Government extends new ‘pensioner bond’ scheme but what about Britain’s younger generations?

9th February 2015

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The Chancellor’s announcement that he was extending the new ‘pensioner bond’ scheme has been welcomed by many but others believe more needs to be done to incentivise younger generations to save.

January saw the government body National Savings & Investment (NS&I) launch a range of savings products aimed at those aged 65 and over – and given that they pay up to 4% in interest they flew off the shelves, which in turn saw the organisation struggle to cope with the level of demand.

Pensioner bonds were first flagged up by George Osborne in his Budget speech last March and today offer market beating interest rates but they are only available to those aged 65 and over.

The one-year NS&I 65+ Guaranteed Growth Bond pays an annual interest rate of 2.8% before tax, while the three-year version pays 4% before tax. To date some with £7.5bn worth of bonds have already been snapped-up.

Osborne has now extended the highly popular scheme and a further £5bn is now up for grabs, taking the total made available to £15bn. The deadline for applying has also been pushed out until 15 May, just a week after the General Election. But savers eager to get their hands one should act fast as once they sell-out, the deal will close to new applicants.

Anna Bowes, director at independent savings advice site Savingschampion.co.uk says “With rates way over and above the nearest competition, the bonds were always going to fly off the shelf. That said it’s great news that they have been extended so more savers can take advantage, especially those who will turn 65 within the next three months.

“Sceptics may suggest the timing is apt and that the extension is needed given George Osborne’s statement that they expected the bonds to be available for ‘months’. But in the current desperately low interest rate environment, anything that can help beleaguered savers should be commended.”

But Andy James, head of retirement planning, Towry highlighted that while the bonds are a highly attractive short-term investment product, for the government they represent an incredibly expensive way of borrowing money, which they could get cheaper from the markets.

He said: “The extension of the pensioner bond scheme to 15 May and the removal of the original £10bn capacity is clearly a sweetener for the ‘silver saver’ generation ahead of the General Election, as is the new top-up system starting in October for pensioners too old to qualify for the new flat-level state pension.

“While George Osborne and the Conservatives are clearly pushing for votes from the older-generation, there has been little yet to incentivise younger people to take saving for their own retirements more seriously. “

James noted that while pension auto-enrolment may be a good system to help younger people divert more of their own money – and that of their employer – straight into their pension fund, making tax savings as they do so, it still does not however represent an incentive scheme to rival that of the pensioner bonds.

“With auto-enrolment contribution rates set to rise to 5% in 2017, forcing many employees and employers to save more for the future, will the Government yet offer a pre-election sweetener, perhaps in the form of greater tax relief for basic-rate tax payers? If so, the Chancellor’s Budget, to be announced on March 18th, might not be a bad place to start,” he added.

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