When I retired more than 20 years ago, I purchased three tranches of NS&I Index-linked Savings Certificates – so called ‘Granny Bonds’ – to help protect my money purchase pension from inflation. I have renewed them every three years, but each time the renewal terms have become less attractive. For example, instead of linking to Retail Price Index (RPI) inflation they now link to Consumer Price Index (CPI) inflation, early redemption became more difficult and the option of switching to two-year bonds has been withdrawn.
One of my tranches is coming up for renewal in August. The terms offered for this – Issue 28 – are index-linking to CPI + 0.01 per cent tax free/annual equivalent rate for three years fixed and there is no access to the certificate until it matures three years after the date of reinvestment.
I am wondering whether to redeem this tranche, which is worth approximately £52,000, in total and put the majority of the proceeds in my wife’s and my own individual savings accounts (Isas). I would invest this in Gilts (UK government bonds) which yield around 5 per cent, other bonds, permanent interest-bearing shares (Pibs) and preference shares, which yield around 7 per cent.
Doing this would give me immediate access and certainty of yield. But I would lose the government guarantee and incur Isa platform costs. I am also mindful that CPI is expected to fall to around 5 per cent and possibly further, though at our ages we are taking no more than a 10-year view.
Alternatively, we could partially redeem the certificates.
AS
David Gibb, chartered financial planner at Quilter, says:
‘Granny Bonds’ are free of both income and capital gains tax (CGT). If you surrender and reinvest them in Isas, the bulk of the proceeds will also be tax free, assuming the excess over your combined annual Isa allowances is moved into Isas in the following tax year. You would pay a platform charge for the Isas, but that is not a reason to discount an investment option.