Treasury is accused of ‘poaching’ rich savers

The Times reports that depositors rushed to buy NS&I pensioner bonds during the period, while wealthy savers took advantage of the lifting of the ceiling on individual holdings of premium bonds from £40,000 to £50,000.

Altogether NS&I, an agency of the Treasury, took in £9.1 billion in gross new sales. Net inflows amounted to £5.4 billion after taking account of redemptions, interest and prizes. That was more than double the net inflow of £2.1 billion in the same period last year. Rival deposit takers said that NS&I posed unfair competition because it was able to offer tax-free rewards and a government guarantee and had been instructed by the chancellor to offer pensioner bonds carrying far higher interest rates than the market rate.

David Cutter, the chief executive of the Skipton Building Society and chairman of The Building Societies Association, said: “It’s clearly unwelcome. From our point of view, it’s not a level playing field. It makes it harder for other deposit-takers to compete. That has an impact on growth plans and mortgage affordability.”

Graham Beale, chief executive of the Nationwide Building Society, has complained in the past about the approach of NS&I, which he said was destabilising the rest of the savings industry and had led in its most recent year to a sharp slowdown in savings inflows from £4.9 billion to £1.2 billion.

The grabbing of market share is set to intensify this year after the chancellor in his July budget set NS&I a net financing target of £10 billion for the current fiscal year. Last year it broke its target of £13 billion, sucking in £18.2 billion.

A total of 1.1 million people bought pensioner bonds, called “65+ bonds” between January and May, attracted by the high interest on offer. The chancellor responded to the flood of demand by making more available, lifting the fundraising target from an initial £10 billion to £13.7 billion.

NS&I said that lifting the premium bond limit on June 1 had also produced extra business. By August 3, 360,000 people had taken advantage to lift their holdings above £40,000.

NS&I’s total stock of balances stood at a record £129.3 billion by the end of June. NS&I is the other main way for the government to raise borrowings other than through issuing gilts and treasury bills.

A spokesman for NS&I said that the organisation tried to balance the interests of savers, taxpayers and the stability of the broader financial services industry.

There are 90,000 people holding the maximum £50,000-worth of bonds, while another 230,000 have between £40,000 and £49,999. The average annual return for someone holding £50,000 in Premium Bonds is in theory £675, though no prizes are guaranteed.

The interest rate on the one-year pensioner bond was 2.8 per cent, which was nine times greater than the 0.3 per cent yield on one-year gilts in January, when the bonds were launched. It also compared favourably with the most generous private sector product at that time, 1.85 per cent from ICICI Bank.

The respective figures for the three-year bonds at the time were 4 per cent, 0.6 per cent and 2.51 per cent, from Secure Trust Bank.