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Ask Rachel
Working in the financial industry for over 30 years, Rachel Thrussell is the leading independent expert on UK savings products. Her views are constantly in demand from both the industry and the press.
Why is it that ISAs seem to be paying less than similar length fixed rate bonds?
There are a couple of reasons for the difference between rates. The first is that the best bond rates are typically being offered by challenger banks, who are new to the market and trying to establish themselves. As new entrants, these providers don’t usually offer ISA products straight away, as these typically involve more administration. If you were to look at just the banks that do offer both bonds and ISAs, it would become apparent that both rates tend to be pretty much on a par with each other.
This leads onto the second potential reason why ISA rates are lower, which is that by having to allow transfers out, banks must price into their ISA rates the chance that they may lose the money from their coffers before the term ends. With fixed rate bonds, providers can mitigate against this by adding restrictions that prevent early access to funds.
This week's
average rates
| No Notice | 0.18% |
| Notice | 0.53% |
| Cash ISA | 0.56% |
| 1 Year Fixed Rate Bond | 0.74% |
| 2 Year Fixed Rate Bond | 0.81% |
| 3 Year Fixed Rate Bond | 1.05% |
| 4 Year Fixed Rate Bond | 1.16% |
| 5 Year Fixed Rate Bond | 1.24% |
| 21 September 2021 | |
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Alternative sources of income
Personal pension age set to rise to 57
Workers looking to take full or part-time retirement in their 50s and who are planning on using their personal pension to supplement their income should keep in mind that the minimum age in which they can take drawdown from a personal pension in the UK is rising to 57 on 6 April 2028.
At the moment, pension savers can access their personal pension from the age of 55, but a decision to increase the minimum personal pension age was made due to increasing life expectancies and to keep it 10 years prior to the State Pension Age. There are, however, a number of exceptions where existing pension schemes have a protected retirement age.
Commenting on the increasing pension age, Yvonne Braun, director of Long-Term Savings Policy at the Association of British Insurers said: “People are living and working for longer so it is right the minimum age you can access your pension will rise to 57 in seven years’ time, in step with the state pension age rising to 67. Unfortunately, the Government’s proposed implementation maximises the complexity of this change and would create enormous confusion for pension savers.
“Millions would still be able to access their pension at age 55, making the change pointless. Most savers will also have multiple pots at different ages, complicating their retirement planning. The ability to access a protected pension age of 55 may drive advisers to recommend switching to their clients, creating arbitrary market distortions. Savers may also leave employer schemes with a Normal Minimum Pension Age of 57 to access their pension earlier elsewhere, losing the employer contribution.”
The rise in when savers can access their personal pensions will affect those aged 48 and under who are saving into a pension, including defined contribution schemes, workplace schemes and private pensions. Those aged 48 or under and who are still planning to take full or part-time retirement at 55 will need to find alternative sources of income to bridge the two-year gap. Some options including using investment returns, such as from a stocks and shares ISA, or releasing equity from property, for example by down-sizing or taking equity release.
It may be worthwhile speaking to an independent financial advisor when planning for retirement as they will be able the highlight the best options for your personal circumstances.
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