HC Deb 26 March 1999 vol 328 cc447-8W
Dr. Cable

To ask the Chancellor of the Exchequer what criteria were used in setting the current interest rate for pensioner bonds. [77546]

Ms Hewitt

Pensioners' Bonds are priced like other National Savings products, taking account of the need to compete in the retail savings market, and the need to provide cost-effective financing for the government. Recent reductions in the interest rate on Pensioners' Bonds mainly reflect reductions in medium term interest rates generally, which in turn reflect expectations of lower inflation over the next five years. Lower inflation reduces the erosion of the value of the capital sum invested.

Pensioners' Bonds offer a monthly income which is set at a fixed rate for 5 years. The Chancellor announced in his Budget on 9 March 1999, Official Report, columns 173–90, that National Savings would redesign Pensioners' Bonds to offer a shorter term product. This should provide pensioners with more choice.

Dr. Cable

To ask the Chancellor of the Exchequer what has been the average real interest rate on pensioner bonds in each quarter since they were introduced, using the CPI to measure inflation. [77547]

Ms Hewitt

The table provides the gross nominal and real rates of interest on new Pensioners' Guaranteed Income Bonds in each quarter since 1994. Trends in the nominal interest rate follow those of five year gilts. The recent falls in the real interest rate reflect increased credibility of the Government's ability to meet its inflation target.

Percentage
Year Quarter Gross PGIBs rate per annum Real interest rate1
1994 Q1 7.00 4.3
1994 Q2 7.00 4.4
1994 Q3 7.06 4.4
1994 Q4 7.50 4.8
1995 Q1 7.50 4.9
1995 Q2 7.50 5.0
1995 Q3 7.50 4.9
1995 Q4 7.50 4.9
1996 Q1 7.13 4.6
1996 Q2 7.00 4.5
1996 Q3 7.00 4.5
1996 Q4 7.00 4.5
1997 Q1 7.00 4.6
1997 Q2 7.00 4.5
1997 Q3 7.00 4.6
1997 Q4 7.00 4.6
1998 Q1 6.53 4.1
1998 Q2 6.10 3.7
1998 Q3 6.10 3.7
1998 Q4 5.18 2.7
1 The UK does not produce a CPI. The real rate has been calculated by deflating the cash flows over the five year life of the bond by the retail prices index excluding mortgage interest payment (RPIX). An inflation rate of 2½per cent, from March 1999 has been assumed.

Notes:

1. Gross PGIB interest rate is the quarter average of the simple interest rate quoted on PGIBs.

2. All figures subject to rounding.