Announced in The Budget in March 2014, as part of a wider reform of pension savings, 65+ bonds (also referred to as Pensioner Bonds) went on sale to the over 65s in January 2015.
Here, we give our view on this new product and how it might impact the wider savings market.
1. What are 65+ bonds?
These are lump sum investments available through National Savings and Investments (NS&I) for those aged 65 and over.
On offer is a one year fixed rate bond at 2.80% gross/AER and a three year fixed bond at 4.00% gross/AER. These rates are fixed for the whole term, however, the bonds can be cashed in early incurring a penalty equivalent to 90 days interest.
Bonds can be opened on an individual basis, or combined with one other person aged 65 and over. The minimum investment (per person, per term) for either bond is £500 and the maximum is £10,000. This means a couple could potentially save up to £40,000 combined across both bond types.
2. What’s the big deal with these new bonds?
These bonds are attractive options for savers and, at the time of the rates being announced, provide a better rate of return than, for example, the best rate one year, three year and easy access accounts available in the current market - even when cashing out early and incurring the 90 day interest equivalent penalty.
Unlike ISAs and Premium Bonds however, 65+ bonds are not tax free. Tax is charged annually on each bond whereas interest is paid at the end of the term; this means savers will incur charges before recouping the benefit of their savings rates, which could result in some customer dissatisfaction from unexpected charges.
Based on this, a higher-rate taxpayer subscribing to a three-year bond will be expected to declare on self-assessment tax returns the interest they expect to earn each year. Non-tax payers will be able to reclaim tax in the usual way.
3. Why are 65+ bonds only available through NS&I?
NS&I is one of the UKs largest savings organisations and an Executive Agency of the Chancellor of the Exchequer. Best known for its Premium Bonds, NS&I offers different savings and investment bonds, including 65+ bonds, which offer 100% security as the Agency is accountable to HM Treasury.
4. What should you do if you’re interested in finding out more?
To find out more about 65+ bonds, it is best to access to NS&I website at www.nsandi.com/savings-65plus
5. Will everyone who wants a bond be able to get one?
An overall limit of £10 billion has been placed on the bonds, which is enough for 1 million savers to invest the maximum £10,000 into one bond. However, if the maximum amount of £10,000 is invested by each customer into both the one and three year bonds, then only 500,000 savers will be able to take advantage of the rates on offer.
Effectively, these bonds are available on a first-come, first-serve basis so, as they are expected to be very popular, there is the potential for disappointment for many savers.
6. Will this become an annual event in the savings calendar?
This is currently a one-off investment opportunity to help retired savers in the current low-interest rate environment, however, this is not to say that opportunities like this won’t come up in the future.
Please note that this in an overview only and nothing in it should be taken as advice or a recommendation to take out a bond or make any other investment.