Article posted: 18 March 2015
When National Savings & Investments (NS&I) finally launched the Pensioners’ Bond on 15 January 2015, there was a very predictable surge of interest. The sheer weight of applications brought problems to NS&I’s administration systems, despite its Chief Executive saying “We expect these Bonds to be on sale for months not weeks and would like to reassure savers that there is no need to rush to invest”.
It turns out she was rather optimistic, as by 8 February £7.5bn of the bonds had been sold out of an initial £10bn offering. This prompted the Chancellor to announce (on the Andrew Marr Show) that the bonds would remain on sale until 15 May “so that everyone who wants to invest can do so.” The government is now expecting to raise £15bn, most of it probably transferred out of existing bank and building society accounts.
Some commentators were scathing about Mr Osborne’s move. The new deadline looked driven by a desire to avoid unwelcome “pensioners-miss-the-boat” press coverage in the run up to polling day (7 May). From the viewpoint of government finances all the talk about “help(ing) hardworking people secure their financial futures” was, at best, hot air. The under-65 working population are effectively subsiding the 65+ part of the population through the sale of Pensioners Bonds. Based on current government bond yields, the government can borrow wholesale money for a year at an interest rate of about 0.4% and for three years at around 0.8%. Instead it is paying 2.8% and 4.0% respectively for retail money – little wonder the Treasury says the bonds are “hugely popular”!
If you are eligible to invest (i.e. at least age 65) and have not done so because you expected the offer to close very quickly, it could be worth taking advantage of the extended availability period. However, we would strongly advise that you talk to us before taking any action. While the interest rates are unbeatable, the bonds do have their drawbacks and other investments could be better suited to your circumstances.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.