Metropolitan Odyssey takes on the collective investment industry in the upper end of the market
Metropolitan Odyssey announced the launch of the Odyssey Traded Investment Plan, a product that Odyssey believes will enable it to compete with collective investment products (mainly unit trusts) for "share-of-wallet" at the top end of the market.
Paul Mckillen, Product Actuary at Metropolitan Odyssey, says the move was inevitable considering the growth in retail demand for collective investment products over the past few years. There is a thriving discretionary savings market in South Africa, driven by strong economic growth, reductions in personal taxation and the current attractiveness of investment markets to retail investors. However, traditional life insurance products have in many cases fallen short of meeting the needs of these investors. As a result life insurers have not participated in this growing market.
The Odyssey Traded Investment Plan is an investment vehicle that offers investors the levels of flexibility and liquidity offered under collective investment products, whilst offering the tax efficiency of an endowment policy. Individual investors will enjoy further tax efficiencies by virtue of the unique CGT Exemption Benefit offered under the Plan that removes one of the two "layers" of CGT taxation typically associated with traded investment products.
Mckillen believes that the main reasons retail investors have chosen to invest via collective investment products (rather than in traditional life insurance products) are that these investments offered far greater liquidity (access to funds) and shorter investment terms.
Mckillen says Metropolitan Odyssey now has the ability to offer retail investors the same levels of liquidity and flexibility, at highly competitive cost. Furthermore, the Odyssey Traded Investment Plan offers retail investors the opportunity to invest in underwritten insurance portfolios offering return-smoothing and protection against market corrections, in addition to a comprehensive range of segregated portfolios and unit trust funds. Mckillen notes that there has been an increased demand for investment products offering guarantees or protection against market correction since the start of 2007 - perhaps indicating that retail investors are becoming nervous about the current (high) level of investment markets and increasing market volatility.
The Odyssey Traded Investment Plan uses a second-hand policy (that has been in-force for a sufficient period) to remove many of the liquidity and flexibility constraints imposed by the Long-term Insurance Act on new insurance policies. In addition to the vastly improved liquidity and flexibility offered under the Plan, top-tax bracket investors will benefit from the tax efficiencies offered by insurance products. For individual investors, income and rental returns will be taxed at 30% within the plan (instead of 40% if earned directly) and capital gains will not be taxed within the Plan as a result of the unique CGT Exemption Benefit (instead of at 25% of their marginal tax rate). Mckillen points out, however, that the proceeds of the Plan will be subject to CGT in the hands of the owner, so investors should explore the tax implications of the Plan with their financial advisor before electing to invest in this product, or any other traded investment vehicle.
