New Pensioner Bonds

First announced in the March 2014 Budget Speech, these new ‘pensioner bonds’ have recently been launched. The returns have now been announced and sees them prominent in the bond market, the 1 year  bond offers 2.80% gross/AER, the 3 year bond gives a very attractive 4.00% gross/AER.

The informal name arises from the reality that they are just obtainable by people aged over 65, offering retirees a unique chance if they choose to invest.  The bond issue has been limited to£1 billion, with people allowed to buy a maximum of £10,000 per term. Since they can be prchased as joint investments, couples could invest up to £40,000 within the scheme. It is expected that around 1 million individuals the bonds.

Although the bonds income is taxable, the return looks  very good in comparison to other secure saving options.  Cash ISA still offer little in the way of returns, and the best fixed rate options are not giving nearly as much income as these new bonds.
The key drawback is that interest isn’t payable until the end of the chosen term, which means that there isn’t any choice to utilise the bonds for a way to obtain ongoing income. Rather, individuals or couples will be investing  to obtain a risk-free method of saving, giving a small amount of growth within the short-to-medium term, but still positive growth as it is above inflation unlike many cash based investments. For people looking for diversification from investments with higher risk, they also provide an attractive alternative, although the investment limit is, low.

There’s probably going to be popular demand, due to their market-leading returns and security status and as such, they are offered on a ‘first come, first served’ basis only. In case you change your mind after investing, the right exists to exit early, with simply a charge of 90 days interest. The bonds became available on the 15th January.