David Aaron, marketing communications manager for Investment Products at AEGON Scottish Equitable, says his company is ‘quite well placed’ in this area considering the market and the CGT changes.
AEGON has been running its '5 for Life' guaranteed income product since 2006, and launched a new onshore bond, Investment Control, which has capital guarantees within it, earlier this year.
This is not a totally new concept as there are also a number of American players who have been in the market for a while such as Hartford Life andMetLife.
“Companies are saying, if they can’t attract people in for tax reasons or because they haven’t got the same investment choices, then let’s give them some form of guarantee,” says Danny Cox, head of financial practioners at Hargreaves Lansdown.
However, he adds that the investor maybe stuck with one of the company’s set portfolios, little choice as to who is the manager and charges of up to 2%.
“I think that with most of these guarantees the investor is going to look at them in 10 years time and be woefully disappointed with performance. And the only time when they will be pleased with that is if the market continually falls.
“Conceptually, you have a product where you can’t lose any money, a guaranteed return of 5%, plus potential upside on the equity market. It sounds fantastic but the reality is that they are too expensive and so the cost effectively outweighs the upside.”
John Lawson, head of pensions policy at Standard Life, also notes the difficulties these guarantees face when the charges and realistic performance required are taken in to account.
“Some people might say they’re a good deal, but you’ve got to say to yourself why should I invest in something that’s going to give me a 5% return when I can put cash in a one-year fixed income bond at the moment and get 6.5-7%. Might as well do that or stick it in gilts, because I can get 5% in gilts, which is the safest investment in the UK.
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Nevertheless, it’s not just guarantees and an increased range of funds, which providers hope will renew interest in insurance bonds.
David Lascelles, head of investment development at Scottish Widows, says the first thing his company has been doing is to reposition its existing product in terms of writing under various types of trusts, and the way it is presented.
“In the wider context we are making the product pricing more transparent, clearer and comparable with OEIC structures.
“And in the longer term will be looking at how we can differentiate the things bonds can provide that OEICs can’t, such as insurance benefit, something that we will be looking at for the future.
“Other things include guaranteed minimum death benefit and guaranteed minimum income benefits etc.”