Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
Pensioner bonds: a taxpayer-funded bribe for elderly voters
Pensioner bonds are a transfer of wealth from the young – who tend not to vote – to the old, who do. Making voting compulsory would stop this bribery, says Merryn Somerset Webb.
Pensioner bonds people who don't vote are giving money to people who do
Today brought the launch of the new pensioner bonds. These are fantastic news for going on 11 million eligible retirees in the UK: £10bn has been set aside for them and the rates are very good indeed.
There is a one-year bond paying 2.8% a year (so the equivalent of to 2.24% per annum for a basic rate taxpayer; 1.68% for a higher rate tax payer; and 1.54% for an additional rate taxpayer)
There is also a three-year bond paying 4% a year (so 3.2% per annum for a basic rate taxpayer; 2.4% for a higher rate tax payer; and 2.2% for an additional rate taxpayer).
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
In a hint of just how much the cash-rich fancy getting 4% on their money in a low inflation environment from a super secure provider, the National Savings & Investment website crashed this morning a matter of minutes after the offering opened. Pensioners have already been complaining to the press about not being able to get through on the phone.
So here's the question why should the general taxpayer finance double the going rate of interest (most three-year bonds on the market pay more like 2% than 4%) to one special demographic group? And in particular, why should it pay that rate to a group that is on average richer than all other age groups?
You might also note that the richest of the nation's pensioners will do best out of this who else has £20,000 in cash to spare outside Isa and pension wrappers to lock up in bonds such as this?
I'm all for our OAPs being well treated (I hope to be one one day) but this does seem a tiny bit unfair on everyone who is trying to build up wealth in an age of low interest rates.
So what's going on? For a clue let's look at who votes. In the 2001 election, about 76% of pensioners cast a vote. Only 44% of those young enough to be first-time voters did.
There's a similar division on income lines: 76% of ABs (upper-middle and middle-class) voted but only 57% of DEs (working-class and non-working) did the same.
And on homeownership: those who own vote more than those who don't. That's a problem. As Tim Montgomerie points out in the Times, "a skewed electorate produces skewed public policy." And in this case the government knows full well that there is more to be gained from wooing the old than the young.
Montgomerie suggests removing all these skews from our political world by introducing compulsory voting or at least the obligation to formally register an abstention. That works in Australia (93% overall turnout) and here it might too.
It would force politicians to find ways to appeal to our 16 million non-voters and compel them to "reach beyond their comfort zones". Voting might become a 20-minute burden for the reluctant every four to five years, but it would force our politicians to treat all age groups equally and hence to "change in fundamental ways."
Not convinced? Then think about this: if everyone voted, would only pensioners be being offered three-year fixed rate bonds at 4%? Quite.
Explore More
Sign up for MoneyWeek's newsletters
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
