Pensioners are getting an extra bonus next year courtesy of George Osborne, and building societies fear it will sink their products.
The new retirement bonds will be run by NS&I (National Savings and Investments), who run premium bonds and other savings products – and they have little sympathy for their commercial rivals.
But instead of picking a pretty low interest rate to avoid distorting the market, NS&I has been told to offer a ‘market leading rate’ to reward pensioners after years of low interest rates.
That is clearly a threat to competitors - normally NS&I is used by the government to raise funds cheaply, paying savers less than the state would otherwise have to pay on the international debt markets. These retirement bonds will pay pensioners more than that rate of interest, essentially a little bonus handout from the government.
But NS&I’s chief executive Jane Platt is unrepentant. “We have given the private sector a great deal of notice on this,” she said today. “I have worked in the private sector – there is no reason banks and building societies cannot plan ahead and take this in their stride.”
On top of that, Platt noted NS&I’s share of the savings market has fallen from 12 per cent in 1997 to seven per cent in March this year – even with its planned growth of £13bn this year, it will stay below eight per cent. But the Building Societies Association is not happy with the new non-commercial competition.
“It is inevitable that we are going to see several billions of pounds transferred by savers from building societies and banks to NS&I when the pensioner bonds hit the market early next year – the government has signalled the pensioner bonds will be offering interest rates which the private sector is unlikely to be able to match,” said the BSA’s Brian Morris.
“Whilst it is helpful that the chancellor has given the industry 10 months’ notice of the introduction of NS&I’s pensioner bonds, and these savings outflows may well be offset by inflows into new cash ISAs later this year, the bonds will nonetheless impact building societies’ funding plans and, in turn, could affect their ability to lend to home buyers around the turn of this year and into early 2015.”