Pensioner bonds: the total cost to the taxpayer

Pensioner bonds are “ludicrously expensive” for the taxpayer, and make a mockery of the NS&I mission statement to reduce the cost of government borrowing.


Osborne's generosity to pensioners must now be costing far more than the £325m originally announced

I wrote last week about how the new pensioner bonds are effectively a non means tested benefit for the over 65s one paid for by the general taxpayer.

Since then, the subject has been much discussed in the press (I spent some time explaining it on the BBC), and it seems most commentators agree that the bonds are not the best use of taxpayers' money. In the Times today Patrick Hosking looks at the total cost.

According to Hosking, "the cost to the Exchequer is considerable, and must now be far higher than the £325m pencilled in when the bonds were announced in the March budget. Even then, they looked fabulous value to savers and terrible value for taxpayers. The subsequent slide in inflation expectations and market interest rates has magnified those features."

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That's because "thechancellor has two ways to borrow by issuing government bonds or gilts, or by raising money through NS&I products such as Premium Bonds and the pensioner bonds.

"Today, he could borrow in the gilt market for a year and pay interest of only 0.3%. Instead, he is borrowing from pensioners and paying them 2.8% nine times as much.

"Over three years he could issue gilts at a price of 0.6%. Instead, he is paying pensioners 4% a year, seven times as much."

it's a "ludicrously expensive" way of borrowing and "it represents a significant redistribution to better-off pensioners from all future taxpayers."

It's also makes something of a mockery of the NS&I mission statement: "to help reduce the cost to the taxpayer of government borrowing now and in the future".

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.