16 Jan 2015

Analysis: Pensioner bonds

Analysis: Pensioner bonds


Sandy Lawrence, Independent Financial Adviser, discusses the long-awaited pensioner bonds.

The Government has finally revealed details about the long-awaited ‘pensioner bonds’, first announced in the Chancellor’s Budget in March. These accounts are designed to help retirees whose cash savings have been ravaged by interest rate cuts over several years.

What is the deal?

Savers can invest a lump sum in a Government-backed bond with National Savings and Investments over a term of one or three years, with fixed interest rates of 2.8 and 4% respectively. 

The minimum investment per person and per bond is £500 up to a maximum of £10,000. So a couple could squirrel away a combined £40,000 spread across both bond types.

Who are they for?

People over the age of 65 who want inflation-beating, risk-free returns on cash savings over the short to medium term. They can be opened individually or in joint names. They will enable pensioners to get a small, real return above inflation, and after tax, without risk.

When are they available?

They are on sale from January 2015 until they run out. There is an overall limit on how much savers can put into the bonds, up to £10billion – enough for one million pensioners to invest £10,000 each in one bond. They are expected to be popular and will be awarded on a first come, first served basis.

The ‘pros’ and ‘cons’

Interest is accrued annually and in the three-year bond, interest will be compounded, so you earn interest, on your interest. Other advantages are that investments will be 100% backed by the Treasury and early access is possible – although savers lose the equivalent of 90 days’ interest. If the bondholder dies, a beneficiary over the age of 65 can inherit and retain the bond.

On the flip side, interest is not payable until maturity, therefore excluding those on the hunt for regular income. Basic 20% tax is deducted, so non-taxpayers must reclaim overpaid tax from HM Revenue & Customs, while higher rate taxpayers must declare the interest annually on their self-assessment tax return. 

How can you invest?

Visit www.nsandi.com, call 0500 500 000 –or write to National Savings and Investments, Glasgow G58 1SB.

Sandy Lawrence, Independent Financial Adviser

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