Low-cost bond product offered as retirement income alternative
Annuities offer a retirement solution but are often expensive to buy — and don't adequately tackle the focus the Australian financial services market has on accumulating assets ahead of preparing them for retirement outcomes.
Speaking at the launch yesterday of its endowment bond product, Endowment Bond Exchange (EBX) chief executive Steve Duschesne said the market's current focus was on building assets, while those who held the assets were still greatly concerned about the risks involved in that process.
"The model has been ‘invest and hope' but the global financial crisis has shown there are no guarantees of income," he said.
Duschesne said the endowment bond product was a zero-coupon bond with two price points — the initial investment and the final payout, which is set at $10,000 for every bond purchased.
He said the endowment bond product was a new development of an existing product in that investors would be able to access wholesale bonds at set prices, with fixed termination dates of 30 June each year and standard pay-outs per bond. The investment periods are flexible from 1-to-30 years, with longer tail bonds having lower entry amounts than those maturing sooner.
"The purchase of a number of bonds with different annual maturity dates allows investors to create a sequence of future payments at times and amounts of their own choosing, including the start date which could be deferred many years into the future.
"The purchase price of the endowment bonds is a function of interest rates at the time of purchase and the time to maturity of the individual bond, and will change at least on a daily basis."
While the product will be available direct to consumers it is been pitched to financial planners and self-managed superannuation fund holders. Annual interest generated by the endowment bond will become part of that year's assessable income. However bonds held within SMSFs will be taxed at the fund's rate of 15 per cent. Those held directly will be taxed under marginal tax rates.
The EBX site went live yesterday and currently offers three bonds. However Duschesne said the group will list only about 10 State Government guaranteed bonds or wholesale bank deposits, with the low number designed to ensure they would all be investment grade.
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