Can you take advantage of the new Pensioner Bonds?

The Pensioner Bonds go on sale in January, and George Osborne has promised that they will pay top rates. The bonds, released by National Savings and Investments, are expected to be enormously popular amongst retirees, and will be quickly snapped up by keen investors. So if you want to take advantage it will pay to be prepared.

There will be two types of bonds - one of which is fixed for a year and one of which will be fixed for three years (both of which won't pay any interest at all until the end of the term). The exact rates will be announced on Friday, and speculation is rife as to what will be on offer.

When the bonds were first announced, the pundits estimated they would return roughly 2.8% for one year and 4% a year for three years.

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The final confirmation of the rate will depend on the market. However, even if the rate is below these estimates it will far outstrip typical rates on offer elsewhere, which are well below 2% for one year and 2.5% for three years.

It's why Pensions Minister Steve Webb said last weekend: "If you are getting 0.01% interest in your savings account, give it to us and we will give you a lot better."
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Should you?

There was some disquiet when it emerged that the savings will not be tax free: 20% will be deducted and non-tax-payers will need to claim the tax back. There was also an outcry when it emerged that the interest will not be paid out as an income (which is what many pensioners are desperate for). Instead they will have to wait until the end of the term for any interest payments at all.

However, even with those drawbacks, they are an attractive option, so anyone aged 65 or over who is looking for a short-term home for their savings (and can tie their money up for one or three years) should seriously consider them.

There are some limits. You can only put a maxim of £10,000 into each type of bond - for a total of £20,000. Alternatively, you can combine your limit with that of another pensioner and double the limits (if one of you dies during the term it will all pass to the survivor).

The other limit to be aware of is that the government is only offering £10 billion worth of them. Once they have been sold, they will be withdrawn. At the moment the government expects them to be on sale for plenty of time.

However, if demand exceeds expectations, then it pays to be aware that these bonds will be axed as soon as they run out. In the past bonds have been withdrawn in a matter of just a few months.

It means that if you want to take advantage, you need to set aside some time in the New Year in order to apply. You will be able to get hold of your bond by visiting nsandi.com or by calling 0500 500 000 once the bonds are on offer.

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