5 year investment bond or savings ?

retplanreq

I will retire soon at 60 & need to top up my company pension with monthly income from my lump sum. The financial advisor at my bank is suggesting a 5 year AXA bond as the best option for me. I'm not sure what to do in light of the current financial climate.

Any ideas from others in a similar situation as mine ?

Thanks.

dunstonh

The financial advisor at my bank

Never a good start when you someoene says that. Banks account for the majority of complaints despite doing a minority of the business. You should always avoid seeking advice from salesforces. Sales and best advice are not good bed fellows.

is suggesting a 5 year AXA bond as the best option for me.

That surely isnt all they are recommending? That would sound like bad advice if it is. Where is the ISA which should always come first?

That aside, you have said 5 year bond. Now that doesnt sound like the normal AXA investment bond as that is open ended (although it does have a 5 year step down penalty on withdrawals). Can you clarify what the product is just in case its not an investment bond but a guaranteed equity bond.

If it is an investment bond, then that is just a container for investments. It doesnt tell us anything about where you are going to be investing and what strategy is being used (I'm being cruel there as we know a bank adviser wont be investing using a strategy). It's a bit like saying I have a bucket. Now guess whats in it.

If it is investment bond, then AXA are quite well priced but not the best. Nothing wrong with the product itself but there are a few better priced.

retplanreq

The product proposed by my bank is an AXA Sun Life distribution Bond. F.y.i they also counselled me on ISA's & I have taken my full allowance.

Stavros_3

As Dunstonh says be very wary of financial advisors tied in with the banks, for example, 2 yrs ago on his advice we put 25 grand in investments with a well known high street bank spread across 5 areas, that 25k investrment is now worth 17 grand a drop of 30% !!!!

dunstonh

F.y.i they also counselled me on ISA's & I have taken my full allowance.

Thats the full £7200 allowance?

The product proposed by my bank is an AXA Sun Life distribution Bond.

That will be the open ended AXA investment bond investing 100% into the distribution fund then.

Investment bonds are really a minority product nowadays. They still have their place with larger investments or through discount IFAs. Higher rate taxpayers (who will be basic rate in later years) can benefit as can over 65s who have income close to £20,900.

As a rough guide, anything really under £50k-75k is probably not enough to get the best pricing out of a bond. So, the taxation issues are going to be important here. You would expect an IFA to to a tax comparison between bond and unit trust to see which is best based on your sector allocation. A salesforce adviser is unlikely to. Are you aware if this has been done or not?

Unit trusts also allow for easy "bed & ISA" transactions each year where you can move money from the unit trust to the ISA. Over the long term this can see you move a large chunk into the tax free ISA compared to taxable unit trusts (especially useful on fixed interest funds). With investment bonds, its harder to do that as the amount you can withdraw annually in the first 5 years is restricted due to charges. That means you end up in higher taxed investment bond and waste your ISA allowances. So, depending on amount, it may be that all of it is better placed in Unit trusts or part invested in unit trusts (to use up future ISA allowances in the short term) and part invested in investment bond.

Please do note that we dont know your specifics. So, its hard to say what is best for you. Hence a lot of "depends on" type references.