Pensioner Bonds from NS&I

The bonds are lump sum investments providing capital growth over either 1 year or 3 years. Although designed to be held for the full term, they can be cashed in early, but with a penalty equivalent to 90 days’ interest.

The bonds are due to go on sale in January 2015 and are likely to be available for a limited period, at which time full details will be announced. Demand is expected to outstrip supply as HM Treasury has capped the total savings pot at £10bn for the combined total of 1 and 3 year bonds (this implies max 500,000 savers if all investors invest the max £20,000 across both issues). It is expected that the bonds will be available online, by telephone or by post, but not through Post Office branches. Due to the high demand, online applications may be preferred to help secure an allocation as postal applications may be overlooked based on NS&I’s current ‘first come, first serve’ basis of working.

The minimum investment will be £500 for each bond and the maximum will be £10,000 per bond.

The interest rate will be 2.80% gross AER for the 1 year bond and 4.00% gross AER for the 3 year bond. The interest rates are fixed for the term.

Interest will be added on each anniversary, but will be paid at maturity only, so there will be no monthly income option.

The interest is taxable, but the interest will be paid net of basic rate tax. Tax will be due on the bonds each year, even though no interest will be distributed on the 3 year bond until the end of the term. Higher and additional rate taxpayers will have extra tax due, whilst non-taxpayers and those eligible to reclaim tax will be able to claim tax back from HMRC. The bonds are not part of the R85 scheme, so it will not be possible for interest to be paid gross.

The bonds are not eligible for inclusion in an ISA.

This article is based on our understanding of the new NS&I bonds, but we do not accept any liability for inaccuracies or omissions. The article is presented for information only and does not constitute advice. Please get in touch if you would like advice on 01392 875500 or info@SeabrookClark.co.uk


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Matthew Clark