Should you invest in a Pensioner Bond?

Budget 2014

Are George Osborne's new Pensioner Bonds a good buy? They won't be launched until January 2015 and a lot could happen in that time. Including an interest rate rise (or two, even). Current estimates for the new NS&I bonds indicate 2.8% for one year and 4% for three years.

They're also limited to the first £10bn only. Should you, then, go for a Pensioner Bond? %VIRTUAL-SkimlinksPromo%

4% paying bond

If you're older than 65 - sorry to state the obvious - then possibly yes. Currently the best offer by any NS&I bond currently is 2.6% (three years). "They're [the new bonds] market leading," says Jon Horton from Chamberlain de Broe financial advisers. "They're taxable, yes. But broadly there will be a lot of interest."

Given the surge in stock market values in the last 18 months, many cautious retirees will be put off shares, given there's less scope for buying at reasonable valuations. And, of course, there's the risk factor.


There's also another issue for those who might have considered share-buying instead of a cash investment - disappointment in dividends and earnings. "The earnings growth that had been penciled in really hasn't come through for some FTSE 100 companies," says Horton.

"Supermarkets used to give both. But now the sector has gone ex-growth. We're in the bizarre position where only Lidl and Aldi at the bottom are growing, and Waitrose at the top."

The wash of public cash that will likely head into these new pension bonds will help deficit funding. It's also a poke in the eye to banks and building societies and their miserable rates.

£40,000 investment

Bear in mind that the limit for each Pensioner Bond will be £10,000. For a couple that means a £40,000 maximum pot if you stick £10,000 inside each bond (2.8% for one year, 4% for three).

Also, the lifting of the ISA limit to £15,000 now widens your options considerably. You may need to make some finely calibrated decisions.

However careful stock market investing in dull, solid dividend-paying stocks - powerful plodders - are still worthy of attention say some. Spread your eggs, and all that.

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Should you invest in a Pensioner Bond?

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

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