Last week the Government announced that it would be introducing ‘Pensioner Bonds’ again in the New Year for over 65s, so what exactly are they and are they the right thing for you? Our Chartered Financial Planner and MFS Director Kevin Edwards explains…
Pensioner Bonds can be taken out for either a one or three year fixed term, offering interest rates of 2.8% and 4% gross respectively, which sounds like a pretty reasonable ‘no risk’ return in the current climate.
However, before you decide that it’s the right path for you, there are several aspects of the Bonds that you should consider. For example, if you need to have access to your money part way through the fixed term, the returns will be diminished by a 90 day interest penalty.
In addition, while the interest rates are currently better than most savings accounts, you may be able to achieve higher returns if you’re prepared to invest over the medium to long-term (i.e. at least 5 years). Equally with investments other than deposit accounts there is going to be an element of investment risk, even if it’s just a little more.
Perhaps one of the key issues with the Bonds is that all the interest payments are subject to tax at 20% (though higher rate tax-payers will have further liability to tax) and therefore the returns may not be as good as perhaps first impressions give. For non-taxpayers, it is not possible to have the interest paid without deduction of tax and therefore you would have to reclaim any overpaid tax at the end of each tax-year.
The Bonds also have a maximum investment amount too, no person can invest more than £10,000 into each of issue of Pensioner Bond (i.e. a couple could invest a total of £40,000 between them into the new Bonds).
If the Pensioner Bonds are still looking attractive to you – and for many people they will be an attractive investment option – then you’ll need to move fast. Pensioner Bonds are likely to only be available for a limited period!
If you need some advice, don’t hesitate to give us a call on 01332 345 370 or email us at [email protected]