General manager Graham Duston said the advent of a 39 per cent top tax rate was the catalyst for ANZ to reconsider its insurance bonds, which had been closed to new investors since April 1998.
One of the bonds' appeals for some investors is that they're tax-paid at 33 per cent. Duston pointed out that while super funds were also tax-paid, an investor had to be a natural person and the money used for retirement.
"The interesting thing is that the Government Actuary has got some pretty firm views on the way that super funds should be sold and the purpose they should be used for, and rightly so."
Duston said that insurance bonds didn't have such restrictions and were an investment vehicle that could be effective and easy to understand.
While popular during the early 1990s, insurance bonds have suffered since the removal of the super surcharge in early 1998 to the extent of net funds outflows in every quarter since then. See funds flow graph).
Following the surcharge removal, BNZ Financial Services even helped investors switch from insurance bonds into other financial products such as unit trusts or term deposits. Grant Hill, product manager managed funds, said that all investors had moved out of bonds by last September.
As for reintroducing insurance bonds, "we realise that there's a window of opportunity there, but it's not significant". BNZ had also just reintroduced its Future Lifestyle Plan and some of its funds would be suitable alternatives.
Meanwhile, some companies have hung in there with insurance bonds and one of them is Sovereign. Product manager investment services Paul Forder said that insurance bonds fit their view of providing a full product range to the market.
"Advisers say to us that it means they're able to offer clients a range of options.
"We find that there is definitely a market out there for them."
Forder said the Sovereign term deposit bond had about $163 million and its other insurance bonds $146 million at the end of the March quarter. He said FPG figures showed an outflow of around $80 million from insurance bonds across the whole industry from the December to the March quarter, with Sovereign itself experiencing outflows of $14 million.
However, Forder said that most of that was out of the term deposit bond, because of interest rate moves, and Sovereign had experienced net inflows into insurance bonds since April. The anecdotal evidence was that some increase was due to the 39c tax rate.
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