Farsight Financial Planning

Financial Blog
By Dominic Bowers, 21/03/2015
pensioner bonds - pile of cash
pensioner bonds - pile of cash
The new Pensioner Bonds have been available for a few weeks now and, as predicted, they proved extremely popular on launch. The attractive terms for the Bonds which were announced in the 2014 Budget have been confirmed and the products have been flying off the shelves!

In last March’s Budget George Osborne said that in January 2015 National Savings & Investments (NS&I) would be launching new Pensioner Bonds “paying market leading rates". At the time he promised that final details would accompany the Autumn Statement, but that for planning purposes the fixed rates were assumed to be 2.8% for one year and 4.0% for three years.

In actual fact nothing was mentioned about them in the Autumn Statement and it started to look as if the Treasury had had second thoughts about such expensive borrowing: at present, one year gilts yield about 0.4% and three year yields, 0.7%. However, the Chancellor eventually did announce the rates on Friday 12th December. The rates were, indeed, to be 2.8% and 4.0%.

The new bonds are essentially fixed term savings plans, with net interest accruing annually and paid at maturity. Non-taxpayers (whose numbers will climb again due to the new 0% starting rate band from 2015/16) will have to reclaim the tax. The maximum investment is £10,000 per bond type (so £20,000 per person and £40,000 per couple) with a minimum of £500. The minimum age for investment is 65 when the bond was launched – 15th January 2015. You can withdraw cash from the bonds early, but you’ll pay 90 days’ interest as a penalty.

At launch the Government limited the bonds by putting a ceiling of £10 billion on them but this has all now gone with 825,000 people taking up the offer; as a result there is now a time deadline of 15th May 2015.

These products could be a very valuable addition to your portfolio if you are over 65 but don’t forget to take independent advice before making any significant financial decisions.

As ever, if you need to discuss any financial planning issues then get in touch for a no-obligation chat