Investment Bonds, National Savings and Investment Products - UK - May 2004

Contents

Introduction and Abbreviations

• Methodology
• Global information and research
• Consumer research
• ACORN

Abbreviations

Executive Summary

• A range of options for investors
• The flight to safety
• With-profits lead the investment bond market downwards...
• ...but NS&I is thriving
• A mixture of household names and specialists
• Targeted marketing the order of the day
• A fifth of ABs hold an investment bond
• Safety still key for investors
• Fighting against the alternatives

Definitions and Background

• Pooling risk and deferring tax...
• ...at the cost of flexibility
• Types of investment bonds
• With-profits bonds
• Unit-linked bonds
• Guaranteed bonds
• Distribution bonds
• Corporate bonds and bond funds
• National Savings and Investment products
• Premium Bonds
• Fixed term products
• Variable term products

Market Drivers

• Trust and market conditions key
• Figure 1: Bond and NS&I market dynamics
• Spend now, save later?
• Figure 2: Total PDI, consumer expenditure, savings and the savings ratio, at constant 1999 prices, 1999-2008
• Taxing times for savers
• Figure 3: Number of basic and higher rate taxpayers, 1995/96-2004/05
• Ageing population and the search for income
• Figure 4: UK Population growth, by age group, 2001-25
• Inheritances boost the size of the market
• Figure 5: Value of estates passing on death, 2000/01
• Low interest rates favour bond investments
• Figure 6: Bank of England base rate, 1994-2004
• Falling stockmarkets offer a boost to some safe haven investments...
• Figure 7: Value of the FTSE All Share and FTSE 100 indices, January 1996-January 2004
• ...but destroy the reputation of others
• Falling over the precipice
• Precipice bonds compromise some of the biggest names
• "It could be you"
• Can the market see past transparency?
• FSA moves to ensure fair treatment of with-profits policyholders

Market Size

• A victim of circumstances?
• Figure 8: Total new investment bond sales, 1999-2003
• Another nail hammered into the with-profits coffin...
• Figure 9: Mix of investment bond sales by value of new premiums, 1999-2003
• ...but can rival products take up the slack?
• Average with-profits purchase back to 1999 levels
• Figure 10: New with-profits bond sales, 1999-2003
• Unit-linked bonds benefit from the market recovery
• Figure 11: New unit-linked bond sales, 1999-2003
• Nervous investors turn to guaranteed equity products
• Figure 12: New guaranteed equity bond sales, 1999-2003
• Distribution bonds well suited to uncertain times
• Figure 13: New distribution bond sales, 1999-2003
• Sales of income and growth bonds halve
• Figure 14: New income and growth bond sales, 1999-2003
• The rise and fall of the bond fund
• Figure 15: Gross retail sales of unit trusts & OEICs, including UK bond funds, March 2001-March 2004
• NS&I investments reach record levels...
• Figure 16: Total investments held with NS&I, 1994-2004
• ...with Premium Bonds driving sales upwards
• Figure 17: Premium Bond sales and total stock, 1994-2004
• NS&I far from a one-product provider

Key Players

• AIG Life top sales charts
• Figure 18: Single premium life business, 2000-02
• Halifax shows strong growth...
• ...but Standard Life's experiences highlight the risks
• With-profits bonuses continue to slide
• Figure 19: Selected with-profits past performance values, February 2004

Distribution

• IFA sales still drive the market...
• Figure 20: Distribution trends in the investment bond market, 2000-03
• ...but they are flagging
• Direct salesforces and tied agents still have a role to play
• IFAs turn away from with-profits bonds...
• Figure 21: Distribution of with-profits bonds, 2000-03
• ... with a similar picture for income and growth bonds
• Figure 22: Distribution of income & growth bonds, 2000-03
• Figure 23: Distribution of guaranteed equity bonds, 2000-03
• Riskier bonds benefit from IFAs' knowledge
• Figure 24: Distribution of unit-linked bonds, 2000-03
• Figure 25: Distribution of distribution bonds, 2000-03
• NS&I reaping the rewards of a revolution in product distribution...
• ...and building links with IFAs has become a priority

Advertising and Promotion

• Press and direct mail drive adspend
• Figure 26: Bond adspend by outlet type, years to March 2003 and March 2004
• Selling guarantees?
• Figure 27: Bond adspend by product type, years to March 2003 and March 2004
• High street names top the list of advertisers
• Figure 28: Bond adspend by provider, years to March 2003 and March 2004
• How to sell rewards without risk
• NS&I looks to emphasise their whole product range

The Consumer

• A hidden market?
• Figure 29: Investment ownership, by gender and socio-economic group, March 2004
• Risking it all on retirement?
• Figure 30: Investment ownership, by age, March 2004
• A third of affluent retirees invest in NS&I products
• Figure 31: Investment ownership, by Mintel's Special Groups, March 2004
• Broadsheets the main battleground for advertisers
• Figure 32: Investment ownership, by media usage, March 2004
• Can providers sell to the mass-market?
• Figure 33: Investment ownership, by supermarket usage and commercial television viewing, March 2004
• Potential for a link-up between supermarket banks and NS&I?
• Safety first
• Figure 34: Key factors when selecting investments, by gender and socio-economic group, March 2004
• Tax is key for the more affluent
• Older investors look for flexibility
• Figure 35: Key factors when selecting investments, by age, March 2004
• The price of peace of mind
• Londoners most prepared to commit their savings over the long term
• Figure 36: Key factors when selecting investments, by location, March 2004
• Broadsheet readers the ideal target group
• Figure 37: Key factors when selecting investments, by media usage, March 2004
• Preaching to the unconvertible?
• Figure 38: Key factors when selecting investments, by commercial television viewing, March 2004
• Sainsbury's customers show some potential
• Figure 39: Key factors when selecting investments, by supermarket usage, March 2004

The Future

• 'Short memory' syndrome
• Rebuilding trust
• Can bonds fit into the new financial services environment?
• Regulation and the with-profits market
• Replacing the with-profits bond
• Can providers benefit from the crisis in confidence in the pensions industry?

Forecast

• Figure 40: Forecast of total new investment bond sales, by value, 2003-09
• Figure 41: Forecast of volume and average value, 2003-09
• Figure 42: Forecast of national savings and investments, 2003/04-2008-09

Appendix: Research Methodology