Mutuals warn over impact of new bond

The Building Societies Association (BSA) has claimed that its members’ ability to lend could be damaged if NS&I is encouraged to compete aggressively for retail savings.

In the Budget, Chancellor George Osborne unveiled a new savings bond for those aged 65 and over. Pensioner savings bonds will launch next January and are expected to pay out interest of 2.8 per cent over one year and four per cent over three.

According to the Government, the new state-backed pensioner bond will help people who have suffered low returns since interest rates were slashed to keep the wider economy afloat in the wake of the crash.

However, Brian Morris, the head of savings policy at the BSA, said: “It is inevitable that we are going to see several billions of pounds transferred by savers from building societies and banks to NS&I when the pensioner bonds hit the market early next year – the Government has signalled the pensioner bonds will be offering interest rates which the private sector is unlikely to be able to match.

“While it is helpful the Chancellor has given the industry 10 months’ notice of the introduction of NS&I’s pensioner bonds, and these savings outflows may well be offset by inflows into new cash ISAs later this year, the bonds will nonetheless impact building societies’ funding plans and, in turn, could affect their ability to lend to home buyers around the turn of this year and into early 2015.”

An NS&I spokesman said yesterday: “NS&I always acts transparently and makes banks and building societies aware of its intentions on net financing each year, so they can factor this in to their planning. The 2014 Budget set out clearly NS&I’s net financing requirement for this year. We have also made clear when the savings bonds for older people will be launched, so the banks and building societies can factor this in into their planning for their funding requirements.”

The spokesman highlighted the fact that NS&I’s market share has been declining for many years. At the end of March 2014, there were just under 750,000 NS&I customers in Yorkshire.

Yesterday, it was revealed NS&I had delivered £3.4bn of net financing and £346m of savings to the taxpayer in its last financial year.