Pensioner Bonds Guide

alanq

colsten wrote: »

What point are you trying to make? What is the difference between having had your interest credited and having it received?

There is a difference between a bond that credits interest at maturity and one that credits interest annually even if in neither case is there a possibility of receiving the interest to spend.

Some 3-year 65+ bonds started January 2015. First interest will be credited on the anniversary of opening January 2016. It will have to be declared in the tax return for 2015-2016 and additional tax becomes due by January 2017. As you say, in some circumstances the sum due maybe collected via PAYE. BUT

• not all people have tax collected via PAYE
• the total amount due must be less than £3000
• even if the tax is collected by PAYE via a code adjustment the saver will start paying tax in April 2017 for interest to which they have no access until January 2018.

colsten wrote: »

At no point will anyone have to pay any tax on any money they have not received yet.

Not quite true is it?

colsten wrote: »

I am still of the view that no HR/AR tax payer will blink an eyelid about the few extra quid they might have to pay.

I agree.

colsten

alanq wrote: »

Not quite true is it?

It absolutely is true. Nobody will have to pay any tax on money they have not yet received. The fact that the taxable money is, for max 2 years, in a fixed term savings account is neither here nor there.

alanq wrote: »

I agree.

PHEW. Glad we agree at least on one aspect, and on the most important one at that. Hopefully this will be the last we have heard of this complete non-issue.

Rollinghome

nilrem wrote: »

What amused me is the headline in the Times today which reads "Windfall for pensioners" almost implying that all pensioners are going to get a 'golden' payout, It's just a savings account, admitted it pays better than other accounts but it has a £20k cap per person and I do not see how it is a windfall!

Particularly when both pensioners and young Times journos alike can get 3%-5% from instant-access current accounts.

For many oldies, putting their £20k in a single Santander account paying 3% might be a better option than locking their money away for 1 year at 2.8% or for 3 years at 4.00%.

harz99

Rollinghome wrote: »

Particularly when both pensioners and young Times journos alike can get 3%-5% from instant-access current accounts.

For many oldies, putting their £20k in a single Santander account paying 3% might be a better option than locking their money away for 1 year at 2.8% or for 3 years at 4.00%.

Correct, and particularly so when the oldie is looking for monthly interest to supplement their live on income.


The Pensioner Bond's do absolutely nothing to help such oldies, and although they pay a relatively good interest, are simply an election ploy, rewarding mostly the richest pensioners who will probably already vote Tory.

libra10

The Pensioner Bond's do absolutely nothing to help such oldies, and although they pay a relatively good interest, are simply an election ploy, rewarding mostly the richest pensioners who will probably already vote Tory. harz99

I have never seen such a patronising and totally erroneous post on these boards.

Pensioners bonds offer a good rate of interest for higher amounts of savings than many of the current accounts available.

And how do you (or anyone else, for that matter) know how I and others decide to vote?

Stick with the facts.

nilrem_2

libra10 wrote: »

I have never seen such a patronising and totally erroneous post on these boards.

Har99 is correct when he states that the pensioners bonds are an election ploy, I think most people accept that but most of us will accept the higher interest offered and vote for whoever we wish.

However I don't think it will particularly help Osborne with votes as one can take the bribe whoever one votes for. If he had brains he should have said if elected I will offer you these bonds etc rather than giving the bribe first!

harz99

libra10 wrote: »

I have never seen such a patronising and totally erroneous post on these boards.

Pensioners bonds offer a good rate of interest for higher amounts of savings than many of the current accounts available.


Stick with the facts.

I did, the bonds on offer don't give monthly interest. Nothing totally erroneous about that.

Egalitarian

[FONT=&quot]Investors in the Bonds are being deliberately misled by NS&I and unwittingly misled by MSE in respect of the penalty for early withdrawal of the bond. The Key Product Information regarding the penalty for early withdrawal states;[/FONT]

[FONT=&quot]“You can cash in all or part of your Bond early, but we will deduct a penalty from your payment equivalent to 90 days’ interest on the amount you cash in.”[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Most people (some may argue everyone) would interpret this as an interest penalty and assume that if you cashed in early you would lose ninety days interest from the interest due to you. Unfortunately this isn’t the case and this has fooled even MSE who make this assumption in advising that even if you are investing for only one year, you should choose the 3 year Bond which will pay an ‘average’ rate of 3.01% after the early withdrawal penalty.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]This is incorrect [/FONT][FONT=&quot]for all tax payers. Those who pay tax at 20% will get an ‘average’ rate of 2.76% and 40% tax payers will get an ‘average’ rate of 2.35%.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]The reason for this is the obscure methodology used by NS&I to calculate the penalty. On early withdrawal there is no interest penalty. The full amount of interest is paid and added to your balance after tax at 20% has been deducted. Non tax payers can reclaim this from HMRC and higher rate taxpayers will have to pay additional tax.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]A penalty charge is then calculated by applying the gross interest rate of the bond to the amount withdrawn for a period of 90 days. This charge is then deducted from the balance of the account. This methodology means that an investor does not get the benefit of off setting the charge against interest, and, in effect, getting tax relief on the penalty charge. Rather, the effect is that an investor pays tax on interest not received.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]It appears that even NS&I do not understand the implications of their methodology because the Key Product Information and the Terms and Conditions contain the following statement;[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]“Bear in mind that if you cash in all of your Bond within 90 days of investing, you will get back less than you originally invested”.[/FONT]

[FONT=&quot][/FONT]
[FONT=&quot]I think most, if not all, investors would understand this statement to mean that if you cash in your Bond after 90 days, you will not suffer a loss. [/FONT]
[FONT=&quot]That is not the case.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]Basic rate tax payers would need to hold the Bond for at least 112 days to avoid getting back less than the original investment and 40% tax payers would need to hold the Bond for a minimum of 150 days to avoid a loss.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]I am of the view that the lack of clarity in the information provided by NS&I, which is likely to mislead investors, amounts to mis-selling.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]I’ve tried to tell MSE that they are giving the wrong advice, but it doesn't appear to be interested. I know we are not talking about large sums of money, but savers are entitled to clarity and an absence of ambiguity, particularly from a state owned savings bank, and to expect reliable information from a money saving expert with a reputation as a consumer champion.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]If it was a private or publicly owned bank giving misleading information about a savings product, it would be denounced and there would be another mis-selling scandal.
[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]It appears that a government owned bank can get away with it. The fact that the beneficiary of NS&I’s obscure methodology is the Treasury will doubtless intrigue conspiracy theorists.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]What do you think? [/FONT]

alanq

Egalitarian wrote: »

[FONT=&quot]If it was a private or publicly owned bank giving misleading information about a savings product, it would be denounced and there would be another mis-selling scandal.[/FONT]

I agree this is confusing but I believe the confusing / misleading information is not limited to NS&I. Although fixed rate bonds that offer the option of early withdrawal are rarer these days I believe that the same issue applies to many/most. i.e. the penalty is "equivalent to x days' gross interest" rather than "the loss of x day's interest". Not all make this clear.

Unlike 65+ Bonds, ISAs and NS&I Savings certificates are tax-free so at least they don't suffer from this issue.

Update: I have just found an example from RBS which does make things explicit 'Charge for closure after your Bond is opened and before the Maturity Date (the “Early Closure Charge”) is equivalent to:90 days’ gross interest'.
http://www.rbs.co.uk/content/personal/downloads/FRB.pdf

witewabbitt

I understand that I am eligible to buy these bonds even though I live in the Isle of Man. Please can you confirm that I am correct?

Would I have to fill in a form from HMRC to claim back the UK tax deducted, or would the Manx Treasury take this into account when assessing my liability for Manx tax?

And would I have to do this each year for a 3 year bond, or only when the bond matures at the end of the 3 years?

Thankyou for your help.
ps I have lived and worked here most of my life, I am not in any way a 'tax exile'.