How To Invest Your Maturing Pensioner Bond

Harvey Jones — Wed, 23 Dec 2015 16:30:14 +0000

It’s a sign of how desperate savers have become that the launch of so-called pensioner bonds at the start of this year generated so much excitement.

When National Savings & Investments (NS&I) launched the 65+ Guaranteed Growth Bonds in January its phone lines were jammed and its website crashed under the weight of demand. More than a million pensioners locked into the Government-backed bonds, lured by the market-beating rates on offer.

Roll with it

So what was all the fuss about? A one-year bond paying 2.8% a year and a three-year bond paying 4% a year. That’s hardly rich pickings, although it’s certainly far more attractive than what follows. When one-year pensioner bonds start to mature from 15 January, savers are being offered a rollover rate of a meagre 1.45%, via the NS&I standard Guaranteed Growth Bond. This is the default rate if you simply leave your money be.

Those who want to lock in for longer can fix for two years at 1.7%, for three years at 1.9%, and five years at 2.55% a year. These rates are unlikely to spark another stampede.

In a fix

Savers who put the maximum £10,000 into their one-year bond will have £10,280 to re-invest, minus any tax they pay on the interest. That’s a lot of money and you need to invest it wisely. What you do partly depends on your personal circumstances. For many older people with a low-risk outlook, cash is the only sensible option, probably in the shape of another fixed-rate bond.

You’ll get a better deal by shopping around on the open market. For example, challenger bank Shawbrook currently offers the best one-year fixed bond at 2.15%, comfortably beating NS&I’s default rollover rate. The FirstSave two-year bond pays 2.4% while its three-year bond pays 2.73%. United Trust Bank pays 3.1% over five years, but some may be reluctant to fix for so long, as rising interest rates could quickly make that return look derisory.

Pensioners who retired relatively recently should consider the higher potential returns available from stocks and shares. As life expectancy grows, many will spend two or three decades in retirement, and over such lengthy periods stock markets should give you a far better return than cash, although with more short-term volatility.

Hit the jackpot

Through company dividends, shares can pay you a higher income than cash. Many leading FTSE 100 names offer yields of 4% or 5% a year, far higher than you’ll get from any fixed-rate savings bond. Plus you also get the potential for capital growth on top as well. You can either take those dividends to top up your retirement income, or reinvest them to boost the long-term value of your pension. That can turbo-charge your savings over the years, while cash chugs along in the slow lane.

You should never invest money in stocks and shares that you might need in the next five years or can’t afford to lose if markets correct. Whatever you choose to do, don’t simply roll over and accept that measly 1.45%.

The post How To Invest Your Maturing Pensioner Bond appeared first on The Twelfth Magpie.

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A Better Alternative To Pensioner Bonds

Harvey Jones — Thu, 12 Feb 2015 09:33:23 +0000

If they were dishing out prizes for the most popular investment of 2015, pensioner bonds would be the clear winner.

Hundreds of thousands of people have rushed to take out 65+ Guaranteed Growth Bonds since launch in mid-January, and it isn’t hard to see why.

The bonds pay a fixed rate of 2.8% before tax over one year, or 4% a year over three years. By comparison, the average cash ISA currently pays just 1.44%, according to Moneyfacts.co.uk.

The website and switchboard at National Savings & Investments, which administers the bonds, collapsed with the weight of demand.

Bonding With The Voters

Chancellor George Osborne has since extended the pensioner bond scheme for three months, until just after the general election in May. He reckons they are a real vote winner.

But where does this leave the under-65s, who are barred from taking out these bonds (yet still fund the cost through their tax bill)?

Virgin Territory

Cash won’t cut it. A market-leading fixed-rate cash ISA from Virgin Money pays just 1.70%, while the Post Office pays 2.10% over three years.

Most cash ISAs pay far less, while the average savings account pays just 0.66%.

Bricks And Mortar

One in three people heading for retirement are considering purchasing a buy-to-let property, according to research from Platinum Property Partners.

The average investor earned more than 11% from buy-to-let last year, through a combination of rental income and property growth.

But many won’t want the bother of hunting for properties, finding tenants, paying for repairs, chasing rental arrears, and so on.

Get Your Share

Buying stocks and shares is more straightforward. Once you have set up an online trading account, you can buy and sell in seconds.

Leading FTSE 100 companies such as BP, GlaxoSmithKline, National Grid, Royal Dutch Shell, Vodafone and (if you’re feeling brave) Tesco pay dividend income worth between 4% and 6% a year.

Plus you get the prospect of capital growth on top, if their share prices rise over the longer run.

Better still, you can invest in the stocks tax efficiently, through your £15,000 annual ISA allowance. Returns from pensioner bonds and buy-to-let are both taxable.

Stocks and shares are riskier than government-backed pensioner bonds. But if you’re investing for the long term and understand what’s at stake, they should also be far more rewarding.

The post A Better Alternative To Pensioner Bonds appeared first on The Twelfth Magpie.