I shall give just one example of how what you see is not what you get.
Our pensioner is a 40 per cent tax payer who can afford to give the Treasury £10,000 on loan for three years, on a promise of 4 per cent interest per annum. £400 each year should amount to £1,200, but it is too good to be true.
The interest is not paid out annually, but adds on to the Treasury’s books till the end of the term, at which time tax has to be paid as follows: 40 per cent ie £480 comes off £1,200, leaving £720; giving interest per annum of £240 –which in reality is just 2.4 per cent.
Each year’s interest has to be declared as earned, even though not yet paid.
A one-year bond will pay out, for a basic taxpayer, 2.24 per cent, and 1.68 per cent for a higher rated one.
Non-taxpayers will be taxed at 20 per cent and will have the hassle of claiming this back from Inland Revenue each year. There is no option of drawing a regular income from this investment. Cash withdrawals are allowed but only under penalty.