14 FEBRUARY 1970, Page 23

Vote of confidence


Among the flow of new products being launched by the savings institutions one which deserves special attention is the Abbey National Property Growth Bond. Its cum- bersome name tells you what it is—a scheme linking a building society with a property bond promoter. This is the first time that a building society has ever associated its name with an investment providing capital appreciation. But savers must be as sus- picious of new schemes as housewives are of new soap powders.

The Abbey National Property Growth Bonds are described as follows—'you invest lump sums whenever you wish, the minimum being £100 . . . Property Growth Assurance Company places half your investment with Abbey National Building Society where it earns interest, and the other half in the Properjy Growth Unit fund which is in- vested in office buildings, commercial and industrial property . . . you also obtain life assurance cover and the same priority for a mortgage as a direct investor with the Abbey National Building Society. Future growth rates are not guaranteed. But on the basis of curzent interest rates it's reasonable to anti- cipate that after all charges the Bonds will rise by an average of about 61 per cent net compound each year, free of income tax and capital gains tax . . . you can follow the growth of Abbey National Property Growth Bonds in your daily newspaper . . . you can normally cash your bonds at any time . . . and you will not be liable to income tax or capital gains tax. Under this scheme there are no dividends, because all interest and rental income is reinvested to produce more growth. However if you need cash you can obtain it simply by realising a proportion of your holding (minimum withdrawal £25).'

That is my text. Now for some comments on the details. First two important con- siderations which are not made clear. The charges (including the cost of life assurance), which are an initial 5 per cent and 1/24 per cent per month thereafter, are somewhat higher than those which Property Growth Assurance charges on its existing property bond scheme. The explanation of this is that the existing scheme is cheaper to run than the new one as it requires a minimum investment of £250. It is also worth noting that the rate of interest conceded by the Abbey National on the funds invested with it is not the normal 5 per cent but a rate applicable to corporate lenders-44- per cent. The consequence of these two points is that if you have £500 to invest, and care to divide it between a property bond and a building society deposit, it would actually pay you to ignore the Abbey National Property Growth Bonds and put £250 into Property Growth bonds in the normal way and lodge £250 on deposit with the Abbey National Build- ing Society. In that way you would obtain lower charges and a better rate of interest.

I must also sound a warning about the life assurance cover—at £150 per £100 in- vested up to the age of thirty-five and £125 up to the age of forty-four and £110 up to the age of fifty-five, it is not large. These schemes are no substitute for life assurance.

The statement about growth rates is very interesting for an annual increase of 6,1 per cent net of tax is well worth having. But it is important to note that the estimate is on the basis of current interest rates, which are sky high, and which are likely to fall significantly over the coming months. The returns are free of tax because tax will have already been paid by the life company at special rates. You can normally realise your investment simply by sending your bond policy back to the sponsors, but 'in order to protect the interest of the bondholders of the company, the directors of Property Growth may, in exceptional circumstances which may affect the value of the fund, defer valuation and repayment for up to five calendar months'.

Despite my small criticisms, I would say that these Abbey National Property growth Bonds are a perfectly satisfactory investment for readers of this journal.

ffolkes's taxpayers' alphabet

J is for Jackpot