Investment Bonds, Fixed-Interest Securities and NS&I Products - UK

Published by: Mintel International Group Ltd.

Published: May. 1, 2006 - 111 Pages

Table of Contents

INTRODUCTION AND ABBREVIATIONS

Scope of the report

Mintel’s consumer survey on bonds and NS&I products

Market definitions

Other reports of relevance

Key sources

Global information and research

Consumer research

ACORN

ABBREVIATIONS

EXECUTIVE SUMMARY

Market dynamics

Investment bonds: ups and downs

Offshore opportunities

Distribution trends

Government and corporate bonds: rising demand has its downside

National Savings & Investments: a mixed picture

The main findings of Mintel’s consumer research

Product penetration

Sharing the same target audience

Investor attitudes

Figure 1: Agreement with six statements about saving and investing, by total sample, NS&I customers and bond holders, February 2006

Gender differences

Investor behaviour

Figure 2: Agreement with statements about saving and investing, by total sample, NS&I customers and bond holders, February 2006

Future prospects

National Savings & Investments

Corporate and government bonds

Investment bonds

MARKET BACKGROUND

Investment risk

Figure 3: Risk profile of selected savings and investments

Complete security with National Savings & Investments

Premium Bonds

Fixed-term products

Variable term products

Fixed-interest securities offer varying degrees of risk

Gilts

Corporate bonds

Bond funds

Investment bonds from life offices

With-profits bonds

Unit-linked bonds

Distribution bonds

Structured products and guaranteed equity bonds

A cautionary note about the term ‘bond’

MARKET FACTORS

DEMOGRAPHIC AND SOCIAL TRENDS

An ageing society necessitates greater self-provision

Figure 4: UK population, by age band, 2004-10 (two-year intervals)

Inheritances boost demand for investments

IHT can be paid directly from NS&I accounts

A growing pool of taxpayers are paying 40% income tax

Figure 5: Number of basic and higher rate taxpayers, 1999/2000-2005/06

ECONOMIC AND INVESTMENT CONDITIONS

Consumers’ love affair with property challenges traditional investments though conditions improve for saving and investing

Figure 6: Total PDI, consumer expenditure, savings and the savings ratio, at constant prices, 2002-10

Low interest rates make bonds look attractive

Figure 7: Changes in the bank base interest rate, April 1992-April 2006

Inflationary effects

Figure 8: Changes in the bank base rate, retail price index and consumer price index, 1998-2007

NS&I tackles inflation ‘awareness gap’

Equities are again looking good, but it will take some time yet for with-profits funds to recover

Figure 9: FTSE 100 and FTSE All Share - daily index movements, March 1999-March 2006

INVESTOR CONFIDENCE

The with-profits saga and the problem with ‘precipice bonds’

Negative publicity undermines confidence in the whole sector

Knowledge gaps

REGULATORY DEVELOPMENTS

With-profits funds to be more transparent

Advisers facing bedlam with bond fund admin

MARKET SIZE AND TRENDS

NATIONAL SAVINGS & INVESTMENTS

Amounts invested have risen steadily since 2002

Figure 10: Total invested in NS&I products, 1999-2006

Not all products have experienced success

Figure 11: Amounts invested in Premium Bonds, Savings Certificates and Pensioners’ Guaranteed Income bonds, 2000-06

Demand remains high for Premium Bonds but continues to fall for Savings Certificates

Figure 12: New sales of Premium Bonds and Savings Certificates, 2000/01-2005/06

FIXED-INTEREST SECURITIES

Demand for Gilts remains strong

Figure 13: Size of the gilts market (nominal amounts outstanding), 1995-2006 despite falling yields

Figure 14: Monthly average gilt yields since April 1998

Robust performance in the UK corporate bond market

Figure 15: Total assets held in UK corporate bond sector and all bond sector, 1995-2005

INVESTMENT BONDS

Volume sales again decline in 2005

Figure 16: Total number of new single-premium investment bond contacts and value of new premiums, 2000-05

Changing product preferences

Figure 17: Proportional distribution of investment bond sales by main product type, based on new premiums, 2000-05

With-profits continue to go through a difficult period

Figure 18: New with-profits bond sales, 2000-05

Fund closures accelerated as a result of the 2000-03 bear market

Unit-linked bonds attract wealthy investors

Figure 19: New unit-linked bond sales, 2000-05

Distribution bonds benefit from renewed investor confidence and increase in supply

Figure 20: New distribution bond sales, 2000-05

Demand cools for guaranteed equity bonds

Figure 21: New guaranteed equity bond sales, 2000-05

KEY PLAYERS AND THE COMPETITIVE ENVIRONMENT

NATIONAL SAVINGS & INVESTMENTS

Product developments

Countering criticisms about its pricing policy

Figure 22: Returns payable on £1,000 invested in Fixed Interest Savings Certificates (as at September 2005)

Figure 23: Returns payable on £1,000 invested in Index-linked Savings Certificates, 1998-2008

UK CORPORATE BOND SECTOR

Newton Long Corporate Bond is the best-performing UK corporate bond fund

Figure 24: TOP ten UK corporate bond funds over one year, as at 09/04/05 but the Halifax Corporate Bond is the largest fund in the sector

Figure 25: Size of selected UK corporate bond funds as at 28 February 2006

INVESTMENT BONDS

Halifax Life topped the single-premium life sales chart in 2004

Figure 26: New premium income from single-premium life policies, by selected provider, 2002-04

Most providers seeing growth in new unit-linked bond premiums

Figure 27: New premium income from single-premium unit-linked life policies, by selected provider, 2002-04

Offshore market offering new opportunities

DISTRIBUTION

Improving access to NS&I

Stockbrokers are the main distributors of corporate bonds

IFAs dominate the sale of investment bonds

Figure 28: Investment bond distribution mix based on new premiums, 2003-05

Distribution patterns vary from product to product

Single-tie channel is important to the sale of distribution bonds

Advisers shy away from with-profits bonds

Unit-linked bonds tend not to be sold without advice

Figure 29: Unit-linked bonds distribution mix based on new premiums, 2003-05

The growing prominence of fund supermarkets

ADVERTISING AND PROMOTION

Bond adspend increased by one quarter in 2005

Figure 30: Total advertising expenditure on bonds, by sub-category, 2001-05

Bond advertisers concentrate activity on the press and direct mail

Figure 31: Proportional distribution of adspend on bonds, by main media, 2001-05

NS&I was the largest investor in advertising in 2005

Figure 32: Top ten bond advertisers, 2001-05 with the launch of a new TV campaign

THE CONSUMER AND PRODUCT OWNERSHIP

Consumers favour the safety and simplicity of cash accounts

Figure 33: Ownership of savings and investment products, by type, February 2006

Significant crossover between the main product types

Figure 34: Cross analysis of ownership, by type of savings/investment product, February 2006

Investment bonds attract older, more affluent consumers

Figure 35: Ownership of savings and investment products, by gender, age and socio-economic group February 2006

Half of all ABCI retirees are NS&I customers

Figure 36: Ownership of savings and investment products, by marital status, lifestage, Mintel’s Special Groups and working status, February 2006

Higher income groups are keen on tax-efficient products

Figure 37: Ownership of savings and investment products, by tenure, gross annual household income, region and ACORN category, February 2006

Quality newspapers represent advertising potential

Figure 38: Ownership of savings and investment products, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, February 2006

TV advertising suits more straightforward products and brand-based messages

NS&I to build on its 25% penetration of the Tesco customer base

Seven in ten consumers look for safety and familiarity in their choice of savings product

Figure 39: Agreement with six statements about saving and investing, February 2006

Investment bond holders are more prepared to take risks than NS&I customers

Figure 40: Agreement with six statements about saving and investing, by product ownership, February 2006

There is a big attraction to products which can produce a regular income

One third of adults would prefer to invest directly in equity investments than in a pension

Women are more risk-averse and less confident at making investment decisions

Figure 41: Proportion who agree with six statements about saving and investing, by age, gender, socio-economic group and lifestage, February 2006

One fifth of savers are unfamiliar with investment bonds

Figure 42: Agreement with statements about saving and investing, by product ownership, February 2006

Mixed feelings towards Premium Bonds

One in four investors look to save tax-efficiently

One fifth of bondholders are wary of IFAs

Awareness of investment bonds is lowest amongst younger savers

Figure 43: Agreement with product-specific statements, by age, gender, socio-economic group and lifestage, February 2006

ABs are most eager to save tax-efficiently

Figure 44: Agreement with general statements about investment, by age, gender, socio-economic group and lifestage, February 2006

Men are more likely to do their own research, and more wary of IFAs than women

Figure 45: Agreement with statements about research and investment advice, by age, gender, socioeconomic group and lifestage, February 2006

Further analysis

THE FUTURE

NS&I needs to improve take-up of Savings Certificates

Prospects are cloudy for corporate bonds

Conditions improve for investment bonds… but the difficulties in the with-profits sector will prevail forcing providers to seek alternatives

Increasing investor demands and other pressures lie in store

Trust law changes will be finalised with the arrival of the Finance Act

FORECAST

Bond bounty

Figure 46: Forecast of new investment bond premiums, at current prices, 2005-10

Figure 47: Forecast of new investment bond premiums, at constant prices, 2005-10

NS&I will exceed its growth target

Figure 48: Forecast of amounts invested in NS&I products, at current and constant prices, 2006-11

A note of warning

Factors incorporated

APPENDIX: RESEARCH METHODOLOGY

Abstract

About MarketResearch.com
MarketResearch.com is an online aggregator selling over 160,000 market research reports, company profiles and country profiles from over 600 research firms. Our reports will provide you with the critical business and competitive intelligence you need for strategic planning and marketing research. Coverage includes the US, UK, Europe, Asia and global markets.