Endowment bond product launched with an eye to SMSF market
A new financial product known as Endowment Bonds has been proposed as an annuity alternative by the Endowment Bond Exchange (EBX).
Explaining the offering in greater detail, Stephen Duchesne, CEO of Endowment Bond Exchange, said that each bond was backed by State Government-guaranteed bonds or wholesale bank deposits.
"(Each bond) has a standard pay-out of $10,000 each and matures on 30 June in the year that you select when you purchase it on the website," he said.
"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.
"In short, this important new financial product will allow individual investors to construct their own personalised income stream as far out as 2043, something which has not previously been possible to do in Australia."
According to Duchesne, 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.
"For instance, an endowment bond issued today by the EBX group maturing on June 30, 2025 would have a lower price than a bond maturing on June 30, 2020," he said.
"It's about giving people the ability to buy a known future outcome today, and retaking control of their financial future."
Duchesne said that endowment bonds bond had been designed to appeal to anyone who wanted or needed to plan for fixed cash flows, at predetermined times, whether it was for retirement income, school fees, philanthropy, or any other purpose where there is a known future need. He said he expected particularly strong interest from self-managed super funds.
"The reality is that many individuals, and organisations, such as self-managed super funds, need targeted fixed cash flow at predetermined times, and a portfolio of endowment bonds may be the solution," he said.
"Investors have learnt they can't time the market and rely on cash flow at future dates based on their equity portfolios alone.
"Endowment bonds reflect this sentiment and provide a new planning and risk management tool to reduce this future uncertainty and volatility.
"The GFC (global financial crisis) has changed the investment landscape, especially in relation to retirement planning," Duchesne continued.
"People are looking for a greater level of certainty in their retirement where the old 'invest and hope' paradigm is rapidly being replaced by a demand for outcomes, not volatile and unreliable possibilities.
"Endowment Bonds are an existing asset class being used in a new way."
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