ANZ says it's stopping accepting new Bonus Bonds investment because ongoing low interest rates, which are likely to go lower still, are reducing the prize pool. The 50 year-old scheme will be wound up with money returned to bondholders.
Bonus Bonds was launched by the Government through the Post Office in 1970. ANZ says there are currently about 1.3 million bondholders with about $3.2 billion invested.
“We’re always reviewing our investment products to ensure they best serve the interests of investors,” said Ben Kelleher, ANZ's Managing Director for Retail and Business Banking.
“Low interest rates have reduced the investment returns of the scheme which affects the size of the prize pool. It has now become apparent those trends are likely to continue in the medium term. The Official Cash Rate, currently at a historically low 0.25%, may fall further in early 2021 as the global economy grapples with the impacts of Covid-19."
ANZ Investment Services, a wholly owned subsidiary of ANZ Bank New Zealand Ltd, manages the Bonus Bonds Scheme.
"The board [of ANZ Investment Services] believes current reserves are sufficient for bondholders to be confident they will receive back their initial investment," Kelleher says.
An ANZ spokesman told interest.co.nz the scheme currently has about $100 million in reserves, which is the difference between the market value of the fund - the net assets of the Bonus Bonds Scheme - and the bonds on issue. The board believes this is sufficient for bondholders to be confident they will receive their initial investment back, the ANZ spokesman says.
"The reserves represent the surplus of the value of assets in the scheme over the claims of bondholders."
Kelleher said ANZ has decided it's no longer appropriate to accept new investment into Bonus Bonds with immediate effect, and intends to start winding up the scheme no later than the end of October.
"Winding up the scheme includes the process of returning funds to bondholders. Before the start of a wind up, the scheme will continue to operate, with two more prize draws expected.”
Instead of earning interest or receiving investment gains or losses, each eligible Bonus Bond gives bondholders one entry into the monthly prize draw, where investment returns of the scheme are returned to investors as prizes. The top prize in the monthly draw is $1 million.
"The September and October prize draws are intended to be held as scheduled and customers can continue to redeem their Bonus Bonds until winding up starts," said Kelleher.
ANZ says it might move to an earlier wind up if, for example, there is a heavy demand for redemptions or it considers it is in the overall best interests of investors to do so.
“Investors have two choices. They can redeem their Bonus Bonds before the scheme starts to wind up, or stay in the scheme and be entitled to a share of the remaining reserves, after expenses, when the scheme is wound up,” Kelleher said.
“Those who choose to stay during the wind-up phase will have their investments locked in during this process, which may take up to 12 months. The board believes current reserves are sufficient for bondholders to be confident they will receive back their initial investment. The reserves represent the surplus of the value of assets in the scheme over the claims of bondholders.”
The Bonus Bonds Scheme is a unit trust registered under the Financial Markets Conduct Act as a managed investment scheme. A Bonus Bond is a unit in the scheme. Trustees Executors Limited is the Scheme's supervisor. The Bonus Bonds Scheme invests in high-quality, mostly short-term assets, ANZ says.
In its most recently available annual report, for the March 2019 year, the Bonus Bonds Scheme says more than $39 million of prizes were awarded to bondholders during the year. This included 12 bondholders who won $1 million each, and 24 others who won prizes of $100,000 or $50,000 each. During the year some 1.1 million prizes were distributed to investors.
Total bonus bonds and reserves stood at $3.234 billion at March 31 last year. Annual fees charged by ANZ Investment Services totalled $39.6 million equivalent to 1.20% of scheme property.
52 Comments
The unclaimed Money Act http://www.legislation.govt.nz/act/public/1971/0028/latest/whole.html#D…
Was handy place to park ready access funds in case of the unexpected event. But not much more than that. What is surprising though is that there is a hint that the final wash up might not return 100% value of bonds held? Think that probably reflects the way Muldoon’s lot set it up, ie not government guaranteed. So that in itself retains something of the element of the bet right to the bitter end. Stay the course and you may get more or you may get less.
If I do not get the full value of my bonds returned to me (not a big amount, maybe $1000) then I will blame ANZ. It means I will change banks from ANZ probably to ASB and when the fixed period expires move my mortgage too. It may cost more than the value of the bonds to move my various accounts from ANZ but I will still go ahead.
"The board [of ANZ Investment Services] believes current reserves are sufficient for bondholders to be confident they will receive back their initial investment," Kelleher says.
For a product that was always marketed as a guaranteed return of your investment, this is a less than reassuring statement.
“Investors have two choices. They can redeem their Bonus Bonds before the scheme starts to wind up, or stay in the scheme and be entitled to a share of the remaining reserves, after expenses, when the scheme is wound up,” Kelleher said.
“Those who choose to stay during the wind-up phase will have their investments locked in during this process, which may take up to 12 months.
Hmm, get my money out now, or have it tied up for 12 months with no return being paid on it and no actual guarantee that you'll get all of your money back?
Tough choice.
Ahh, right, re-reading it now you are correct.
Instead of directly saying you will get your money back + a share of the reserves (after expenses), they've only said you'll get a share of the reserves (after expenses) and then go on to say "[bondholders should] be confident they will receive back their initial investment [from the current reserves]".
So, there's a chance that the "current reserves" won't actually be enough to repay all bond holders their face value, and the "surplus" reserves will have to be used to go towards paying face value. There's a chance that this will actually be a shortfall as well and customers will get less than their face value. Or it may not be a shortfall, but you'll get a tiny pittance back.
IMO this isn't good enough from ANZ. Bonus Bonds has been marketed for decades as returning your invested value. They need to return it, or should face lawsuits if they don't. Doesn't really matter what the fine print might say in this case IMO.
Can you imagine the outcry if they come up short? I suspect ANZ would make good any shortfall... but they wont publicly state that at this stage.
IMO - its a free option.... stay in the fund, get your money back and potentially share some of the reserves. If the reserves are depleted ANZ have no where to hide and have to top it up or face a customer revolt.
Free, except for the opportunity cost.
You might stay in for 12 months and get an extra 0.2% back. Could have taken it out now and put it in a term deposit with ANZ for 12 months for a 1.40% return. Not sure if tax would apply to the bonus bonds return or not though, since the purpose of the investment was never to get a return, and I think the bonus bonds prizes were tax-free / tax-paid as well?
They say they have an excess reserve of $100M and $3.2B in funds outstanding, so the best case scenario return would be 3.125% return. I guess that's pretty good at the moment, but on the flipside I'm sure they will find ways to charge a lot of 'reasonable fees and costs' in winding down the scheme.
They got a lot of bonds to sell.... they may not get what they have them valued at....as such you may need those $100m of reserves. If RBNZ hike rates (very very very unlikely) then that reserve would be definitely under pressure.
I suspect it'd be enough and the remaining reserve to be distributed to remaining investors.
Well looks like I might get something after all. Had my bonds when they first came out; put a full week’s pay packet in and have received nothing.
My whole 40 hour week’s wage was $40 and 50 years later I still have only the $40 of bonds.
Looks like I could get some on that surplus if I wait - I’ve been waiting 50 years for something so I can wait another 5 years or so no problem.
WOW! Your bond numbers must be like 000000000 to 000000039.
You really should just keep them and wave them around at parties and stuff.
I bought about $350 BB around 1988. Had them for a few months and won $15k. Paid off a chunk of a farm mortgage. Was an awesome, never to be repeated event.
Itsme
$3.2billion is significant - most is likely to be in insufficient holdings to affect housing but possibly shares . . . but there again most bought bonds knowing that they were reasonably secure and realistically expecting little return so that sounds very much like term deposits.
If the average house spend in Auckland is one mill, then 3,200 houses. If they're all new builds, might help alleviate the housing shortage a little, so a good thing. No doubt ANZ will be kindly suggesting to everyone to put their BB funds into another ANZ product.
Obviously low interest rates were a decider in winding it up, however it has been a cheap source of funds for ANZ so little incentive on their part.
I wonder if the recent anti-money laundering regulations had an impact on the final decision. It was a convenient place to put money for some small business people's non-tax declared funds, and also a means of endeavouring to hide money from WINZ for rest care subsidy assessment. To add this to this deception, one could easily put money in child's name as a means to further "bury" money.
Rick
Agreed.
Neither of my parents need(ed) residential care subsidy. Wife's mother had $700k eroded away to the $230k threshold. So, disappointing be fully aware that some were rorting the system.
Same with tax; a couple of small businessmen who are close friends employed a variety of means to avoid some tax payments.
In both cases, Bonus Bonds was preferred to burying the money in the back garden.
Wondering what all the Financial Advisors will be doing for the next year or two. Beware advisors who offer "magic money" schemes because as of now there is nowhere profitable to put your capital. Even Kiwisaver will be at risk of losing value
Even ANZ Bonus Bonds are telling you they can't make money with the risk of negative interest rates looming and some Government Bond issues close to zero
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