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Bond sales down 40 per cent after CGT changes

Sales of investment bonds dropped nearly 40 per cent to £6.463bn in Q1 2008 compared with Q4 2007, and almost 30 per cent from the same time last year, according to the Association of British Insurers.

The drop comes after the Government’s capital gains tax changes came into effect last month. The reforms, which the ABI lobbied strongly against, put investment bonds and mutual funds on an uneven playing field as the latter is now subject to the 18 per cent flat rate while bonds remain subject to 40 per cent tax.

Apart from the significant drop in bond new business, single and regular premium new business for pensions and protection also slumped in the first quarter.

Regular premium accumulation and protection new business dropped 2.1 per cent to £1.355bn in Q1 compared with £1.384bn in Q1 2007. Individual protection sales dropped from £259m to £216m while group protection sales decreased from £86m to £73m. Occupation pensions dropped only slightly, from £207m to £203m but individual pensions bucked the trend, increasing 4.4 per cent to £838m in Q1.

Single premium accumulation and protection new business was £16.089bn in Q1, down 15.5 per cent from £19.037bn in Q1 2007. Individual pensions sales decreased from £5,340 to £4677 in the first quarter but occupational pensions new business rose from £2287 to £2837. Individual protection decreased 17 per cent from £357 to £297.

Decumulation new business in Q1 2008 saw a 3 per cent drop to £3.351bn from £3.453bn in Q1 last year.

ABI spokesperson Jon French says: “I think the fall in bond sales reflects the aftermath of the CGT changes and the Chancellor’s decision not to adjust the tax treatment of bonds to bring them into line with other savings vehicles. The decrease in some pensions figures is also disappointing. This is likely to be because the A-Day effect has now worn off.”

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