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.