As promised in the Budget 2014, the new National Savings & Investment 65+ Guaranteed Growth Bonds hit the market in January. These bonds are available to anyone over 65 years of age, come in one and three year terms with a 2.8% and 4% annual interest rate respectively. Maximum investment is £10,000 for each bond (£20,000 total) and a minimum of £500. However, these bonds do not provide regular income, option to withdraw or any tax benefits. Investors can expect to pay income tax at the end of the bond’s term.
According to the Pensions Policy Institute (PPI), the number of people in the UK of state pension age or older in 2015 is 12,348,000. The National Savings & Investment had set aside £10bn to be available, so at the maximum £10,000, there are only 1 million bonds available.
Banks have been paying little to no interest for years and with news that interest rates most likely won’t rise this year either, these bonds have proved to be popular – having the biggest opening sales of any retail financial product in Britain’s history, according to George Osborne.
The limit on the NS&I bonds has been set at £10bn but in the first two days of sales the firm had subscribed over £1bn already. Consumers experienced issues with the website when savers rushed to subscribe to the bonds in fear of missing out. The rush has seemed to slow, but the NS&I has not published sales figures since. For now the bonds are still available, but they may not be for much longer.
These NS&I 65+ bonds are suitable for a wide range of pensioners but there is plenty to consider in the coming weeks with the pension freedoms in April, wealthier savers may be able to find even greater returns with tax benefits such as EIS and VCTs more appealing than fixed term, fixed rate bonds – especially those in the higher tax brackets.
An alternative view
Abundance Generation’s Sam Friggens, a renewable energy peer to peer (P2P) platform, has taken an interesting view on these new bonds. The Government is borrowing at much higher rates than the market interest rate. The interest payments on the £10 billion of pensioners bonds could mean an additional £500m in national debt, money that could be spent on lowering the national debt, helping the poorest of UK pensioners or even lowering university tuition fees.