In its annual report, NS&I admits it undershot its £35 billion net financing target last year, as savers grabbed their money and ran far more swiftly than expected after rate cuts.
Sarah Coles, personal finance analyst, Hargreaves Lansdown:
“2020 was a strange year for us all, but for NS&I it took the 160-year-old institution into unfamiliar and unpredictable territory. Its traditional customers were alarmed by plans to change the way Premium Bonds are paid, while its newer customers behaved in ways it never expected, and when rates were cut they grabbed their money and ran.
“Taking the top spot of the best-buy tables meant it wasn’t just traditional NS&I customers who flocked to the institution. Rate hunters also piled into products at record rates. It meant that when so many of them were slashed to the bone, these new customers were quick to withdraw their cash and look for a more rewarding home. NS&I has admitted that money flowed out far faster than it had anticipated, and it undershot its target.
“The aim to get Premium Bonds paid directly to people’s accounts was eminently sensible. It avoids the risk of people overlooking prizes entirely, and makes it far more difficult for people to lose touch with life-changing sums of money. However, the timing was less sensible, because it came at a time when the organisation was incredibly busy.
“In many ways the change was a success regardless, because almost 9 in 10 prizes in the June draw were paid directly into accounts or used to buy more bonds. However, NS&I has abandoned plans to phase out cheques entirely, to avoid worrying the large number of customers who were alarmed by the prospect.
“Despite dealing with an unpredictable and shocking year, NS&I delivered more money to the government’s coffers than ever before – and more than twice the amount it raised a year earlier. With the green bond on the table for 2021/22, it has the potential to deliver another bumper year.”
The undershoot
The net financing target was initially set in March 2020 at £6 billion (plus or minus £3 billion). However, within weeks it was clear the government was going to need huge quantities of new funding, so in mid-April NS&I axed the interest rate cuts that had been announced in February and scheduled for May. Its competitors cut rates, and with more people saving during lockdowns, in the first quarter alone it raised £14.5 billion. The government then increased its financing target to £35 billion (plus or minus £5 billion).
Money continued flowing into NS&I, and given how cheaply the government was able to borrow, it couldn’t justify offering the best rates on the market, so in September it announced huge rate cuts for November. It was surprised by quite how quickly money was taken out during the last quarter of the financial year, so it ended up significantly undershooting the target, and raising £23.8 billion.
The March 2021 Budget set NS&I’s Net Financing target for 2021-22 at £6 billion (plus or minus £3 billion).
The U-turn on cheques
In September 2020, NS&I announced plans for all Premium Bond prizes to be paid direct to bank accounts or reinvested into bonds, and cheques to be phased out from December.
As the deadline approached, it was inundated with calls from worried customers who hadn’t been able to get through to customer services in order to provide their bank account details and others who thought they would be forced to manage the whole thing online.
It announced in December that it would pause the plan, and has now performed a U-turn. Winners can opt for cheques if they like.
Chief Executive, Ian Ackerley, said:
“On reflection, we regret that we undertook this change at a time when our operations were already under strain”.