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."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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".
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Our pension system, little-changed since Roman times, needs updatingOpinion The Romans introduced pensions, and we still have a similar system now. But there is one vital difference between Roman times and now that means the system needs updating, says Merryn Somerset Webb.
-
We’re doing well on pensions – but we still need to do betterOpinion Pensions auto-enrolment has vastly increased the number of people in the UK with retirement savings. But we’re still not engaged enough, says Merryn Somerset Webb.
-
Older people may own their own home, but the young have better pensionsOpinion UK house prices mean owning a home remains a pipe dream for many young people, but they should have a comfortable retirement, says Merryn Somerset Webb.
-
How to avoid a miserable retirementOpinion The trouble with the UK’s private pension system, says Merryn Somerset Webb, is that it leaves most of us at the mercy of the markets. And the outlook for the markets is miserable.
-
Young investors could bet on NFTs over traditional investmentsOpinion The first batch of child trust funds and Junior Isas are maturing. But young investors could be tempted to bet their proceeds on digital baubles such as NFTs rather than rolling their money over into traditional investments
-
Negative interest rates and the end of free bank accountsOpinion Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK banking system slightly less awful, says Merryn Somerset Webb.
-
Pandemics, politicians and gold-plated pensionsAdvice As more and more people lose their jobs to the pandemic and the lockdowns imposed to deal with it, there’s one bunch of people who won’t have to worry about their future: politicians, with their generous defined-benefits pensions.
-
How the stamp duty holiday is pushing up house pricesOpinion Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb.
