Although insurance bonds are a managed fund product which is considered by many to be past its "use by date" there still seems to be a place for them.
Bonds enjoyed a period of popularity during the early and mid 1990s as they provided an effective means of getting around the superannuation surtax. Since then things have turned down.
IPAC Securities says insurance bonds have experienced negative growth every quarter since surtax was removed in April 1998. In the latest quarter, to September 30, net funds under management in the bond sector shrank by $96 million.
Despite that Armstrong Jones has been building a guaranteed income insurance bond with the help of American International Assurance, and Royal & SunAlliance has decided to keep and revamp the Wise bond range formerly offered by Guardian Assurance.
AJ's plan to introduce a bond has been unexpectedly scuttled at the 11th hour because the tax losses it was hoping to use for this product have become unavailable. The idea is that the bond would have utilised tax losses from AIA's parent company, US-based AIG, to make it a very competitive alternative to bank deposits.
Now it is not possible for AJ to introduce the fund, but it shows that insurance bonds still have a place in the market.
This is confirmed by Sovereign Funds Management director Mike Newton. He says the company has had huge success with its insurance bonds because there is still a market for simple, tax-paid investment products.
He says the bonds will become more attractive if Labour wins the election and introduces a top tax rate of 39 per cent (bonds pay tax at 33 per cent).
IPAC says most of Sovereign's funds flow in the September quarter was into its insurance bond products. Likewise Royal & SunAlliance experienced positive fund flows into its Wise bonds (formerly branded Guardian Assurance), and Tower Enroute funds (which are promoted by TIS directly to investors) also took in money.
AMP is recorded as having positive flows into some of its insurance bond products, however the company is actively encouraging investors to move into more modern types of managed funds.
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