forecast of the value of new onshore investment bond premiums – fan chart, 2005-15
                                                                                                        • Figure 12: Forecast of the value of new offshore investment bond premiums – fan chart, 2005-15
                                                                                                        • Figure 13: Standard forecast of new onshore and offshore investment bond premiums, at current and constant 2010 prices, 2005-15
                                                                                                      • Forecast methodology
                                                                                                        • Fan chart explanation
                                                                                                        • Market Segmentation

                                                                                                          • Key points
                                                                                                            • Pooled bonds account for the majority of the offshore market
                                                                                                              • Figure 14: New offshore bond premiums, by type of policy, 2006-10
                                                                                                            • Unit-linked bonds are the most popular type of onshore bond
                                                                                                              • Figure 15: Share of new onshore investment bond premiums, by policy type, 2006-10
                                                                                                            • Unit-linked bond sales fell by 12% in 2010
                                                                                                              • Figure 16: New unit-linked onshore bond sales, 2006-10
                                                                                                            • Sector note
                                                                                                              • There was, similarly, weakened demand for with-profits bonds
                                                                                                                • Figure 17: New with-profits onshore bond sales, 2006-10
                                                                                                              • Sales of distribution bonds grew, but there was less invested on average
                                                                                                                • Figure 18: New distribution onshore bond sales, 2006-10
                                                                                                              • Guaranteed sector experienced the greatest fall in new premiums proportionately
                                                                                                                • Figure 19: New guaranteed onshore bond sales, 2006-10
                                                                                                              • Sector note
                                                                                                                • Money market sector sees some improvement
                                                                                                                  • Figure 20: New money market onshore bond sales, 2008-10
                                                                                                              • Market Share

                                                                                                                • Key points
                                                                                                                  • In 2009, AXA retained its market-leading position in the onshore market
                                                                                                                    • Figure 21: Top ten single-premium life policy providers, by new premium income, 2007-09
                                                                                                                • Companies and Products

                                                                                                                    • Aviva
                                                                                                                      • AXA Wealth
                                                                                                                        • Legal & General
                                                                                                                            • Figure 22: New single premiums gross of reinsurance, 2008-09 and Q1-3 2009-10
                                                                                                                          • Prudential
                                                                                                                              • Figure 23: New business premiums (onshore only), 2008-09 and H1 2009-H1 2010
                                                                                                                            • Sterling (Zurich)
                                                                                                                            • Brand Communication and Promotion

                                                                                                                              • Key points
                                                                                                                                • Investment bonds are not widely promoted
                                                                                                                                  • Most ‘investment’ adspend is centred on ISAs and advice services
                                                                                                                                    • Figure 24: Total advertising expenditure on investment products and services, by product type, 2006-10
                                                                                                                                • Channels to Market

                                                                                                                                  • Key points
                                                                                                                                    • IFAs dominate the sale of investment bonds
                                                                                                                                      • Premiums generated by the bancassurance channel continue to decrease
                                                                                                                                        • Figure 25: New onshore investment bond premiums, by sales channel, 2008-10
                                                                                                                                      • Distribution patterns vary depending on the type of product
                                                                                                                                        • Figure 26: New onshore investment bond premiums, by sales channel and product type, 2010
                                                                                                                                      • IFAs take an even larger slice of the offshore market
                                                                                                                                        • Figure 27: New offshore bond premiums, by sales channel, 2008-10
                                                                                                                                    • Product Ownership

                                                                                                                                      • Key points
                                                                                                                                        • Survey background
                                                                                                                                          • Three times as many people have cash savings as equities and other investments
                                                                                                                                              • Figure 28: Ownership of savings and investment products, December 2010
                                                                                                                                            • Most popular investment product is a stocks and shares ISA
                                                                                                                                              • One in 20 UK adults have an investment bond
                                                                                                                                                • Ownership is highest among 45-64-year-olds
                                                                                                                                                  • Figure 29: Ownership of savings and investment products, by age, December 2010
                                                                                                                                                • Increasing longevity is extending people’s investment timeframes
                                                                                                                                                  • ABs represent a major target group
                                                                                                                                                    • Figure 30: Ownership of savings and investment products, by gender and socio-economic group, December 2010
                                                                                                                                                  • Investment bonds appeal to the more affluent
                                                                                                                                                    • Figure 31: Ownership of savings and investment products, by gross annual household income, December 2010
                                                                                                                                                • Value of Investible Assets

                                                                                                                                                  • Key points
                                                                                                                                                    • Two in five UK adults have investible assets of £5,000 or over
                                                                                                                                                      • Figure 32: Total value of assets held in cash and other investments, December 2010
                                                                                                                                                    • Wealth accumulates with age
                                                                                                                                                      • Figure 33: Value of cash savings, by age, December 2010
                                                                                                                                                      • Figure 34: Value of equity investments, by age, December 2010
                                                                                                                                                    • Almost one in three people with equity assets of £30K+ have an investment bond
                                                                                                                                                      • Figure 35: Ownership of savings and investment products, by value of cash savings, December 2010
                                                                                                                                                      • Figure 36: Ownership of savings and investment products, by value of equity investments, December 2010
                                                                                                                                                  • Investment Motivation

                                                                                                                                                    • Key points
                                                                                                                                                      • Most people are saving for a ‘rainy day’ or for their future financial security
                                                                                                                                                          • Figure 37: Reason for saving or investing, December 2010
                                                                                                                                                        • One in ten adults are saving so that they can leave an inheritance to loved ones
                                                                                                                                                          • Motivations vary with age
                                                                                                                                                            • Figure 38: Reason for saving or investing, by age, December 2010
                                                                                                                                                          • Men are more inclined than women to invest for tax reasons
                                                                                                                                                            • Figure 39: Reason for saving or investing, by gender and socio-economic group, December 2010
                                                                                                                                                          • Retirement saving is largely determined by wealth
                                                                                                                                                            • Figure 40: Reason for saving or investing, by gross annual household income, December 2010
                                                                                                                                                          • Investment bond holders are much more likely to be saving for retirement or tax reasons
                                                                                                                                                            • Figure 41: Reason for saving or investing, by type of saver/investor, December 2010
                                                                                                                                                        • Appendix – Product Ownership

                                                                                                                                                            • Figure 42: Ownership of savings and investments, by demographics, December 2010
                                                                                                                                                        • Appendix – Profile of Investment Bond Investors

                                                                                                                                                            • Figure 43: Profile of total sample versus investment bonds investors, by demographics, December 2010

                                                                                                                                                        Companies Covered

                                                                                                                                                        • Asda Group Ltd
                                                                                                                                                        • Association of British Insurers
                                                                                                                                                        • AXA UK plc
                                                                                                                                                        • AXA Wealth
                                                                                                                                                        • Bank of England
                                                                                                                                                        • Co-operative Group
                                                                                                                                                        • Financial Services Authority (The)
                                                                                                                                                        • Hargreaves Lansdown Plc
                                                                                                                                                        • HM Revenue & Customs
                                                                                                                                                        • HSBC Private Bank (UK) Limited
                                                                                                                                                        • Investment Management Association
                                                                                                                                                        • J. Sainsbury
                                                                                                                                                        • Liverpool Victoria Friendly Society Limited
                                                                                                                                                        • Marks & Spencer
                                                                                                                                                        • Nationwide Building Society
                                                                                                                                                        • NFU Mutual
                                                                                                                                                        • Norwich Union
                                                                                                                                                        • Old Broad Street Research (OBSR)
                                                                                                                                                        • Tesco Plc
                                                                                                                                                        • Waitrose
                                                                                                                                                        • Winterthur Life UK Limited
                                                                                                                                                        • Wm Morrison Supermarkets
                                                                                                                                                        • Zurich Financial Services

                                                                                                                                                        Investment Bonds - UK - February 2011

                                                                                                                                                        £1,995.00 (Excl.Tax)