OAP with more than £200K

dunstonh

Beware of IFAs and their "investment bonds".These are stockmarket linked products sold by the insurance companies and the big selling point is 5% can be withdrawn tax free as income a year.

These products are riddled with charges and penalties and pay IFAs some of the highest commissions in the business. Avoid.

Beware of posters who don't know the product and warn people against them.

These products can offer lower charges than OEICs/Unit Trusts and can offer tax advantages to some but may not be tax efficient for others.

The commission on these products is generally the same as those on ISAs and OEICs nowadays. So no concerns of commission bias.

They are not also necessarily invested in the stockmarket either. They have a range of asset classes available to them.

Having just done a 150k bond this morning, I feel that editors post is totally out of order. Had I done the equivalent OEIC, the charges over 10 years would have been higher and although the fund will perform lower as it is a mirror fund, the difference in charges and there being no impact on the allowance and no worry about CGT made the bond much more suitable than the OEIC.

One product is never going to be right for everyone but your post is misguided and inaccurate and could cause innapropriate concerns for those that have perfectly good bonds.

deemy2004

As editor Stear clear of stock market bonds !

They are designed to make the financial advisors and the banks money ! You are a distant third on the list !

Buy and Regret....

sneekymum

"Beware of IFAs" ! - Well really! Now that IS dodgy advice.

I'm not in the market for one but then I like to pretend I know what I'm doing -

With 200K to invest and only a vague idea about finance you need an IFA. If later on you feel inspired to learn all about investment then that's fine - but most people would rather eat lino.

EdInvestor

deemy2004 wrote:

Crikey 200k !!!
And here we're being fed that OAP's are poor ...

Do you think that a lot, Deemy?

It would only buy you a pension of about 14k a year, less if you´re a youngish OAP.Pretty pathetic, if you ask me.Certainly not riches

Re investment bonds, they are often part of a ¨package" for the retiree.Here´s the pension fund, 75% goes into the annuity (1% commission to the IFA, big upfront boost to the cashflow of the insurer) 25% tax free cash into the investment bond, 7% commission to the IFA, and as these were usually in the past invested in With profits, a nice boost to the insurers working capital as well.

Sorry DH, but its about time this nice little number was subjected to closer scrutiny IMHO.

dunstonh

Firstly, Deemy has got the wrong product so you can ignore him. He is referring to Guaranteed Equity Bonds (GEBs) and not investment bonds. They actually pay less commission than ISAs, UTs, OEICS and investment bonds so i dont know where he gets the idea that IFAs earn lots on them. Perhaps he is thinking of tied agents and banks where they are much more popular and do make a lot of money for the provider.

As for Invesment bonds, Editor does not understand the product and is making totally inaccurate posts. Indeed, the one I did this morning did include a tax free lump sum from pension and will be used to boost income. The very thing he says shouldnt happen.

Which one of these would you choose?

Same investment fund in the OEIC and the Bond. Due to small difference in taxation and being a mirror fund, the bond will perform about 0.5 to 1% p.a. lower than the OEIC. - so round 1 to the OEIC.

Charges on the bond are £28,000 lower than the OEIC over 10 years. - round 2 to the bond.

The Bond doesnt require annual sale of part of it to utilise CGT allowances. The OEIC will do and will incur costs for doing so. - round 2 to the Bond

The Bond will not reduce the personal age allowance, this saves upto £482.90 a year. The OEIC will do. - round 3 to the bond.

Ignoring death benefit and the potential for trusts, the bond wins overall as the charges are lower than the OEIC by an amount that exceeeds the tax differences. By the time you feed in the reduction of age allowance and having to deal with CGT every year, the bond is a clear winner.

I havent mentioned my commission once in this but as it happens, it is exactly the same as what I would have earned on the OEIC had i chosen that option.

The problem editor, is that you are basing your information on product pricing of 3-10 years ago. Bonds always used to be more expensive than Unit Trusts/ISAs (or PEPs as they were then). That is no longer the case. The commissions used to be higher as well. Again, that is not the case now.

I would be interested to see how you could justify me selling an OEIC instead of a bond when the client would be £28,000 worse off in charges?

deemy2004

Crikey 28k in commission... I'm in the wrong job !

Paul_Herring

deemy2004 wrote:

Crikey 28k in commission... I'm in the wrong job !

Charges, not commision Deemy ;D ...

DD wrote:

Charges on the bond are £28,000 lower than the OEIC over 10 years. - round 2 to the bond.
[...]
I havent mentioned my commission once in this but as it happens, it is exactly the same as what I would have earned on the OEIC had i chosen that option.

EdInvestor

Charges on the bond are £28,000 lower than the OEIC over 10 years....



I rest my case.

dunstonh

Editor wrote:

Charges on the bond are £28,000 lower than the OEIC over 10 years....



I rest my case.

How do you rest your case?

The bond is cheaper than the OEIC. That totally contradicts what you were saying.

EdInvestor

The bond is cheaper than the OEIC. That totally contradicts what you were saying.


Don't believe I mentioned OEICS.

According to https://www.fsa.gov.uk/tables ,charges on 10 year investment bonds vary up to 32% of the capital, with most of them falling in the 25% range.:eek:

Thus the client with 150k will be hit for approx 37,000 quid over the period if an average provider has been chosen.

Perhaps you can tell us what the bond will be invested in?

Then perhaps we can suggest a way of investing the 150k in the same type of underlying assets and obtaining a similar income without paying 37k for the privilege.

I am afraid that even people with that amount of tax free cash similar can't afford to give away 37k these days.