Evolution needed for offshore industry to thrive, says Axa

UK offshore life companies and advisers both need to evolve to maximise offshore bond sales by 2020, said Axa’s Simon Willoughby.

Speaking at an event in London on Wednesday, Axa Wealth’s head of proposition said pension reforms and changes to distribution channels mean the future for the UK offshore life sector is brighter and more sustainable than it has been for some time.

Willoughby pointed to the Retail Distribution Review changing the make-up of the offshore life sector’s distribution channel, particularly the distribution capacity of retail banks, which fell from 40% in 2011 to 20% in 2014. He said, however, this could be useful for IFAs who should look to recruit former bank advisers.

According to Willoughby, the lower lifetime allowance is good news for the offshore bond market because it is likely to spur growth. “The pension cap going down to £1m is relevant because it doesn’t take wealthy clients many years to hit that cap.

“Offshore life products provide one of the only Revenue-approved ways of mitigating tax, so if the pension cap comes down further I would expect the number of offshore bonds to rise.”

Although tax efficient products like the so-called ‘super ISA’ are starting to inhabit the offshore life space, Willoughby advised that onshore and offshore products should not be competing against each other, but should instead be aligned together to utilise the tax efficiency each offers.

“Pricing the products keenly has proved quite difficult for some companies and some have decided they don’t want to play”

“Not good”
Meanwhile the number of members signed up to the Association of British Insurers dropped from 17 in 2009 to seven in 2015. “This reduction is not good from our point of view because the sector needs a few distributers to make it credible,” said Willoughby.

“Pricing the products keenly has proved quite difficult for some companies and some have decided they don’t want to play.”

But he said there needs to be a change in the approach to the way products are sold, suggesting distributers need to become easier to deal with, invest more in technology to allow self-service, and align the offshore bond proposition better with pensions.

“Providers need to develop products to target the income rich and offer greater premium payment flexibility,” he said, pointing to Axa’s Wealth Accumulation product which is currently being developed to target younger customers.

“Advisers need to start reaching out to younger clients because the baby-boomers are now in their 50s and are not going to last forever,” he said. “Intermediaries should start targeting those with moderate income to help them accumulate wealth and therefore turn into the income rich people advisers want.”