Life after Pensioner Bonds
By Scott Murphy | Fri 15 May 15
By Scott Murphy | Fri 15 May 15
Back to the doldrums…
Despite their popularity however, Pensioner Bonds offered just a short term respite for Britain’s pensioners from the savings wasteland. With the Bank of England base rate held at its historical low of 0.5% for the 74th month and interest rates on the high street languishing in the doldrums, the end of Pensioner Bonds signals a return to low yielding products. T.S. Eliot may have described April as the cruellest month, by it would seem, financially at least, that this year the month of May steals the crown. The key question for hard pressed retirees is – where can I put my money now?
Striking a balance…
One of the features of Pensioner Bonds was that, as a State-backed product, they were a zero risk proposition. Alternative options with Banks or Building Societies offer protection from the Financial Services Compensation Scheme (FSCS) up to £85,000 although the costs of this expensive protection are recouped via lower interest rates. Stocks and shares carry significantly less investor protection and may be volatile or even return a loss. Striking a balance between risk and return is therefore a key aim for retirees and this is where RateSetter fits in. Investing in RateSetter as a lender isn’t risk free, but it is low risk - we believe that this level of calculated, proportionate risks is both necessary and acceptable for lenders looking to earn a good return on their investments. During the time that Pensioner Bonds have been on sale (15 January 2015 to today) RateSetter’s 1 year and 3 year products have averaged a return before tax of 3.8% and 5.3% respectively.
All about the income…
A drawback of Pensioner Bonds is that they are not income generating. The bonds do not pay a monthly interest or capital repayment – instead these are returned when the bond matures. For many retirees, generating a steady regular income is of paramount importance. RateSetter products, across the one month, one, three and five year options are income generating, with interest or interest and capital returnable on a monthly basis – this choice is left up to each and every one of our investors.
Hitting the investment ceiling…
Another issue with Pensioner Bonds is the limit on how much can be invested. An individual can invest £10,000 per bond, with a total across the two products of £20,000. There is also a minimum investment of £500 per bond. RateSetter has no upper individual investment limit, and our minimum investment stands at just £10 opening up access to better returns to all our customers.
Finally, the Bonds were only available to those aged 65 and over, meaning that younger retirees could not benefit. At RateSetter you can lend money from the age of 18 – in fact our lenders range in age from 18 to 98, demonstrating that peer-to-peer lending is a model that works across all kinds of lifestyles and life stages.
The Pensions revolution…
One of the recent innovations in planning for retirement has been the inclusion of peer-to-peer lending within a Self Invested Pension Plan (SIPP). We covered this development in a recent blog and highlighted how it will help tomorrow’s retirees maximise the return on their investments. Either in retirement or preparing for it, peer-to-peer lending has proved to be flexible while providing a real benefit to all.
We’d love to hear you views. Did you invest in Pensioner Bonds and are now looking for an alternative? Let us know your thoughts below.
Hopefully you'll find answers to your questions in our FAQ section.
Still need help? That's fine. Just call us on 0203 142 6226 or email [email protected]
Here's where you can view, select and compare previously matched market rates on RateSetter. Also, check out our default and coverage ratios and see a guide to matched volumes over time.