2.5% for lending to Mr Osborne

Interesting that the current ructions in the markets mean that investors can earn 2.5% by lending their money to the government.

That compares to 1.76% for the best easy access savings accounts. One of those is the government's National Savings, ironically.

The best easy access Individual Savings Accounts are about the same.

Accounts where you have to give several months' notice pay 2%.

Tying your money up for 5 years, you can achieve the dizzy heights of a 2.9% return.

So lending to the government by buying what we call Gilts (they're government bonds or IOUs), might be getting more attractive if you've got £1,000 or more to stash away.

Gilts are virtually risk free, because they depend on the solvency of the state EXCEPT for one thing.

You're guaranteed to get the underlying amount of the loan back at the end of the term, but the price can fluctuate along the way - because Gilts like other bonds are traded in the financial markets.

The 2.5% is for 10 year Gilts, though you're not committed for 10 years.

You can buy or sell via brokers or from the Bank of England's Debt Management Office which has lots of other info.

Do pensioners lose from QE?

The Bank of England says its £375bn of money creation or Quantitative Easing (QE) hasn't hurt pensioners as various groups have complained. The charge has been that the QE process has reduced the value of retirement annuities which people buy with the money they've saved in their pension pots - that's because QE has the side effect of cutting the income you can earn from government bonds or GILTS, and hence the potential income from an annuity.

The Bank claims that's not true because:

"For those approaching retirement in ‘defined contribution’ schemes, lower gilt yields as a result of QE have reduced annuity rates. But it is crucial to allow for the fact the QE has raised the value of pension fund assets too. Once allowance is made for that, QE is estimated to have had a broadly neutral impact on the value of the annuity income that can be purchased from a typical personal pension pot invested in a mixture of bonds and equities.

"The paper shows that QE also has a broadly neutral impact on a fully funded ‘defined benefit’ scheme. Moreover, the pension incomes of people coming up to retirement in a defined benefit scheme, whether fully funded or not, will have been unaffected by QE. But schemes that were already in substantial deficit before the financial crisis are likely to have seen those deficits increased."

Dr Ros Altmann, Director-General of Saga says the Bank's argument doesn't make sense:


“A brief examination of the facts does not support the argument that QE has pushed up asset prices by at least as much as it has depressed annuity rates...investments in equity markets have been hugely volatile and the overall performance of the stock market has not risen sharply in recent years, whereas gilt yields have moved sharply lower and annuity rates have plummeted.

“The fall in annuity rates since mid-2008 is over 24%.  Cumulative inflation for older age groups has risen by over 20%.  The FTSE is relatively unchanged and the average balanced pension fund has performed poorly, so that for people with defined contribution pensions, the impact of QE in reality has not been as the Bank of England is assuming.”