National Savings Pensioners Bonds (Hansard, 1 March 1999)

§ Lord McIntosh of Haringey
My Lords, pensioners bonds pay monthly income at rates fixed for five years. Existing holders will not be affected by new lower rates before their fifth anniversary. For new investors or those holding beyond the fifth anniversary, the guaranteed rate will reflect the general fall in interest rates made possible by the Government's success in bringing inflation under control. Lower inflation benefits everyone, including pensioners.

§ Lord Ellenborough
My Lords, I thank the Minister for that Answer. Will he draw to the attention of his right honourable friend the Chancellor the fact that, when these pensioners bonds were issued five years ago for a five-year fixed period, they were launched at a deliberately attractive rate of 7 per cent. when the base rate at the time was 5½ per cent.? Five years later, the base rate is also 5½ per cent. but the new pensioners bonds are to be issued at a derisory rate of only 4¼ per cent. Does that not show a callous indifference to pensioners and those on fixed incomes who often have to pay charges and bills at a rate considerably higher than the rate of inflation?

§ Lord McIntosh of Haringey
My Lords, I have taken care to examine the record of pensioners bonds' interest rates against the five-year gilt market rate over the entire period since 1994 since the introduction of pensioners bonds. Whether looked at in real terms or nominal terms, there is a close correlation between the five-year gilt market rate and pensioners bonds' rates; in other words, pensioners bonds' rates were not particularly favourable in 1994 and they are not particularly unfavourable now.

§ Lord Ezra
My Lords, the question asked by the noble Lord, Lord Ellenborough, raises the issue of the extent to which the Government wish to encourage savings. If they really wish to do so, the example set by 1367 the new interest rate on pensioners bonds is not likely to do that. Should the Government not be setting an example to the rest of the financial sector that savings are desirable?

§ Lord McIntosh of Haringey
My Lords, I agree with the noble Lord that we should be encouraging savings. A falling savings ratio is indeed undesirable. But pensioners bonds are only one very small part of the range of investment possibilities even from National Savings, let alone from the private sector. I do not accept the conclusion which the noble Lord draws, any more than I accept the conclusion that the noble Lord, Lord Ellenborough, drew. These are not derisory rates, they are comparable to rates in the private sector.

§ Viscount Bridgeman
My Lords, does the Minister not agree that in an era of falling investment returns, there is a redistribution of wealth in favour of borrowers at the expense of savers, in this case the elderly and pensioners? Does he not accept that the Government must give high priority to ensuring that there continues to be a safe, simple investment with a real rate of return, as my noble friend Lord Ellenborough indicated, for this potentially vulnerable section of society?

§ Lord McIntosh of Haringey
My Lords, I do not accept that pensioners fall into one category rather than another. There are pensioners and non-pensioners who are borrowers and pensioners and non-pensioners who are savers. If the noble Viscount is saying that it is the responsibility of National Savings to provide a wide range of opportunities for different kinds of people, I can assure him that that is exactly what they do.

§ Lord Monson
My Lords, the Minister made reference to National Savings. Does the noble Lord agree that the impending fall in the average return on Premium Bonds to 3¼ per cent. is proportionately much greater than the fall in base rates over the same period?

§ Lord McIntosh of Haringey
My Lords, if that is the case, I do not understand why Premium Bonds are doing so well at the moment. If the allegations about pensioners bonds are true, I do not understand why it is that of those bonds that mature in the first quarter of 1999 half are being re-invested in pensioners bonds and nearly all the rest in other National Savings products.

§ Lord Razzall
My Lords, does the noble Lord accept that, although it is undoubtedly the case that National Savings pensioners bonds represent a very small proportion of the difficulty, falling interest rates are a particular problem for people who are approaching retirement, in particular those who are compelled to purchase annuities with their self-employed pension funds at a time when the rate of annuity has dropped dramatically? Are the Government prepared to consider making changes to the regulations to prevent people who are approaching retirement being placed in a very difficult position?

§ Lord McIntosh of Haringey
My Lords, the trends that the noble Lord identified have an effect on the 1368 incomes of those pensioners who have investments and are about to purchase annuities. But the noble Lord must look at it in the context of the provision for all pensioners, including the poorest, who benefit from the reduction in inflation that accompanies the reduction in interest rates. I suggest to the noble Lord that that is a more significant factor.

§ Lord Marsh
My Lords, does the noble Lord agree that the problem in relation to annuities is that new pensioners have no choice but to buy annuities which, through nobody's fault, have dropped to a level that in the past people did not think would be likely? Does the noble Lord also agree that that is coupled with the proposed upward revision of actuarial mortality tables which will increase the problems faced by pensioners? I do not blame the Government for these matters but they are facts. Does the Minister agree that they cannot be just swept away and that there should be a review of these specific problems?

§ Lord McIntosh of Haringey
My Lords, I have no lack of sympathy for those who have chosen to enter pension schemes that involve the purchase of an annuity at the point of retirement and now find them less valuable. To that extent I do not disagree with the noble Lord, Lord Marsh. But these are individual choices for which the Government are not responsible. It is a bit hard for those who continue to plead for less government to expect us to intervene in such circumstances.