The latest statistics from the Association of British Insurers (ABI), based on figures from the main providers of the bonds to the UK market, show total offshore bond sales of £3.71bn and onshore bonds reaching sales of £4.64bn. Both figures include child trust funds.
The decline in offshore bonds comes on the heels of a 12.4% fall in 2013 and a 20.4% drop in 2012, offering a glimmer of hope that the market contraction is at least slowing.
Given the strong sales reported by some of the major offshore bond providers such as Prudential, which reported a 44% rise in sales growth for offshore bonds in 2014, it is likely the overall data also masks a mixed performance by participants in the sector.
“Since the RDR, there has been a raft of new regulatory requirements that have seen some institutional firms pull out of giving advice,” said Sean Christian, managing director of Canada Life International.
"The ABI statistics remain the best picture of the market"
“Also, some companies have never been part of the ABI stats but write UK business, or have dropped out of the ABI stats in recent years.”
Demand seen
However, Christian added that the ABI statistics remained the best picture of the market though they may not represent the entire market, which would be larger.
At Old Mutual Wealth, planning expert Rachael Griffin said that the firm’s offshore bond business had continued to grow in the UK, and there were still growth drivers in the market.
“With the pension Lifetime Allowance reducing to £1m in 2016, and the annual allowance set at £40,000, there will be increasing demand for more choice beyond pensions and offshore bonds will continue to be an attractive solution,” Griffin said.
Axa Wealth said it believed the fundamentals of the offshore proposition in the UK market remained as relevant as ever. “Indeed, it is expected the pension reforms will open up new opportunities for such products as both a source of pension funding and its tax-efficient drawdown,” said Mike Foy, managing director of Axa Wealth International.
Meanwhile, onshore bond sales were up by 4.3% last year following declines of 45.3% in 2013 and 9.75% in 2012.
And at £4.64bn last year, total sales are well down on the 2008 peak of around £23.6bn.
In some ways, this trend is an even bigger puzzle as there were no tax changes affecting this market in 2014, though it could be that as advisers refocus more on areas such as inheritance tax planning post-RDR, people are finding more use for onshore bonds.
