Hotly anticipated pensioner bonds are now on sale from the state-owned National Savings & Investments (NS&I) bank, and demand is so high the website cannot handle the sheer number of hopeful visitors seeking to lock up one of the market-leading bonds.
Designed for any saver aged over 65, the bonds come in two forms; one pays 2.8% for a fixed term 1 year, whilst the other pays 4% for a fixed period of 3 years, and both considerably outshine any corresponding bond marketed by other banks and building societies.
The government did not impart with the exact release date of the bonds during 2014, instead merely stating that it would be at some point this January, compelling any interested party to register on the NS&I website if they wanted to be updated.
Despite this veiled marketing approach, the website could not handle the copious amounts of traffic sent its way from 7am this morning, crashing within an hour and leaving thousands of applicants in the lurch.
Many are viewing the governmentís pensioners bonds as a burst of shooting stars on the perpetually inky night that is the UKís current savings market. Most have long lost hope that banks & building societies will begin lifting their eye-wateringly tight rates on bonds, but despite the base rate remaining at its record low of 0.5%, pensioner bonds have only become less attractive on the wider market. As such, demand for the governmentís pensioner bonds is sky-high, which offer practically twice the pre-tax rates of interest on any parallel bond on the market.
While savers are desperate to ensure they secure their investment in the 65+ bonds, the NS&I moved to soothe peopleís fears over the availability of the bonds with its press office tweeting: ìWe expect the 65+ Bonds to be on sale for months not weeks and would like to reassure savers that there is no need to rush to invest.î
But there is a strong feeling that that claim is entirely unsubstantiated, with the industry consensus being that bonds will sell out within weeks. The government has capped the amount that can be invested in the bonds at £10bn, and individuals are allowed to invest £10,000 into both the 1 year and the 3 year fixed bond. So, a couple aged 65 or over would be able to invest £40,000.
As such, dividing £10bn by 40,000 gives us the number of couples that would be able to invest, which is 250,000 ñ translating to 500,000 individuals. Given how heavily these state backed pensioner bonds outperform others on the market, it is not farfetched to think that many could miss out.
This is the viewpoint of Patrick Connolly, financial planner at Chase de Vere, who ìencourages savers to act sooner rather than laterî regardless of what NS&I have to say about how long the bonds will remain on the market for.
Connolly pays tribute to the bonds, stating: ìThey do offer stand-out rates and complete security and so we will be advocating pensioner bonds to many of our clients who are able to lock their money away and want to achieve a better return on their cash savings.î
However, Connollyís main criticism of the bonds is their inability to be held within a tax-free cash ISA, and thus their failure to provide pensioners with a retirement income ñ a priority for many pensioners.
To this end, Connolly stated: “To be of most value, pensioner bonds would be allowed within a cash Isa and be capable of paying a monthly income, even if savers had to accept a slight lower interest rate in order to receive this. This would make them far more useful for pensioners trying to generate income from their cash savings.”
In order for 65+ savers to access maximum returns from their bond, they will need to keep their money invested for the whole term. Any premature withdrawal would result in the saver in question incurring a fee equal to 3 monthsí worth of interest on the amount withdrawn.
After tax, the 1 year term pays 2.24% and the 3 year term pays 3.2%, after basic rate tax, with those earning over £41,865 paying 1.88% and 2.6% respectively.
Bonds can be applied for by post, telephone or via the website nsandi.com