Does your Pensioner Bond mature this Sunday? What should you do with the cash?

MSE_Luke

'Pensioner Bonds are simply fixed-rate savings accounts, launched in January 2015, paying a massive 4% interest for the three-year version (and 2.8% on the one-year version which matured in 2016) - though, as the name suggests, they were only available to those 65+...'

Read MSE Helen's full blog: 'Does your Pensioner Bond mature this Sunday? What should you do with the cash?'

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John_Gray

From my point of view, the problem with the "Pensioner Bond" and its successor is that HMRC requires that you account for the notional interest paid in every tax year, when you don't receive any actual interest until the bond matures.

bowlhead99

John_Gray wrote: »

From my point of view, the problem with the "Pensioner Bond" and its successor is that HMRC requires that you account for the notional interest paid in every tax year, when you don't receive any actual interest until the bond matures.

Well, it's not 'notional' interest - it's actual interest. It's credited to your account every year and made available to you so that the 4% interest compounds up and lets you have an overall higher and better return than if the same simple interest rate was used on the deposit for the three years and credited at the end.

Of course, most people with a 3-year product choose not to close out their account and walk away with the money before the end of the three-year term, because there would be a penalty for breaking their contract early. However, you had the right to do that if you want.

As such, from an HMRC perspective the interest has been paid or 'made available' to you at the end of each 12-month period from when you made your initial deposit, and therefore you need to pay tax on it.

If you don't like the system, I guess you could emigrate and become a tax resident of a country which treats interest that's been made available to the depositor in some different manner - if you can find one.

digannio

If you are going for a one year fix you can get 1.9% from BLME (sharia), not guaranteed but effectively is and compensation scheme backed.

DINGDONG

This isn't a reply it's a question so I will apologise in advance if I upset anyone. We took our bond out in my husbands name s I wasn't 65. I am now 66 & I do not pay tax. Should we just cash his bond in & take one out in my name ?

le_loup

Always use the non-taxpayer as the holder. Except there is now a £1,000 a year tax free allowance for interest.

Dazed_and_confused

Not everyone has sufficient income to be able to benefit from the £1000 Personal Savings Allowance tax rate but they may be able to make use of the equally good £5000 starter savings rate (which like the Personal Savings Allowance rate is currently 0%).

foolishsaver

Well, yes, you would have thought that the AER of 4% would be compounded each year. Or you can go with 4% interest on £10K only added each year and get the lower figure of £11,200, which is the figure used in the original MSE blog, so they must know what they are talking about? However, the statement I have just received shows that on maturity the £10K will only be worth a re-investment value of £11,163.07. If anybody can explain how that figure is arrived at I would be grateful

xylophone

I have just received shows that on maturity the £10K will only be worth a re-investment value of £11,163.07. If anybody can explain how that figure is arrived at I would be grateful

You had tax deducted in year 1?

Tax not deducted in the two following years.

colsten

John_Gray wrote: »

From my point of view, the problem with the "Pensioner Bond" and its successor is that HMRC requires that you account for the notional interest paid in every tax year, when you don't receive any actual interest until the bond matures.

further to bowlhead's comments on this; This was known at the time the account was on offer. If it's an issue for you, you'd simply not have taken out the account as nobody was forced to sign up. You're in a lucky position if your income from savings interest is more than £1,000 a year, so I don't think you'll get much sympathy if you had to pay tax on some of yours.

[Deleted User]

my elderly friend just found out that he was scammed via false details, he should have had his money back with interest. He lost it all

There will be many more who won`t realise until this month