OpinionJan 28 2015

Pensioner bonds are great but what about the rest of us?

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Pensioner bonds are great but what about the rest of us?
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There is no doubt that National Savings – or NS&I as it now likes to call itself – is an integral part of the financial services marketplace. Nearly everybody loves this savings institution, which offers probably the most secure savings products that this fine country of ours has to offer. Backed by HM Treasury, no less.

At every twist and turn in my life, I meet someone who cannot praise NS&I enough. Even Mark, the second of my three sons, waxes lyrical about them given he is a regular scooper of £25 prizes from Ernie, the distributor of Premium Bond prizes. Indeed, three £25 prizes for Mark last month – but not a word of thanks my way for buying him them in the first place. I imagine a £1m jackpot win would not stir him to say: ‘Ta Dad’. Love, eh?

Of course, the current NS&I ‘hot’ products are the 65+ Guaranteed Growth Bonds that are currently selling like proverbial hot cakes (no, I am not eligible, before you ask).

These fixed-rate bonds, one-year or three-year in term, are positively flying off the NS&I shelves because of the premium interest rates on offer – 2.8 per cent for one year or 4 per cent for three years.

Even though the bonds are taxable, only available to those aged 65 and over (age discrimination, do I hear you murmur?) and do not pay out the elixir that is monthly income – hence their growth title – there is little doubt that the bonds will not be around for that much longer.

A sales cap of £10bn has been imposed, and more than £1bn worth of them were shifted out of NS&I’s doors in the first two days alone.

More than £1bn worth of pensioner bonds were shifted out of NS&I’s doors in the first two days alone

Looking into my crystal ball, I predict the cap will be hit long before the spring equinox is reached on March 20. That is, provided NS&I’s creaking computer systems do not go into complete meltdown in the meantime – or its telephone sales team does not have a collective breakdown.

Complaints continue to trickle through to my office from readers unhappy that they have not been able to get through on the phone or conduct business via the NS&I website. A shame, therefore, that the bonds cannot be bought at the local post office. Yet another dagger in the heart of the high street.

I think it is great that NS&I has at last offered pensioners some respite from meagre savings rates. Yet there are a number of issues that stem from this august organisation’s latest offerings.

First, I hope that you independent financial advisers out there are playing your role in the sharing of these savings spoils by advising your more elderly clients to take advantage of them.

I am sure you are, given that I remember having National Savings (as it was then known) drummed into my very soul while I was studying for – and passing - my FPC one, two and three exams. Yes, I know, Mickey Mouse stuff compared to today’s more demanding financial qualifications, but give me some credit.

I saw my former work colleague Stephen Womack last week – he’s now a chartered financial planner, so boo to all you sceptics who thought it was impossible for a financial journalist to make the top adviser grade.

Wonderful Womack says examiners are still keen to probe wannabe advisers on the minutiae of NS&I. So there is absolutely no excuse to turn a blind eye to 65+ Guaranteed Growth Bonds.

Secondly, although these bonds are a savings saviour for many pensioners, it does seem unfair that everyone else (below the age of 65) continues to get a bum deal from NS&I.

Why did NS&I not play fairer by launching a new product that all of us, irrespective of age, could apply for? Surely, the re-introduction of either index-linked savings certificates or fixed-rate certificates would have been fairer.

It is hard not to ignore the view that the chancellor George Osborne deliberately targeted pensioners because they would prove decisive in determining the outcome of the May general election.

Third, it seems reprehensible that banks and building societies continue to fail savers, a point made by the FCA following its recent probe into the cash savings market.

Sylvia Morris, my savings expert colleague on the Daily Mail, says more than 100 savings accounts provided by banks and building societies have already been the target of rate cuts this month. This follows endless cuts last year.

In their defence, financial institutions argue with some justification that they have balance sheets to rebuild following the 2008 financial crisis. And that borrowers must be given a fair crack of the whip. So poor savings rate cuts are an inevitable consequence.

Furthermore, these same organisations are still sitting on low-cost funds acquired under the government’s Funding for Lending Scheme. So they have little incentive to go out and raise more expensive deposit funds.

With interest rates in the wider economy going nowhere, certainly this year and maybe next, savers have little room for manoeuvre.

For the time being NS&I will appease some cash-rich pensioners. But for everyone else, it is a case of chasing down best savings rate deals, taking advantage of generous Isa allowances or going up the risk curve in order to chase income.

It is an environment ripe for IFAs to display their financial planning talents. So exit stage left NS&I, and go for it my dear professional friends. Remember, you are as integral to the financial services marketplace as NS&I.

Jeff Prestridge is personal finance editor of the Mail on Sunday