Days to the General Election: 21
See Party Policies here. Party Lists here.

Bonus Bonds Scheme to be wound up by ANZ, with the bank blaming low interest rates reducing the investment returns of the scheme, and thus hitting the size of the prize pool

Bonus Bonds Scheme to be wound up by ANZ, with the bank blaming low interest rates reducing the investment returns of the scheme, and thus hitting the size of the prize pool

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.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

52 Comments

And of course if interest rates go negative - someone has to lose money. Where will these bond deposits go in future? Crazy world.

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.

Might as well move to an NZ bank and keep profits in NZ?

13
up

I may take your advice - the NZ banks were too small but now I do everything online access to a branch doesn't matter. I'd vote for a law that removed 'NZ' from the title of any company that was not majority NZ owned. So ANZ and BNZ would become banks A and B.

Your money is safe. You might even find you get a little more once the system is wound up. Will you report back in a few months confirming how much more you received? Your only concern will be where to put the money.

Will do so. I hate banks - if you need money they are bastards and if you don't need it they try forcing it on you.

Yeah, the only caveat they noted was that it could take them a while to wind up.

Rick
I see they propose to start to wind it up in October with ANZ claiming that the process could take up to a year. Two more $1m draws are to occur. (NZ Herald).

Impressive
A pool of NZD $3.234 million paid out NZD $39 million in prizes including 12 prizes of $1 million in the year

Sorry, it's $3.2 billion.

There's at least one church with a lot of money in the pool. There will be a lot of money reinvested elsewhere.

They may start charging us to deposit so this is a step towards that happening.

I'm taking a wild guess that there's $3.2 b not million invested.

Yes, sorry. I have corrected that now.

Just another scheme that has provided previous generations an easy option to either get ahead in life or gamble a return with little risk being wound up.

Quite right. It was a ready and easy vehicle that gave every NZr an opportunity to have something of a dream. In that regard, it is something of a loss.

Gee Nzdan; that’s a seemingly bitter comment. Nothing privileged in it . . . and it wasn’t just the previous generations - until now it has been open to all generations including current kids.

Yeah - dont know what NZdan's beef is - that was NZD $3 billion that wasn't sloshing around in the property market pushing up prices

Is 3.2 billion coming into the market significant? People will be looking to put it elsewhere and TDs don't look so hot.

"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.

the way I am reading is also that IF (and it seems likely) there are surplus after everyone is paid back you get more back than your current balance

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.

That 0.2% is an arbitrary number.

Yes, I used it for illustrative purposes, that's there's no guarantee what you're going to get, compared to a term deposit of 12 months that pays 1.4%.

Yeah, what the hell are the $100 m reserves going to be used for? Bonus's of the Managers?

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.

Over many years we've put in $20 a month as a anti lotto scheme. It a least worked to the extent that we'll get our money back. Sadly never won the $1m or even bugger all else.

It has the same problem as Lotto - a really big jackpot that you're incredibly unlikely to win.

I'd be more likely to invest in a product like this, or gamble on Lotto, if instead of one $1M prize they had 50x $20,000 prizes.

The Bonus Bonds website has crashed

No doubt many logging in to confirm their money is safe and a lot more being nosy. Will probably settle down in a day or two, and we can all go back to commenting why house prices will continue to increase, and why those suggesting otherwise will always be wrong.

You'll find the BB website is responsive now

Maybe ANZ have done some modelling on how much of that lazy money will stay in their customer accounts when it comes back out of bonus bonds?

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.

This $3.2 billion will have to go somewhere. My guess is it will inflate house and share prices. Very dangerous!!!

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.

$3.2bn buys a lot of lotto tickets

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.

and also a means of endeavouring to hide money from WINZ for rest care subsidy assessment.

Hard to address all the entitlement mentality cases, eh.

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.

I look forward to redeeming the few $1 Bonds that have not escaped into the Monopoly Money vault....

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

I think absolutely everyone should cash up their bonds immediately. Preferably before the next draw. Definitely before the final one.

Please

I will if you go first.

You might find there are extra funds available divvied up to all bond holders when it is wound up, but maybe you are also a bond holder and know this, so more for you....

Premium Bonds , state owned in the UK are alive and well and have suffered low interest rates a lot longer than than NZ .
Could profits for the bank have anything to do with it ?

Days to the General Election: 21
See Party Policies here. Party Lists here.