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Pensioners pour record £13bn into NS&I's new bonds

More than one million people invested in pensioner bonds, making it the biggest selling retail financial product in modern history.

 
Pensioners pour record £13bn into NS&I's new bonds

More than one million savers have bought over £13 billion of the government’s pensioner bonds, making it the biggest selling retail financial product in Britain’s modern history.

The pensioner bonds were launched by National Savings & Investments (NS&I) on 15 January, and came off sale last week. The one-year bond pays an annual interest rate of 2.8% before tax, with the three-year bond paying 4% before tax.

The bonds have proved popular and NS&I’s website has struggled to cope under the weight of demand. In the first two days of being on offer, 600,000 people signed up to the bonds.

The bonds’ sale closing period was extended by three months following a surge in demand.

Chancellor George Osborne (pictured) said: ‘The 65+ pensioner bonds have been a huge success. They’re now helping over one million older savers who have done the right thing, by boosting the return on their savings and securing a more comfortable financial future.

‘It’s part of our long-term plan to support savers and boost peoples’ financial security at all stages of life.’

23 comments so far. Why not have your say?

ROGER HULME

May 19, 2015 at 09:51

If I can't beat these returns by investing in the Stock Market, I might as well give up. Also, I can buy and sell whenever I wish. So were one million savers mugs.........or have I missed something?

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uncommercial

May 19, 2015 at 18:29

@Roger Hulme you've missed something. Most people want to have some cash reserves, as it isn't wise to assume that equities will give a return over arbitrary short periods, for example a few years. But the big problem with these bonds is that they were nothing but an election bribe. Note the timing. There was no economic justification for offering a 4% return on cash - the government has been easily raising money at much lower rates. I refused to buy any because I don't wish to be corrupted by a dishonest government.

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Tony Peterson

May 19, 2015 at 19:23

Roger is right.

The response to these bonds shows quite clearly why scammers target my fellow pensioners.

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ROGER HULME

May 19, 2015 at 22:53

Uncommercial - A number of rock-solid blue-chip companies pay dividends in excess of 4%. Investing in Pensioner Bonds doesn't give you a cash reserve as you have to commit for what is a relatively long-term in order to receive 4%

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Tony Peterson

May 20, 2015 at 07:39

Roger is still spot on.

SSE results today. What pensioner should want to to tie up their money for more than their life expectancy when they could get almost 6% from an electricity provider which will certainly still be in business longer than any government. And cash in at any time without penalty.

I think NS&I is trading on that strain of gullibility that can come with dementia.

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William Phillips

May 20, 2015 at 10:03

SSE's dividend is barely covered, and the yield reflects that. The political threat to utilities' pricing has been defused, but their income is not as safe as a government-backed bond's.

With each contract negotiation SSE and other regulated electricity and water companies have had to scale down the margin by which they can raise dividends over inflation; in fact SSE no longer commits to more than index-linking in its dividend policy, though Pennon (figures also out today) is on a formula of RPI+4%.

That said, SSE yields almost 6% net of basic rate tax against the longer-term Pensioner Bond's 3.2%, so the risk appears to be well provided for. But Pennon yields much less, so somebody clearly does not trust SSE as much to make good its promises.

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Andy Bear

May 20, 2015 at 12:20

Nice for those pensioners who could afford to buy lots of these bonds with the high interest rates subsidised by the taxpayer. Now the election bribe has worked, I have a feeling the Chancellor will seek to claw back that subsidy by means testing or withdrawing pensioner benefits.

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john_r

May 20, 2015 at 20:24

I don't think 4% bonds are a bribe but more of a long overdue necessity. Younger mortgagees have had a bonanza for 7 years with record low interest rates and in many cases vanishing mortgages. It was long overdue to share some cheer with the older saving brigade who have effectively been supporting the country with their none performing saving accounts. Not everyone is comfortable with exposure to the stock market especially when in retirement but I expect the more canny retirees hold investments as well as bonds. The nasty party have been banished for a while so I don't see any claw-backs happening in this parliament.

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Dennis .

May 23, 2015 at 10:10

Amazing how gullible people are, you pay tax on the 4% so that comes down to 3.2% (can't ISA them). Inflation will be back up to 1-2% next year when the anniversary of the oil price drop comes out of the RPI figures (happening already) so you tie up your money for 3 years for a real rate of return of about 1%. What a con and everyone falls for it?

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uncommercial

May 23, 2015 at 11:37

Well, if you don't think it was a bribe, the timing was a remarkable coincidence! It will be interesting to see if anything similar occurs before we get near to another election. And I don't see Dennis' argument. The rates were well above market rates, even against ISA savings. The fact you can't get a good return on cash at present is beside the point. If you have savings that you expect to need within a few years, what sensible alternative do you have? William Phillips recommends shares in SSE, but Investors Chronicle rates them a sell.

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Tony Peterson

May 23, 2015 at 12:03

uncommercial

Quite a good living can be made out taking a contrarian position to IC's advice. Just look at some of their last recommendations

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uncommercial

May 23, 2015 at 12:05

If that were true, there'd be easy money for all. The point is that, as the warnings always say, you may not get your money back.

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Dennis .

May 23, 2015 at 12:58

There are lots of investments that will yield more than 1% above inflation, National Grid for a start (never gets hit by politicians as it's not visible to end users) and I could name a few more. I have a substantial portfolio but only about £3k in cash. People get worried about investing because they might lose a few quid, well you only have to beat a building society account to make it worthwhile and with fund supermarket platforms you can get money out within a few days.

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uncommercial

May 23, 2015 at 15:39

Yes, and that would be fine if dividends were guaranteed and share prices didn't vary. But they do. US shares are analysed more than UK shares. If you look at total returns on the Dow for moving 10 year periods since 1900, there are some with zero or negative returns (that's capital and dividends together). That is to say, you could go for 10 years and get no return at all over the whole period. And you can't know in advance when that will happen. You need also to think of times within the last 30 years when the FTSE All Share has plunged by more than a third. Over short periods, you cannot be sure of getting your money back and you may suffer a sizeable loss. I too have most of my investments in equities, but I also have cash deposits. That shares are liquid is no answer to the problem of risk. I don't have shares in National Grid, and don't share your view, which sounds dangerously complacent. The grid is ageing, and in need of substantial capital investment, as well as upgrading to take account of changes in electricity generation. National Grid may continue to do well, but it is by no means certain. If you went back 30 years, you might have told the story about GEC with its £5 billion cash pile. But, of course, it lost it all and no longer has any recognisable existence.

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Tony Peterson

May 23, 2015 at 15:42

uncommercial

Since the rain started at Lords I decided to check my records to see if I could justify my criticism of IC's advice. I think I owe it an apology. Matching up my own trades with the date of their recommendations I find that I agree with most of theirs.

There are few of their recommendations to sell, at a time when I was buying. And also few the other way around. In Feb when it was recommending hold on RT I was slicing profits off, only to replace £1.50 cheaper a month later. I actually think that their recs on electricity shares (NG earlier, SSE now) do not factor in the end of the Miliband threat or the realities of our energy needs, or current yields.

I do not actually consult IC, or any other adviser, before making my decisions to trade, in whatever direction. I have noticed, anecdotally, that many of my deals were contrary to its current advice. Hence my comment. As I can only access its latest advice I cannot justify the sweeping statement I made.

But I am very happy to have added to my SSE stake last week, in spite of IC's advice. Only time will tell which was the right choice. Yet given the level of our income from equities in our retirement I do not think I have made many mistakes.

I do, however, agree wholeheartedly with Dennis. And I think on many counts NS&I are being shameless in the terms and conditions of their products, even if they did pay us £50 last month on a premium bond we sold out of in 2009. However, given the comments of a DWP spokesman on Paul Lewis' radio 4 money show today, there may be more worthwhile targets for public invective.

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uncommercial

May 23, 2015 at 16:02

In what way do you think NS&I are shameless? It is part of the government's debt management operation, whose main aim is to secure the funding at lowest cost. That's why it was so obviously a bribe to offer 4% for 3 year deposits, and with only modest early exit penalties.

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Tony Peterson

May 23, 2015 at 16:49

uncommercial

It is shameless because a significant proportion of those in the target group for the bond have life expectancies smaller than 3 years.

Plenty of charities that target pensioners in much the same way are even more shameless. I know personally some pensioners who had failing critical faculties and been driven to insolvency by so-called "charities" exploiting their goodwill. One hounded to death (and not the widely reported one either).

I agree wholeheartedly with you that the bond was a bribe. Which actually seems to have worked too.

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Anonymous 1 needed this 'off the record'

May 23, 2015 at 16:54

I think that "uncommercial" is one of those people who never invest in case they lose something. Probably better for him if he keeps his money in the Building Society.

Someone once said the Brits are about not losing money whilst Americans are more interested in making it.

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uncommercial

May 23, 2015 at 17:36

Actually I have about twice as much in mostly small to mid cap equities (and a few corporate bonds) as I do in cash. It would probably be a bit higher if it weren't for some tax considerations. It's just that there are perfectly good reasons for holding some funds as cash; you shouldn't write off people as idiots simply because they want to put some money into a risk free deposit.

Not sure why it is a financial problem if investors in pensioner bonds die early. On principle I rejected them, so never read all the terms. But the early redemption terms were quite generous - the 3 year bond held for one year yielded more than the one year bond. Some deposit takers will allow the executor to leave funds invested until maturity.

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Tony Peterson

May 23, 2015 at 17:48

Since money has a variable value there is no such thing as "risk free deposits".

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uncommercial

May 23, 2015 at 19:29

Free of the risk of default.

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Tony Peterson

May 23, 2015 at 19:37

No deposit, even with any sovereign state, is free of the risk of default.

History is littered with examples.

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uncommercial

May 24, 2015 at 08:26

We're getting pedantic now. The "risk free rate" is a commonly used expression that refers to the rate paid on the best government bonds. The UK government has been managing debt since William III and has never defaulted. If it did, you'd probably have a lot more to worry about than just your savings. Inflation is a bigger concern, but you can't fully avoid that since recent linker issues have had negative nominal rates, and there haven't been any consumer targeted products recently. But this is all pretty irrelevant to the point that many people have sound reasons for putting money into simple cash savings accounts.

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