Sales of offshore bonds are dropping off at alarming rate as wealthy retired investors shift their money into other financial products.
The first three months of the year saw the single premium offshore bond market collapse by nearly 10%.
Sales slumped from £981 million at the end of last year to £881 million.
Not only were the month-on-month sales a disappointment to providers, but the year-on-year sales also dropped by £129 million.
The Association of British Insurers (ABI) figures have triggered panic among providers who are already looking to give up on the traditional 60-year-old bond buyer in favour of a younger generation looking to grow their wealth rather than live off an income generated by their investments.
Change of focus
Executives at financial firms want to make changes but seem unsure what to do.
Some are suggesting the offshore bond business model needs a radical overhaul to counteract the impending pension freedom the government has granted to older savers from April next year.
Companies are looking at cutting costs and attracting younger customers with more flexible bonds sold through online platforms.
But, say industry experts, companies like Canada Life and Aegon have already piloted similar schemes and failed to make any inroads with younger savers.
“Offshore bonds have really been bought by investors aged 60 or more to give them an income in retirement,” said Simon Willoughby, of Axa Wealth.
“But these people already have their wealth and are looking for a financial return. Instead, we want to look at much younger investors who want to make money over the longer term.
“Typically, these investors are high earners in their 30s.”
Several companies see improving the way offshore bonds are delivered online as one solution to the fall in sales.
“The market has changed over the past year with regulation and a major shift in the way people think about funding their retirement in response to government measures to let them access pension money more easily,” said Richard Leeson, chief executive at Adviser Advocate.
“We need to think about the products, our customers and how we deliver our products to them.”
Some industry experts believe the decrease in offshore bond sales is a response to the malaise of the economy in recent years, and once the economy picks up, sales will be reinvigorated explained Canada Life International chief executive Sean Christian.