Budget 2014: Pensioner bond savings boost for over-65s

George Osborne has announced that pensioners will soon be eligible for higher savings rates through a new range of bonds issued by National Savings and Investments (NS&I).

The government-backed savings institution will be offering £10billion of specialist Pensioner Bonds offering fixed savings rates of 2.8% over one year and 4% over three.

The over-65s will be able to invest a maximum of £10,000 in each bond, meaning a couple could invest a total of £40,000; while the new bonds will be available from January 2015.

The proposed rates are streets ahead of the best rates available on the market at the moment. One of the current best buys over one year, for example is First Save's 1.9% product. Over three years the best buy is just 2.7% from Icici Bank.

Many younger savers have been able to beat low interest rates by investing in the stockmarket, but this is often not an option for cautious retirees who are looking to generate an income from their cash without putting their capital at risk.

Commenting on the announcement, Patrick Connolly, IFA at Chase De Vere, said: "Cash savers have definitely had a rough time of it over the last five years and in doing this the Chancellor is putting the needs of savers first."

However, given the increase in the cash Isa allowance to £15,000, savers will need to do their maths to work out where best to keep their money.

Unless they have already used their Isa allowance savers will need to compare the difference in rates between the taxed pensioner bonds and untaxed Isas for cash savings.

A rate of 4% for example would be worth 3.2% after basic rate tax or 2.4% for higher rate taxpayers. A 2.8% rate would become 2.24% for a basic rate taxpayer or 1.68% for a saver paying the higher rate.

Halifax is currently paying 2% on an 18-month fixed-rate Isa, while Nationwide is paying 2.25% on its three-year fixed rate Isa.

Sue Hannums, one of the founders of Savingschampion.co.uk welcomed the announcement and said that the rates were well above what is currently available.

“ It should be noted that these are predicted rates due to apply from January and of course this may give an indication of the direction which the Chancellor sees interest rates moving in, as much as their current competitiveness. This could help to boost competition it the market and in turn boost interest rates which is something that has been desperately lacking in recent years”

More about

Your Comments

Welcome news unless it is oversubscribed.
Combining this with the scrapping ot the 10% tax on savings to be replaced by zero rate on the first £5000 of interest for those whose combined earnings (pension income) and savings income is less than £15500, means that a full 2.8% will be what many (including me) will be able to get.

I'm not decieved or persuaded. As long as Osborne pusues his policy of virtual zero interest rate savers and small depositors will be seriously deprived. No fiddling around the edges will compensate them for their loss of billions of pounds of interest. The wrong people are benfiting and the wrong people are being penalised. One of the reasons why Osborne will not change interest rates is because he wants to enable the Government to borrow cheap money which enables him to fiddle the books to his advantage. Another effect is, the Banks and Building Societies have become awash with money which costs them virually nothing. What do they do with it all? They use it to make profits, buying bonds, investing in assets, and of course paying huge saleries and bonuses. So, the offer of bonds for pensioners and increased ISAs is a mere sop and confidence trick.  In any case there are not many pensioners who can afford to save that much money. (except MPs, civil servants and the like) Most can hardly afford to pay the bills. As a believer in free markets I abhor the government manipulations, transfering money from one group to another with the innocent suffering.