Skandia's pension trustee bond is a unit-linked bond that invests in unit
trusts, Oeics and investment trusts.
Considering how the bond fits into the market, Elms says: “With the fund
choice and access to Skandia's with-profits-type guaranteed pension fund,
this offers real choice to trustees without the admin hassle of
Bumford says: “With the increasing popularity of self-invested personal
pensions, this product will provide a useful vehicle to consolidate
collective investment holdings under one contract.
“The majority of trustee bonds have, up until now, provided access to the
provider's in-house funds only. This contract will therefore give the
opportunity to achieve much greater diversification and also to reposition
fund holdings to take account of poor performance – an important issue as
clients will increasingly require investment managers to take action on
funds where returns do not meet the agreed benchmark.”
Looking at the types of client for whom the bond may be suitable, Reid
suggests clients who want access to the whole market but do not wish to
actively manage a portfolio containing lots of small holdings. He adds: ”
It is good for drawdown cases, allowing simple reweighting of holdings
following encashment for income.”
Bumford feels the bond would be suitable for clients preferring collective
investments, especially where the pension fund amounts to less than
Elms suggests Sipp and SSAS members, particularly those who want
cost-effective diversified investments via insured funds.
Looking at areas where the bond provides marketing opportunities, Elms
suggests “the usual situations where funds are held on deposit, the
guaranteed pension fund and where the client wants the benefit of
diversified investment without the hassle of self-investment”.
Reid feels the bond will provide no additional marketing opportunities for
Bumford says: “The provision of consolidated investment statements and
simple switching procedures will give investment managers the opportunity
to simplify their Sipp and SSAS administration. This will also reduce the
volume of paperwork that is often sent direct to clients by the fund
managers. Any product that streamlines administration and makes this more
user-friendly in the hands of the consumer must succeed.”
Moving on to the main useful features and strong points of the bond, Reid
cites access to a variety of funds and managers plus relatively cheap and
Bumford likes the relatively low limit on initial and top-up premiums, the
wide range of funds and the penalty-free switches.
Elms lists the guaranteed pension fund, free switching, fund choice and
Casting an eye over the loyalty bonus rates, Bumford says: “In the new
climate of simplified charging structures alongside stakeholder pensions,
the loyalty bonus adds an unnecessary tier of complexity.”
Elms says loyalty bonuses are a useful lock-in while Reid suggests they
are ” a potential mitigation of high charges”.
Turning to the disadvantages of the product, Bumford says: “Probably, the
main disadvantage is the two-tier charging structure, an inevitable feature
of insurance policies using external fund managers. Since the majority of
investors are unlikely to withdraw contributions within the first year, the
encashment charge is a feature which many investors would see as
Considering the flexibility offered by the bond, Reid suggests it is the
only justification for selection.
Bumford says the range of internal and external funds is extensive and
gives investment managers considerable flexiblity with their portfolio
construction. He also mentions the internal switching facility.
Elms says: “Skandia pioneered the trend towards external fund managers and
is still the leader in the field.”
The panel's opinion of Skandia's reputation is favourable. Bumford says:
“Skandia has a significant lead in providing contracts which give access to
the top investment companies and, in this respect, the trustee bond
fulfils expectations. Some aspects of previous complex charging structures
do, however, still remain and leave scope for improvement.”
Elms says he rates Skandia very highly but that, commercially, it is the
best-kept secret in the market. Reid simply calls its reputation good.
Asked about Skandia's past performance record, Elms says: “We consistently
find that throughout its range – life, pensions, unit trusts, offshore –
over 50 per cent of its funds are in the first or second quartile, which is
Reid calls it better than average. Bumford says: “Despite the wide range
of external investment options, the track record of Skandia's own funds
also shows its ability to compete and will provide a useful fallback
Considering which products may provide the main competition to the bond,
Reid says: “Other offices now offer limited external fund links. The
competition would depend on client needs.”
Elms cites other providers of trustee bonds with external fund managers,
for example, Sun Life, Scottish Equitable and Scottish Life.
Bumford says: “At present, there is little competition from other
providers of unit-linked trustee bonds. However, looking to the future, the
fund supermarkets will almost certainly take up the challenge of securing
Asked whether the charges are fair and reasonable, Bumford says: “Overall
charges are comparable with direct investment into unit trusts and
investment trusts.” He also mentions that the switching facility avoids
having to sell a holding with one fund manager and buy with another,
therefore paying another set of charges.
Reid says the charges are about the norm.
Moving on to commission, Reid says: “We are not in a position to comment
as are fee-based advisers.”
Bumford feels that the Sipp and SSAS markets will move towards a fee basis
and that commission will become less of an issue. However, he feels the
commission payments on this contract are fair compared with competitors.
Elms simply says the commission is fair and reasonable.
On the subject of the product literature, Bumford says: “It provides a
satisfactory explanation of the contract details. However, given that the
major selling point is the extensive range of investment options, client
literature detailing the available funds and, more important, the
associated charges would be helpful. It may be that this is available but
is not issued as a matter of course.”
Elms and Reid think that the product literature is acceptable and readable.
Summing up, Elms says: “Skandia has established itself as an efficient
product packager delivering initiatives and service. It has earned the
support of the IFA community.”
John Bumford, Client manager, Gee & Company,
Alan Reid, Director, Peter Ruddy & Partners,
Jonathan Elms, Partner, Teare Rose