Synopsis: National Savings & Investments have announced the terms for reinvestment of the 65+ Guaranteed bonds. You can tell there is no election in the offing.
In October 2015 National Savings & Investments (NS&I) announced small increases in rates for its Guaranteed Growth Bonds (GGBs). These are only available to existing investors whose bonds reach maturity: they are not on public sale. In the Bulletin we issued at the time, we commented that NS&I’s more interesting reinvestment rate decision would be in the context of 2016’s maturing 65+ Guaranteed Bonds. The one-year issue of these, which is currently paying 2.8%, starts to mature in January.
NS&I have now revealed the reinvestment answer and it is going to disappoint many pensioners. The choice will be between:
· taking the maturity money (with interest taxed at 20% in 2015/16, but paid gross for maturities from 6 April 2016); and/or (mix and match is possible)
· reinvesting in any term(s) of GGBs. There are no special 65+ rates. As a reminder the current GGB rates are:
Term 1 Year 2 Years 3 Years 5 Years
Rate 1.45% 1.70% 1.90% 2.55%
As we remarked in October, none of these rates are anything close to table topping – most are at least 0.5% adrift. For example, at the time of writing the best one-year rate was 2.15%. On the other hand, the gilts market says the government can borrow for one year at about 0.65% and five years at about 1.4%, making the GGBs a relatively costly source of finance.
Surprisingly, only the Guaranteed Growth Bond is on offer, although elsewhere NS&I also offer Guaranteed Income Bonds (GIBs) for maturity reinvestment. GIBs have marginally lower rates, but provide a monthly income whereas the GGBs roll up all interest until maturity.
These reinvestment terms tend to confirm what many commentators said when the 65+ bonds were originally launched: they were a taxpayer-financed election incentive for a slice of the population that turns up at polling stations.
Perhaps this money could be used for your ISA allowance and thus enjoying a more tax efficient environment. In addition the ISA rules now allow a surviving spouse/civil partner to enjoy an additional ISA allowance equal to the ISA value of their deceased partner.
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