What is the best option for Elderly Savers?

Angus Dent
Posted by Angus Dent on 15-Dec-2015 14:56:18

An article published in The Telegraph last week showed just how far the national media is from providing adequate advice to savers looking to explore the alternative finance sector for investment opportunities. The offending article on this occasion was published in the “Personal Finance: Savings” section, written by James Connington. Click here for the article: http://bit.ly/1mlDZLC

He writes against the backdrop of the imminent end of the Government’s one year “pensioner bonds”, which will not be renewed in all likelihood. This leaves savers, and particularly elderly savers, on the hunt for short term, secure accounts that offer a decent yield with plenty of security.

In attempting to recommend viable alternative options, Connington repeatedly makes errors in his article. To start with, he seems to have been misled into thinking that “high interest current accounts” are “risk free”, clearly forgetting the plight of Northern Rock less than a decade ago, that saw regular savers embark on the nation’s first “bank run” in 150 years as they feared their savings in “risk-free” accounts would be lost in the event of receivership. Furthermore, the Government have announced that the Financial Services Compensation Scheme will only cover deposits of up to £75,000 in January 2016 despite regulators striving to avoid a repeat of the Northern Rock fiasco. Many pension pots will be larger, of course.

The high interest current accounts cited by Connington are also not a suitable replacement for the outgoing “pensioner bonds”. For example, TSB Classic Plus requires the saver to put in £500 pounds monthly up to a maximum of £2000 pounds overall, and set up internet banking. Once again, I stress that that the article is geared towards those who invested in the pensioner bonds, and therefore by default is aimed at elderly savers. I’m not saying this account wouldn’t work, say, for a young professional, but I doubt it would appealing to a pensioner.

 

His next suggestion that elderly savers should aim to invest in longer term fixed-rate ISAs and bonds is laughable, really. Not only is the time-frame inappropriate, but the yield is pretty feeble as well. The article then suggests “regular saver” accounts; again, would these accounts prove suitable for elderly savers? 6% per annum is offered on a sum of up to £300 per month in the First Direct regular saver account. You don’t need me to tell you why tucking away a limited amount like £300 per month (so a total of £3600 for the whole year) is inappropriate for the elderly; the pensioner bond allowed investment up to £10,000 after all.

Connington finishes his article with a measly 44 words on “Investing”, where he states that a high-risk investor can expect to earn 6% per annum with no guarantees of a return. At no point in the article is Peer to Peer Lending mentioned or even hinted at as an option, and considering the Innovative Finance ISA comes into force a month after the “pensioner bond” will come to an end, it is a sign of the weak journalism that is a theme in Mr Connington’s article. The investment risk in lending money through platforms is far less than investing in the stock market and the returns are healthier. Invest through the right P2P Lender and the risk is negligibly more than a bank account (see RateSetter and their provision fund if you need persuading on that one) and the returns are in a different league. And before anyone accuses Peer to Peer lending through online platforms as too complicated for the elderly, it is worth noting that the median age of an ArchOver investor is above the pension age in the UK. There are a range of loan terms to choose from to suit the lender, and the diversity on offer allows investors to spread the risk far more than in a savings account.

The P2P revolution has begun; even the banks know that, as shown by their willingness to work with the P2P lenders. The Government can see it- just look at the British Business Bank’s announcement today that they are going to work with RateSetter to lend money to SMEs. It is time that national print journalism kept up with the times as well.

 

Topics: lending, p2p, pensioner bonds, RateSetter, Savings, Telegraph, account, ArchOver, Innovative Finance ISA, ISA

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