Jason Butler, a partner at Bloomsbury Financial Planning, says there is still scope for insurance bonds. His firm has done an analysis of sixty scenarios since the CGT changes and can still see a place for onshore and offshore insurance bonds.
Their research indicates that a higher rate taxpayer, who is highly unlikely to become a non-resident, should still invest in an onshore insurance bond, and in an offshore bond if likely to become a non-resident in future.
John Lawson, head of pensions policy at Standard Life, says: “Tax wise, bonds still have a place. The changes in CGT haven’t made much of a difference for basic rate taxpayers. However, for high rate taxpayers it’s now slightly skewed in favour of income for bonds and mutual funds for growth. But it depends on the underlying asset mix of your fund whether one’s better than another.”
Nevertheless, insurance bond sales are falling across the board. They may be of a particular use to some investors but the majority of investors will regard them as another vehicle in addition to their pension plan or wrapper.
Top performer versus bottom performer
Danny Cox, head of financial practioners at Hargreaves Lansdown, says investors should look at an insurance bond after taking advantage of a SIPP and ISA.
However, Lawson says: "It may not necessarily be the case that you want to fill up your pension first before you go for insurance bonds."
"The problem with pensions is that you’re restricted in what you can do with the money. You can only take 25% back as cash. The rest must been taken as an income. So bonds give you a bit more flexibility because you can still draw an income from them without paying tax immediately."
He also says insurance bonds, tax treatment aside, are like any other collective investment such as a unit trust or OEIC because essentially the underlying investments in bonds or mutual funds are fairly similar.
The investments may be similar but the range of funds and managers is not, and after the changes to CGT this is one of the main drawbacks of an insurance bond.
Cox says: "In terms of performance if you have choice of putting your money into an insurance bond or a unit trust, in most cases you would probably put it into a unit trust because likely you are to get a better performance and find a better manager."
"Whilst insurance bonds have grown up a lot, and recognised the need to have better investment choices, some might have 150 different fund links, but if you invest in a fund supermarket you get 2,000."