Good reads from around the Web.
The wait is nearly over, glass-half-full-fans of a certain age. National Savings and Investments (NS&I) has revealed the first firm details of its upcoming ‘Pensioner Bonds’.
More is to come with the launch in January, but here’s what NS&I says so far:
What are the bonds?
- Lump sum investments providing capital growth
- Choice of terms – 1-year and 3-year
- Designed to be held for whole term, but can be cashed in early with a penalty equivalent to 90 days’ interest
When do they go on sale?
- January 2015 – exact date to be announced
- Available for a limited period
Who can invest?
- Anyone aged 65 or over
- Invest by yourself or jointly with one other person aged 65 or over
How much can I invest?
- Minimum for each investment £500
- Maximum per person per Issue of each term £10,000
What about interest?
- 1-year Bond 2.80% gross/AER*
- 3-year Bond 4.00% gross/AER*
- Fixed rates, guaranteed for the whole term
- Interest added on each anniversary
The tax position
- Interest taxable and paid net (with basic rate tax taken off)
- Higher and additional rate taxpayers will need to declare their interest to HM Revenue & Customs (HMRC) and pay the extra tax due
- Non taxpayers, and those eligible to have any of their interest taxed at the new 0% rate (which starts from April 2015), can claim back the tax from HMRC
- Sorry, we’re not currently part of the R85 scheme so we can’t pay the interest gross on these Bonds
While the rates may still look laughably low to 60-somethings who remember the days of 10% interest on their savings, the bonds are table-toppers for those who are eligible to put money into them – and the 4% rate looks unbeatable, even with cash ISAs.
Here are a few media takes on these new bonds from:
Who says there’s no upside to getting old? 🙂
From the blogs
Making good use of the things that we find…
Passive investing
- Why does everyone tout complex portfolios? – Oblivious Investor
- Some people will never learn – A Wealth of Common Sense
- Software is eating investment management – Abnormal Returns
Active investing
- Are oil stock dividends safe? – Sizemore Insights
- Investing in illiquid shares – iii blog
- Are you being shown the whole market? – Maven Capital Partners
- Riding the rollercoaster – DIY Income Investor
- The case for investing in Bonmarche – Stockwatch/iii
- Hedge funds: The state of play – Above the Market
Other articles
- Working for the man: A last resort – Raptitude
- How I screwed up my financial independence – Mr Squirrel
- Where are the economists yachts? – Investing Caffeine
- Learn from the losers – Tim Hartford
- The case for a universal income – Simple Living in Suffolk
- See the financial wood for the money trees – Under the Money Tree
Product of the week: Not a pensioner? The Telegraph reports that Yorkshire Building Society is offering a fixed-rate savings bond touting a 2.4% headline rate, paying interest monthly.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
Passive investing
- Ignore forecasters at all costs – Swedroe/ETF.com
- Jack Bogle’s blind spot: International diversification – Yahoo
- 3 lessons from a stock market ‘freak out’ – Roth/AARP
- Dump your S&P index fund [Well, maybe!] – MarketWatch
- Passive investing’s foundations [For passive nerds] – Swedroe/ETF.com
Active investing
- Don’t overlook the risks of individual bonds – MorningStar
- Giles Hargreaves: 3 AIM stocks to buy and hold – Telegraph
- Lessons from the sorry Beacon Hill saga – ThisIsMoney
- 10 shares that pass the Buffett ‘moat’ test – Telegraph
- John Lee: Focus on your existing shares [Search result] – FT
Other stuff worth reading
- 122 things everyone should know about investing – Housel / Fool
- Proof that you should get a life and work less – The Economist
- Expensive estate agents are ripe for disruption – Guardian
- ‘I spot and exploit pricing errors for a living’ – Telegraph
- How to really invest like a billionaire – MarketWatch
Book of the week: Who would have thought the rise and fall of an investment bank could make for gripping reading? Catching Lightning in a Bottle
Like these links? Subscribe to get them every week!
- Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” [↩]
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‘Sorry, we’re not currently part of the R85 scheme so we can’t pay the interest gross on these Bonds’
This part is hard to believe from a government run savings organisation.
Once again pensioners get a direct bribe. How is this even legal? Basically pensioner GBP is now a different currency, worth more than young people GBP.
The govt know they can buy boomer+ votes. They have before.
Interesting, but savers of any age can get similar or better rates for unlimited sums at Zopa, Ratesetter, Wellesley and the like. Although not protected by the FCS, in my opinion these are some of the most secure P2P sites and offer a good alternative to building societies for all but the most cautious.
@ Dylantherabbit: It has an account called ‘Income Bonds’ which only pays monthly interest gross and it is incumbent upon you to declare this to HMRC. Premium Bonds appear to pay “prizes” free of tax but in fact some amount of tax is paid on the deposits direct to HMRC. NS&I is a very strange organisation, possibly because it is a part of a government ministry?
OK forget the hype which will surround this offering due to the abysmal rates offered by other cash accounts. What shall we assume for inflation over next 1 to 3 years? 2.75%?
With basic rate taxpayers, which is likely to be most pensioners :-
1 year = 2.80% – tax = 2.24% – infl = minus 0.51% real
3 year = 4.00% – tax = 3.20% – infl = plus 0.45% real
E&OE
Stocks (All Share) = 3.51% real
Infrastructure = circa 4.40% real
Rental Real Estate = 4 to 5% real
Situation summed up well in Guardian link :-
“Connolly says older people should be wary of taking money out of cash Isas to put into the bonds, as they would lose the tax-free wrapper for the sake of a one or three-year interest rate boost. Likewise, pensioners should think hard before cashing in stock market investments, which have the potential to perform better than pensioner bonds.”
Our vote, keep putting funds into ISAs while ISAs are still available, and don’t worry unduly about the current poor yields on tax sheltered cash.
Invest the cash later into stocks at leisure, as valuations improve, or even gilts when +ve real rates return.
@Ben,
I’m inclined to agree with your view of these pensioner bonds being little more than a headline-catching bribe. However, don’t assume that all boomer’s votes can be bought so easily!
@magneto,
Agree with your analysis. A little like the type 3A NI contributions which anyone reaching pension age before April 2016 can make; as far as I can see, these only look attractive in comparison to annuity rates.
Comparing these bonds to stocks and real estate is apples to oranges. This is a risk free fixed income investment at a significantly yield than even ones of higher risk.
Btw, there’s absolutely no reason one should invest in the 1 year version. The 3 year one is superior even if one wants to invest for only one year. Cashing the 3 year bond after one year would result in losing 90 days of interest, i.e. 1%, therefore effectively earning 3% for the year they kept the bond, which is higher than the 1 year yield. I wonder why they bothered offering the 1 year version.
Actually I can see a reason for the 1 year version, which is if you have maxed out the 3 year one. If you have to choose one or the other there’s no reason whatsoever to go for the 1 year version.
Steerpike, taking credit risk (from the end borrowers) plus counterpart risk (from the company/website) makes that kind of investment a very different animal.
Of course when the weather is nice you don’t see the need for an umbrella.
http://www.calculatedriskblog.com/2014/12/would-you-loan-money-to-this-guy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
well, zopa seems to be currently offering 3.9% on a 3 year loan, NS&I 4% for the same duration.
I think, if I were of a certain age, I know which i would choose out of those two options.
I’m still waiting for osborne to sort out NISAs for P2P then I might put some in, but until then it seems the risk/return is skewed a little towards the risk end of the spectrum.
Reminds me a bit of people on ebay paying more for 2nd hand bikes than you can buy them new.. Doesn’t make any sense and you wonder why people do it..
While I wouldn’t particularly advocate Zopa as an alternative to these bonds, I believe you can lend over a 5 year period (earning an estimated 5% after fees but before tax per annum) and cash out any time you like before the five years is up on payment of a 1% fee. I think that works out at 4.6% pa over three years, but I could be wrong. (And yes, in theory cashing out is subject to someone else being willing to take over your loans, but in practice I suspect that’s not a problem – I think part of the 1% fee is a sweetener for whoever takes it over.)
@Steve — I think the cashing out at Zopa would be a problem in a higher rate environment. Who’d buy a portfolio of 5% loans, say, if they could get 7% in the market? Hence you’d need to take haircuts.
I have some money in Zopa, but it’s only 1-2% of net worth, even after I increased my exposure on the introduction of the safeguard guarantee. I think it, Ratesetter and others are a welcome addition to the mix, but I definitely agree it’s not the same as cash.
@TI Yes, that makes sense I guess. I have a similar low % of net worth in Zopa and have never tried/needed to do the cashing out thing.