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Chancellor gives to savers, takes from pensioners

Chancellor Philip Hammond announced a new NS&I savings bond but limited some of the freedom people have when drawing their pensions.

Chancellor gives to savers, takes from pensioners

Savers fed up with low rates of interest have been thrown a lifeline in the shape of a new three-year NS&I bond that will pay 2.2%.

Chancellor Philip Hammond used his first Autumn Statement – and his last, as he has abolished it – to announce a market-leading savings bond from the government-back NS&I.

The three-year bond will pay 2.2% and be available from Spring 2017 for 12 months. Unlike the last bond the government announced which was targeted at pensioners, this bond will be available to everyone over the age of 16 subject to a minimum investment limit of £100 and a maximum of £3,000.

‘Low interest rates have helped our economy recover, but they’ve significantly reduced the interest people can earn on their cash savings,’ Hammond told the House of Commons.

‘So we will launch a new, market-leading savings bond through NS&I. The detail will be announced at the Budget but we expect our new investment bond will have an interest rate of around 2.2% gross and a term of three years. Savers will be able to deposit up to £3,000, and we expect around two million people to benefit.’

The new bond offers little respite to savers, according to Susan Hannums, director of Savings Champion.

She said the 2.2% rates is 'not enough to get long-suffering savers overly excited' as the limit of £3,000 meant that the total return would be 'just over £202'.

'[It's] not something to be sniffed at, but for many savers, not necessarily worth the time on the paperwork either,' said Hannums.

'And when you take into account that inflation is expected to rise to 2.7% by this time next year, savers risk earning even less in real terms.'

Cut to pension 'recycling'

While Hammond boosted savers with one hand, he took away from pensioners with the other, cutting the ‘money purchase annual allowance’ (MPAA).

The MPAA allows people who are drawing funds from their pension – which they can do from age 55 – to continue contributing up to a maximum of £10,000 a year, receiving pension tax relief on the money they save into their pension.

From April next year the allowance will be reduced from £10,000 a year to £4,000 a year, a move that the government said will save £70 million a year.

The government is concerned that individuals will take out their pension savings, then put it straight back into their pension therefore receiving tax relief twice – this is known as ‘recycling’.

‘The government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them,’ the government said.

Hammond said the reduction in the allowance would ‘prevent inappropriate double tax relief’.

The government will consult on the detail of the reduction in the allowance, which Andrew Tully, pension expert at Retirement Advantage, said would restrict pensioners’ ability to plan.

‘People will need to carefully consider before they take benefits if there is a possibility they or their employer may want to make future pension contributions above a relatively low limit of £4,000 a year,’ he said.

‘However, people’s circumstances change so it isn’t always possible to know what the future may hold, and this change greatly restricts that ability to alter plans as you move through retirement.’

Pension 'salary sacrifice' continues

Pensions have escaped the chancellor’s clamp down on salary sacrifice arrangements. Salary sacrifice has become increasingly popular and allows employees to give up part of their salary, which is diverted into another benefits, typically a pension.

This allows both the employee and employer to make a saving on national insurance contributions (NICs) and reduces the amount of salary an employee has to pay income tax on.

Hammond said: ‘The majority of employees pay tax on a cash salary. But some are able to sacrifice salary and pay much lower tax on benefits in kind. This is unfair, and so from April 2017 employers and employees who use these schemes will pay the same taxes as everyone else.’

However, those using salary sacrifice to make pension contributions and pay for pension advice, for childcare, cycle to work schemes, and to pay for low-emission cars will be excluded from the clampdown. Those using salary sacrifice to fund other benefits, such as gym memberships and insurances, will find themselves paying more tax.

‘This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income,’ said the government, which it estimates will save £85 million in 2017/18, £235 million each year for the three years after and £260 million in 2021/22.

Arrangements put in place before April 2017 will be protected until April 2018 and ‘arrangements for cars, accommodation and school fees will be protected until April 2021’, said the government.

‘Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system treats these different forms of remuneration inconsistently and sometimes more generously,’ said the government.

‘The government will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements and will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent.’

20 comments so far. Why not have your say?

Alan Tonks

Nov 23, 2016 at 16:29

"‘Low interest rates have helped our economy recover, but they’ve significantly reduced the interest people can earn on their cash savings,’ Hammond told the House of Commons"

What a load of rubbish, the economy hasn’t recovered and 2.2% bond for 3 years with a maximum of £3000 is a bl**dy joke but not funny!!

He must have rushed into the Commons to report, after getting inebriated on acholic beverages courtesy of the taxpayer.

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Alan Tonks

Nov 23, 2016 at 16:32

Sorry but I had to pay for mine hic alcoholic !!

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Nov 23, 2016 at 16:53

Yes, the savings bond is risible - particularly with inflation over the next two or three years forecast to rise to 4%. It is also, I assume, taxable. A negative real return for those taken in by the headline rate on this pitiful little bond. You can't escape the conclusion that this is just a bit of political cosmetics to be able to say "we did something for savers" rather than "we did nothing for savers".

No sign of a £10k NS&I tax free inflation-linked bond issue then....

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Nov 23, 2016 at 17:50

@Micawber - the last NS&I bond like this wasn't taxable, so hopefully this one isn't either. It was linked to RPI too. As has been said though, the limit is a joke - it would yield a maximum monthly income of £5.50! I can't see people queuing up for this one.

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Nov 23, 2016 at 17:51


With the chaps at Ruffer talking about 10% inflation rates I cant imagine our "prudent" chancellor falling for that - it is after all what he needs to get the debt down - an eyewatering inflation level to reduce an eyewatering debt mountain.

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Nov 23, 2016 at 17:55

£3000 limit. And money tied up for 3 years. Literally not worth doing, for anyone who can afford to save that amount

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Nov 23, 2016 at 18:27

I thought the previous £10K bond was imaginative (and VERY popular!). Now we seem to have returned to the NS&I offerings of yore. There are a lot of retired folks around, of all classes, with stacks of cash and all the time in the world to go for it though, even if the return seems to us risible.

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Miss Tearious

Nov 23, 2016 at 18:28

As a pensioner who was relying on savings but found that not working any more I became a landlord. That also is failing. Brexit ? Yes please, I shall leave Europe (which includes the UK).

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Mark Stringer

Nov 23, 2016 at 18:46

Hammond wants to get together with the walking ego, Martin Lewis, who promotes the 4% savings that allows you to drip feed in £100-£250 per month. Over the course of a year you'd make more by putting your hand down the back of the sofa for lose change.

We have the government that we deserve.

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Mike Rose

Nov 23, 2016 at 19:27

"Thrown a lifeline"? At approx £60 interest per year? That doesn't even pay a months council tax. (which no doubt will go up by another £50 next year. What a laugh. Kick in the proverbials....

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Nov 23, 2016 at 19:38

A quick look at savings comparison sites shows the top rate for 3 year bonds is around 1.6%. So this new bond pays an extra 0.6% above that, which on the £3k maximim investment wil boost your income by a staggering £18pa, or £1.50pm.

Political cosmetics indeed,

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Disgusted of Haywards Heath

Nov 23, 2016 at 19:46

I thought Teresa May had something about her......but then she appoints this oaf as Chancellor.

Derisory new Bond, and increasing complexity in pensions and benefits. Why doesn't somebody go to Hong Kong and see how they do things?

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ken richardson

Nov 23, 2016 at 20:30

people get what they deserve herr may oberfuhrer johnson and heinrich...I mean liam fox the three stooges !!! with gove not far behind watch them drip feed from idiot trump and sail the uk down the same blind alley as the usa .

When will we ever learn competence in government of handling the nations finanances ? mustn't look to germany they are EUROPEAN!

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ken richardson

Nov 23, 2016 at 20:31

sorry I meant finances .......

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Nov 24, 2016 at 11:37

He could at least have made it inflation linked, even then the maximum of £3,000

plus the derisory return, makes it a joke. Only the most financially uneducated will fall for this one. But then there seem to be plenty of them about. I've stood squirming in the queue at my local building society, as customers in front of me sign up for a Cash ISA at the "Market Beating" rate of 0.85%...!

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Nov 24, 2016 at 14:42

The name's Bond.

Pointless Bond....

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ken richardson

Nov 24, 2016 at 14:45

basidon bond may have been an improvement

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Al Hobbes

Nov 26, 2016 at 07:31

Instead of 'savers thrown a lifeline' shouldnt the intro paragraph have read 'savers thrown a bone' .. with maybe a subtle reference to the stapes bone found in the middle ear?

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john edwards

Nov 26, 2016 at 11:23

Miss Tearious....I had to do exactly the same for my family to survive and provide an income in retirement with no company pension.

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Miss Tearious

Nov 26, 2016 at 13:27

Mr Edwards, good to know someone has gone on before me. I'm still looking for somewhere I can afford. Any ideas ?

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