Thursday, 29 March 2012

Means-testing fails a million pensioners

Government says means-testing Pension Credit isn't working, but Age UK tell ministers to try harder (see below).

A government attempt to try to persuade more older people to claim means-tested pension credit has had little impact, the Pensions Minister Steve Webb has admitted.

A million pensioners on low incomes are entitled to the top-up payment - which raises the state pension from £102.15 to £137.35 a week - but don't put in claims.

But when the Department for Work and Pensions selected 2,000 of them, paid them automatically for 12 weeks and then encouraged them to claim, only 8 per cent did so.

A further 2,000 were visited by DWP staff, but only 13 per cent of this second group put in successful claims.

"Despite our best efforts, mass means-testing has failed pensioners," Steve Webb said, "Pension Credit is not getting to over a million people who are entitled to it."

The minister said a a new flat rate pension of around £140, to be introduced in the next Parliament - after 2015 - would ensure pensioners "have a decent and secure income in retirement".

Michelle Mitchell, Charity Director General at Age UK says:

“While we welcome the flat rate pension for future pensioners it is still vital that the Government continues to work proactively on ways of getting money to older people who are in desperate need.

“Too many older people have had negative experiences when making claims or still think they are not entitled to the money. The result of this study confirms just how many barrier there are for older people when it comes to claiming benefits

As the study and our work with older people shows pension credit can make a significant difference to a person’s quality of life. The Government must continue to work proactively on ways of getting money to older people who are in desperate need and ensure we move more towards a system where the DWP pay entitlements rather than an individual having to work their way through the benefits maze.

"We would urge any older person who is struggling or worried about money to contact to call our free advice line on 0800 169 6565 or speak to their local Age UK."

Tuesday, 27 March 2012

Lucky the dog gets pet payout

The Halifax has been rebuked by the Financial Ombudsman Service for making a "significant error" in promising life-long insurance to pet owners.

The bank, now part of Lloyds, could find itself having to compensate thousands of customers, after the Ombudsman, Tony Boorman, found that it had misled them into thinking that cover for ongoing illnesses would continue indefinitely.

The case centred on a complaint about a dog called "Lucky" who has a skin condition costing £500 a year to treat.

The Halifax pulled out of the pet insurance business last year but has now been told that it should provide Lucky's owner with another 3 years of cover plus £200 in compensation.

The "life-long" policy cost £6 a month initially, rising to £10 a month later on, providing cover for vets bills of up to £1,000 a year.

When it was bought in 2005, Halifax congratulated Lucky's owner, know only as Ms W, on choosing "the right cover, no matter what the future brings".

The policy was particularly valuable because once Lucky's condition worsened, Mrs W was able to make claims year after year, as long as she renewed every 12 months.

However, when the bank decided to exit the business the dog's cover came to an end, because other insurers would have excluded pre-existing conditions from a new policy.

In his provisional finding Tony Boorman said:

"The description of the policy as "life-long" seems to me to be a significant error by Halifax. The policy was not life-long...and it was clearly misleading to suggest that it was."

He decided that the Halifax should provide "top-up" cover for Lucky's skin condition, if Ms W paid for a policy with another provider.

Although Lloyds and the Halifax had 30,000 pet insurance customers between them, it is thought that only a few thousand had policies which covered them for pre-existing conditions over an indefinite number of years.

A Lloyds Banking Group spokesman suggested that it would provide further help for any pet owners affected by the problem, saying "We are committed to continuing to support our customers and are sorry for the inconvenience we may have caused."

So Lucky's compensation could open the way to generous deals for thousands of other pets once covered by the Halifax.

Full text of the Lloyds statement to the BBC:

"Lloyds Banking Group withdrew from the pet insurance market last year. We acknowledge that this decision has caused concern among some customers whose pets have pre-existing medical conditions and are having difficulty finding a new insurer.

"We are urgently working on a solution for customers with pets who have pre-existing conditions and will be contacting them in the next few weeks with our proposals.

"If any customer wants to check if they are affected, they can contact us. We are committed to continuing to support our customers and are sorry for the inconvenience we may have caused." ‪ ‬

Royal Mail boss's pay

In the light of the hike in the price of a First Class stamp to 60p, you might be wondering about the pay packet awarded to Royal Mail's Canadian chief executive, Moya Greene.

Last year she took home £637,000.

Her basic was £498,000 but she arrived during the year so she only received £350,000.

Then there was a performance bonus of £142,000.

And £145,000 for extras, including the cost of moving to the UK.

Moya Greene used to run Canada Post and she had a hand in privatising Canada's railways and deregulating the airline business.

Friday, 23 March 2012

£2bn for BT pensioners

330,000 current and former employees of BT have been reassured that their pensions are safe after the company said it would pump £2bn into its pension scheme.

BT says a significant improvement in cash coming in had enabled it to tackle the huge shortfall in the scheme more quickly.

A lot of these big salary-linked pensions schemes have enormous shortfalls - that means there's not enough money in there to pay off all the people who are owed pensions.

In BT's case, it was a colossal £9bn short at the previous count in 2008 and the good news is that the deficit has come down to £4bn.

One reason is that the stockmarket's gone up since the recession - by 50%.

Now BT's putting in another £2bn, its scheme is getting closer to being fully funded and with more payments the company expects to get there 4 years earlier than planned.

Unfortunately this doesn't mean pensions linked to employees' salaries are getting a new lease of life. Companies are closing them down as fast as they can because they're so expensive to run.

In fact, BT closed its scheme to new staff ten years ago.

However, it is one of the biggest private sector pension schemes and what BT's saying today shows how they've all benefited from a bit of recovery in the stockmarket.

So if you're lucky enough to be in one of these high quality pensions, that's a bit of good news.

Looking ahead, the picture isn't quite so rosy.

Pension funds invest a lot in gilts (government bonds or IOUs), which have a large bearing on valuations.

The Bank of England's policy of Quantitative Easing - a process of buying back huge amounts of gilts while still issuing more - has distorted the market and cut the returns the funds can forecast.

BT says "it is very difficult to assess the underlying position...due to the dislocation in the gilts market".

It's a predicament which is making the whole pension fund industry squeal.

Thursday, 22 March 2012

Pensioner tax - the details

Tax change for pensioners

Special pensioners' tax-free allowance frozen at £10,500 (£10,660 for 75s and over) if you're on it before the end of the 2012-13 tax year, abolished if you turn 65 from 6th April next year.

4.41m pensioners lose out in first year, losing £83 on average - compared with what they would have expected if the system had carried on as normal.

360,000 turning 65 next year will lose £285 on average and up to £322 over the year.

230,000 pensioners will be drawn into tax - they'll have to pay it on the new £9,205 personal allowance, but wouldn't have had to pay tax if they'd qualified for the age related allowance.

40% of pensioners lose out.
50% don't pay tax so aren't affected.
10% aren't affected because their incomes are too high (because the age related allowance was removed above £29,110).

These figures are from HMRC and the Treasury.

Wednesday, 21 March 2012

Taxing child benefit

Three million taxpayers will be sent letters in the autumn asking if they or anyone in their household receives child benefit - so that it be taxed from January 2013.

The tax authorities will be targeting those earning around £50,000 a year and above. They will have to fill in self-assessment tax forms so that the benefit can be clawed back.

Those earning between £50,000 and £60,000 will lose a gradually increasing share of the benefit. Higher earners will lose it entirely.

The income tax charge could be levied from monthly pay cheques, via people's personal tax codes. Otherwise, the first tax bills for child benefit will have to be settled by the end of January 2014.

Taxing child benefit

The government will be taxing child benefit -- that's the effect of the new approach to removing it for higher earners.

This autumn HMRC will be writing to people it thinks are earning over £50,000 and have a child benefit claimant in the household.

From January 2013, when the change comes into effect, they will pay an income tax charge which will rise gradually so that all the benefit is removed once income reaches £60,000.

What it means is that all these people will need to fill in a self-assessment tax form so that the tax charge can be worked out.

If their tax affairs are very simple, it's possible that the need to fill in the form will be removed in future. The adjustment will be included in their tax codes.

How much is the tax cut worth?

How do you assess the rise in Personal Allowance to £9,205?

It will apply from 2013-14.

The 2012-13 figure is £8,105.

So, in comparison, a basic rate taxpayer would gain £220 in a year. (20% of the difference).

However, an RPI increase was already promised for 2013, which would suggest a gain of around £170 a year.

AND tax accountants have been working on the basis that 2013 would see a rise to £8,735 anyway, because the 2010 Budget Report implied that increase would come at a rate of £630 a year.

On that basis the gain for a basic rate taxpayer would be £94 a year.

Monday, 19 March 2012

Cheap loans for small businesses

What difference will the government's new National Loan Guarantee Scheme make to a small business?

Quick recap: Mr Osborne guarantees £20bn of fundraising for banks over 2 years, so they can raise money at a cheaper interest rate than normal to lend on to small businesses.

The technical name for the policy is "credit easing".

Full details tomorrow, but the burning questions for the firms and traders concerned will be what's it worth, can they get it and how much is available?

1. What's it worth?
Up to 1% off the interest rate you would have been charged outside the scheme.
One big bank offers an average interest rate to small business of just under 3%, with the vast majority of loans under 6% -- so 1% off that is a decent amount.

2. Can I get it?
You have to  pass the same credit checks as normal. There's no special leniency.
New and existing borrowers will qualify.
The lending is expected to be fixed rate and you're likely to have to provide security, either business property or your own home.

3. How much can I borrow?
There's no upper limit and loans will go right down to £1,000, though not all banks will go down that far.
Terms are likely to be 3 or 5 years.

4. How many loans will be available?
The scheme will only cover a minority of small business lending during the 2 year period.
So if it proves popular, it'll now while stocks last.

We know already that RBS/NatWest, Barclays, Lloyds, Santander and Aldermore will be offering the discounted loans, not HSBC.

Will it work? It seems likely that a lot of firms will be able to take advantage of the scheme, even though they would have borrowed the money anyway.

But the cut-price loans and the publicity could tempt some new borrowers who are ready to expand.

Stamp duty dodge

No one likes tax dodgers, especially if they're rich.

So the Coalition's rumblings against UK celebs and foreign tycoons using offshore companies to avoid stamp duty on their homes have got plenty of notice.

Which works well for Mr Osborne if, on the other hand, you are planning to do the wealthy a favour by cutting the top rate of tax.

But there seems to be a lot of confusion about what's being avoided and how much.

Just to be clear, the device of using, or setting up, an offshore company to buy a UK home would not normally get you out of paying Stamp Duty Land Tax.

Interestingly, the tax man will tell you that the very fact that the property appears in the Land Registry's records as owned by an offshore company means that stamp duty has been paid.

It is hardly surprising, then, that various well known people and Middle Eastern figures have told the newspaper that they haven't avoided the tax.

The tax benefit comes later on, because the offshore company can change hands without the duty being paid by the purchaser. In theory, then, the purchaser might be prepared to pay more to the vendor.

And the owner would probably be able to dodge inheritance tax, if everything was kept offshore.

There are three main scenarios to keep in mind:

1. You buy a home in the normal way and pay Stamp Duty Land Tax at the normal rate, which is what most people do.

2. You use an offshore company to buy it. You still pay stamp duty but the duty might be avoided by the person who buys it from you.

3. You buy the property in the normal way but use the name of an offshore company as the owner, to keep the ownership private. You pay stamp duty and the person you sell it to pays the duty as well.

Incidentally, the point about privacy is an important one, if you want to understand what is going on.

Solicitors involved in pushing these deals through are adamant that secrecy is the main motivation for the very wealthy buyers who use offshore companies.

Consider a Greek tycoon or a rich Syrian, keen to pull money out of danger and park it in London property -- currently viewed as an international safe haven and relatively cheap. They'd want to keep it all under wraps.

Having said that, it still seems likely that the Exchequer is missing out on many millions of pounds in stamp duty. The question is: how many millions?

The most headline-grabbing estimate is that £1bn is being lost, though it's not clear whether this is per year. Another number bandied about is £500m.

Tax officials at HMRC put the total Stamp Duty Land Tax gap at £250m for 2009-10, taking both residential and commercial property into account.

What I'm told by people involved in the transactions is that the yield from a clampdown would be at the lower end of these figures, though still - possibly - hundreds of millions.

Maybe you'd expect them to say that but the reasons are:

*The buyers tend to pay the initial stamp duty

*Then they tend to sit on the investment. There's not much trading which goes on afterwards.

So there's no doubt that action against this dodge is imminent, but there is doubt about how much the clampdown will yield.

Friday, 16 March 2012

Groupon's abject "Sorry"

What should we conclude from the abject apology on Groupon's website today, after accusations that it misled customers with exaggerated offers of discounts?

In response to the hugely embarrassing charge from the Office of Fair Trading that there was widespread evidence of consumer protection laws having been breached, Groupon says:

"We’re sorry."

"We've failed."

"It pains us when we fall short."

"We messed up."

Groupon does squirm a bit, blaming "the negative side effects of our growth" and firms who advertise their discounts on the website and "are unfamiliar with how much capacity their business can actually handle."

Even so, the company has promised to vet its adverts so they don't mislead.

And it will make careful checks on firms who make the offers, to ensure that they can deliver the goods.

But the question hanging over this is whether a monster organisation like Groupon can work consistently in the consumer's interest.

If you are posting hundreds of new offers a day across 50 towns and cities and growing like topsy, can you be 100% confident that they are fair, accurate and reliable?

We will know the answer in a few months because the OFT is basically saying: "I've got my eye on you!"

On the OFT, Groupon comments: "Frankly, we’re grateful any time someone takes the time to give us feedback on how to better serve our customers."

Please remember, Groupon, this is not a gentle piece of feedback, it is a threat of court action and a fine.

Groupon clampdown

Office of Fair Trading takes action against Groupon

The fast-growing discount offers website, Groupon, has promised the Office of Fair Trading to improve its trading practices.

An OFT investigation found widespread examples of Groupon's practices which in the watchdog's view breached consumer protection regulations.

Groupon has said it will change its practices to ensure that prices in its adverts are accurate and honest and that any limitations on availability are made clear.

It's also given assurances that it will check whether suppliers can provide goods in the quantities or time frame suggested.

Groupon was criticised by the Advertising Standards Authority last year for exaggerating savings, not providing evidence that offers were availalble and not clarifying terms and conditions.

The OFT warned Groupon today that it would monitor complaints closely and that any breach of the undertakings could lead to court enforcement orders.

Wednesday, 7 March 2012

Bank of Ireland rate hike

The Bank of Ireland is raising the Standard Variable Rate on its mortgages by 1.5%, affecting 100,000 customers across the UK.

The SVR will rise from 2.99% to 4.49% in two stages.

There will be a 1% in June this year and a further 0.5% in September.

A homeowner with a £100,000 repayment mortgage will see an £81 increase in monthly payments to £555 a month, according to the financial information firm, Moneyfacts.

The lender said the cost of funding mortgages had increased significantly. It added that its current SVR was considerably lower than the market norm and its rates would remain competitive.

The move comes after the Uk's largest mortgage lender, Halifax, said it would raise its SVR from 3.5% to 3.99% from 1st May.

Standard Variable Rate is a benchmark mortgage rate which large numbers of borrowers revert to after discount offers or fixed rates have expired.

Why they work at John Lewis

Today's announcement that John Lewis and Waitrose staff will be paid a bonus of 14% of their salaries is focusing attention on on the perks that this UK shopping institution gives to its 81,000 partners.

The bonus works out at a juicy 7 weeks pay. It's slightly down on last year in light of the fact that the group's profits have dropped a bit while other retailers took a hammering.

But partners can console themselves with:

* their non-contributory final salary pension scheme which they can join after 3 years' service

* 5 holiday complexes for staff, including golf courses in Berkshire and Hampshire, a sailing club and holiday resorts in the Lake District and on Brownsea Island

* discounts on most purchases in John Lewis and Waitrose

* 25 days paid holiday after 3 years, rising to 30 days after 10 years, then a full six months off after 25 years

* cheap lunch, life assurance and more.

No wonder they stick around!

Tuesday, 6 March 2012

12 million PPI letters

Millions of letters are about to be sent out by banks, telling customers that they may hav e been mis-sold Payment Protection Insurance and can apply for compensation.

Today the Financial Services Authority is expected to tell banks what the letters should say, in a move which is likely to trigger billions of pounds worth of additional claims.

Payment Protection Insurance or PPI was sold by banks, credit card companies and other financial firms to cover payments on loans if the policyholder fell ill or lost a job. But often it was to people who didn't need the insurance or couldn't use it.

£2bn has already been paid to customers who complained. On top of that, banks have been preparing a mass mailout of up to 12 million letters.

They are under pressure from the FSA, which is anxious that they contact possible victims of PPI mis-selling who haven't yet put in a claim.

The FSA is worried that the letters wo't be clear enough to prompt people to seek compensation. So the watchdog is likely to require banks to state clearly that the customers may have been mis-sold, may be entitled to compensation and should act quickly.

The trawl for more people who have lost out could lead to compensation payments worth £3bn. Banks have already set aside £7.6bn to cover the total compensation bill.