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Premium Bonds will give a poorer return from the May 2017 draw. So are they still a good place for your savings? The changes to premium b...

Thursday, 9 February 2017


Premium Bonds will give a poorer return from the May 2017 draw. So are they still a good place for your savings?

The changes to premium bonds announced on 8 February do not affect their value as a good place for your cash savings if you fulfil three conditions
  • You can buy the maximum £50,000 or close to it. 
  • You pay higher or additional rate income tax. 
  • You have used up your personal savings allowance with interest on other savings outside ISAs.

The changes are
  • the nominal interest rate is cut from 1.25% to 1.15%
  • the distribution of the prizes at the lowest end has been altered
The restructuring has been done so that the chances of winning the lowest £25 prize each month will be slightly higher from May while the chance of winning £50 or £100 will be slightly lower.

The effective interest rate earned if you discount all the other prizes apart from £25 is 0.98%. It is tax-free so is the equivalent of taxable interest is 1.22% for a basic rate taxpayer, 1.63% for a higher rate taxpayer, and 1.78% for a top rate taxpayer. This is fractionally better than the current effective rate for the £25 prizes. If you hold the maximum £50,000 you can expect to win just over nineteen £25 prizes in a typical year. At the moment the expectation is slightly fewer than nineteen £25 prizes in a year.

How do they work?
Each month the £62 billion of bonds earn interest, currently at an annual rate of 1.25%. That will fall to 1.15% from 1 May 2017. Each month the interest of £65 million or so is put into a prize fund. That total is then shared at random among the bondholders as prizes. Each bond has a 1 in 30,000 chance of winning a prize in each monthly draw. Prizes are paid tax-free so the return is better for higher rate (40%) taxpayers who have other savings to use up their £500 tax-free savings allowance or additional rate (45%) taxpayers, who get no tax-free savings allowance. 

At the moment the fund is divided so that 93% of the prizes are for £25 which uses up 75% of the money. Two million £25 prizes were paid in February 2017. Nearly 71,000 prizes each of £50 and £100 were also paid. Those three prizes use 90% of the prize money and accounted for 99.75% of the prizes.

From May those three prizes will still take the same proportion of the money and prizes. But the number of £50 and £100 prizes will fall to just over 20,000 each. The number of £25 prizes will rise to 2.2m, which will be 98% of the prizes, and take 85% of the prize money. 

Higher prizes range from £500 to £1 million. Although winning a million is a nice thought, forget it. You won’t ever win that prize. Even with the maximum £50,000 bonds you would have only an even chance of winning a million after 55,000 years. That was when humans stopped having sex with Neanderthals and 10,000 years before we started painting in caves. The odds of winning the second prizes of £100,000 are the same as the million pound prizes.

So forget about the higher prizes. Concentrate on the stream of £25 prizes. That will be slightly better from May than it was before. 

Interest rates
When considering the actual interest earned in any realistic timeframe it is those three lower prizes that should be counted. With £50,000 bonds you can expect to win a £50 or £100 prize once every five years in future - it was two years. That means the effective interest rate - the money used for the prizes you might win - is 1.04% from May compared with 1.13% before the changes. So if you can take a five or ten year view of your money that is equivalent to earning 1.29% taxable interest for a basic rate taxpayer, 1.73% for a higher rate taxpayer and 1.88% for a top rate taxpayer. 

Those are not bad rates for an instant access account. Money in Premium Bonds can be taken out without notice at any time.

With 50,000 bonds you will expect to win 20 of those lower prizes a year – the same as before May. The vast majority will be for £25. Of course chance will not produce an even return. But over time that should be the average. Here is the monthly 14 month prize record of one £50,000 holding I am familiar with 3,1,1,0,0,0,1,1,2,5,2,2,2,2. All were for £25. It is a rate of 0.9% a year tax free.

Even with a maximum holding you can only expect to win £500 or £1000 once every 22 years (up from 20 years). The larger prizes of £5000 and more are far more sparse. If you had bought £50,000 premium bonds in 770 when King Ahlred was on the throne of Northumbria and sending missions to the continent you would expect to have won just one larger prize by now. You will wait another 1247 years until the year 3264 for the next.

With smaller amounts of bonds, prizes of course are much rarer. £100 gives you an even chance of winning a £25 prize every 25 years. With one bond bought when when Stonehenge was built you might have expected about two prizes by now.

So Premium Bonds are still good for people who can afford to buy the maximum who are higher and top rate taxpayers and who have used up their personal savings allowance with interest on other savings. That probably means £30,000 to £50,000 in other savings products on top of any cash in ISAs. Additional rate taxpayers do not get the personal savings allowance. More than half the bonds are held by people who have at least 30,000 of them.

ERNIE (Electronic Random Number Indicator Equipment) who draws the winning bonds each month is not a computer. However hard they try computers cannot produce genuine truly random numbers. So ERNIE uses a process which was invented by a Bletchley Park codebreaker called transistor thermal noise to create truly random events which are then counted and combined in turn into bond numbers. Every month the Government Actuary checks the prize list for randomness before the prizes are paid.

Because every bond really does have an equal chance of of winning there is no point in cashing in 'unlucky' bonds and buying new ones. Doing that also means there is a month between selling and buying when the bonds are not in the draw. So it worsens the odds of winning.

Personal Savings Allowance
The personal savings allowance which began in April 2016 means the interest on savings is tax free up to £1000 for basic rate taxpayers and £500 for higher rate taxpayers. So the tax-free prizes are of most value to those who have other savings which have used up those allowances. Additional rate taxpayers do not get the personal savings allowance. So premium bonds are very good for them.

You can buy Premium Bonds online at www.nsandi.com where you can also check for prizes and trace lost bonds. You can also buy them by phone or post. You must be at least 16 years old. Parents, grandparents, and great-grandparents can buy them for children but only parents can do that online.

version 2.0 (earlier versions published in 2015 and 2016)
9 February 2017

Wednesday, 30 November 2016


The Government will leave carers aged over 25 stuck in a benefits trap in April 2017 despite a big increase in the amount they can earn before losing Carer's Allowance.

People get Carer's Allowance, which will be £62.70 a week from April, if they look after a disabled person for at least 35 hours a week. Many of them are parents - many single parents - some are over 60 without a state pension, and many are themselves disabled. Nearly three out of four (72%) are women.

Many carers supplement their Carer's Allowance by working part-time. If they earn more than a certain amount - the earnings limit - they lose their carer's allowance completely. At the moment that limit is £110 a week and will rise to £116 a week from April 2017.

In the past they could claim extra help through working tax credit. To get that they must work at least 16 hours a week*. But from April 2016 the new National Living Wage for those over 25 means they can no longer work 16 hours and keep below the earnings limit because 16 x £7.20 = £115.20 taking them above the £110 limit. So this year carers must choose between their carer's allowance worth £62.10 a week and working tax credit. For a lone parent that would be £76 a week, for someone over 60 £37 a week and for a carer who is disabled themselves it could be £94 or £119 per week depending on their disability. (Thanks to entitledto for those WTC calculations).

The same choice will have to be made in 2017/18 despite the big rise in the earnings limit to £116.

From April 2017 the National Living Wage will be £7.50 an hour. So 16 hours work will bring in £120, well above the new earnings limit. So again carers will have to choose between Carer's Allowance of £62.70 and Working Tax Credit of around £76.

The 5% of those on Carer's Allowance who are under the age of 25 will not be affected. The minimum wage for 21-14 year olds will rise to £7.05 in April so 16 hours work will bring in £112.80, well below the new limit of £116.

But could it be that the DWP has simply got its sums wrong? The new limit would work if the National Living Wage was not rising in April. Sixteen hours at £7.20 is £115.20, just below the new earnings limit. But with the announcement in the Autumn Statement that the National Living Wage is rising to £7.50 the new limit is £4 too low.

The DWP did not accept a mistake had been made. It told me that the rise in the earnings limit will help 2000 carers. It also says that the limit is kept under review and any increase must be "affordable and warranted".

There are more than 785,000 carers so 2000 is about a quarter of one per cent of them. If all those 2000 get Carer's Allowance that will cost an extra £6.5 million in 2017/18.

There is one possible escape for carers from the trap. By paying £8 a week - about £35 a month - into a personal pension the income that counts towards the earnings limit will be reduced to £120 and carer's allowance can still be claimed. The details are explained in my longer blogpost from May.

30 November 2016

*The number of hours people need to work to get Working Tax Credit is normally 30. But those responsible for children, disabled people, and anyone aged 60 or more need only work 16 hours to qualify. A couple with children normally need to work at least 24 hours between them as well as at least one of them working 16 hours. But the 24 hour rule is waived if either partner is disabled or over 60 or in some other circumstances.

Monday, 28 November 2016


The state pension will rise with the triple local from 10 April 2017 and some other benefits will increase by 1%, the Government announced on 28 November. 

Inflation hit 1% in September (CPI) and the revised rise in earnings May to July (KAC3) was 2.4%. benefits and pensions will be uprated by four different rates from Monday 10 April 2017. The rates will be 0%, 1%, 2.4%, and 2.5%. All amounts are rounded to 5p or 1p so may be slightly more or less than the stated rate of increase. 

Some benefits will be frozen. The Summer Budget 2015 listed the working age benefits that would be frozen for four years from 2016/17 to 2019/20. They are
  • Child Benefit
  • Jobseekers’ Allowance
  • Employment and Support Allowance
  • Income Support
  • Housing Benefit under women’s state pension age
  • Local Housing Allowance rates
  • Child Tax Credit
  • Working Tax Credit
  • Universal Credit (but the taper will be reduced from 65% to 63% which will mean a slight rise in benefits for those at work.
Any disability premiums or extras paid with any of these benefits will NOT be frozen. They will rise by 1%.

It is likely that in England council tax support, paid by local authorities, will also be frozen for people under women’s state pension age. In addition some English councils will cut the amounts paid to people further as they try to balance their books. In Scotland and Wales that will probably not be true.

Women’s state pension age at April 2017 will be 63 years and 9 month rising to 64 and 6 months by March 2018.

Other benefits including Universal Credit, tax credits, Housing Benefit, and council tax support will also be cut for some of those with children. 

Rise by 1%
Benefits which are not frozen will rise by the rate of CPI inflation for September 2016 which was 1%.

They include
  • Attendance Allowance - up by 80p to £83.10 a week for higher rate and 55p to £55.65 a week for lower rate
  • Personal Independence Payment - will remain the same as Attendance Allowance and rise by 80p to £83.10 a week for higher rate and 55p to £55.65 a week for lower rate
  • Disability Living Allowance - up by 80p, 55p, or 20p to £22 a week for lowest rate
  • Carer’s Allowance - up by 60p to £62.70 a week
  • Bereavement Allowance - up by £1.15 to £113.70 a week
  • Maternity Allowance - up by £1.40 to £140.98 a week
  • Statutory Maternity/Paternity/Adoption/Shared Parental Pay will be the same as Maternity Allowance
  • Statutory Sick Pay - up by 90p a week to £89.35.
  • All parts of the state pension which are NOT Basic State Pension or the full New State Pension. Details below.

Employment and Support Allowance falls partly under frozen benefits and partly under benefits that will be raised by 1%. The basic ESA of £73.10 a week is frozen. The extra paid to those who cannot work - the support component - will rise by 35p a week, an increase of 0.3%.

The 1% rise in April 2017 is well below the expected rate of inflation then which is forecast to be around 2% and to rise to 2.6% later in the year. 

Rise of 2.5%
The basic state pension and the new state pension will rise by 2.5%. They are covered by the so-called triple lock which guarantees an increase in line with prices measured by the Consumer Prices Index, earnings, or 2.5% whichever is the highest. CPI was 1%, earnings rose by 2.4%, so they will increase by 2.5%.

That will mean 
  • a rise in the basic pension of £3.00 from £119.30 to £122.30
  • a rise in the full new State Pension of £3.90 to £159.55.
Any extras paid with the basic pension – SERPS, State Second Pension (both known as additional pension), graduated retirement benefit, and extra pension for deferring a claim will rise by 1% in line with the CPI.

Any amount of the new State Pension which was above £155.65 in 2016/17 will also rise by only 1%.

It is worth noting that the Triple Lock only adds 15p a week to the state pension rise. The law currently provides for it to rise by the increase in earnings, That was 2.4% and would have resulted, after rounding, in a basic state pension of £122.15 and a new state pension of £159.40.

Rise by a different amount
Pension Credit is an anomaly in the benefit system. There are two parts to it.
  • Guarantee credit paid to men and women who are aged from women’s state pension age to 65.The standard minimum guarantee credit will rise 2.4% in line with earnings. The rate for a single person will increase by £3.75 to £159.35 a week and by £5.70 to £243.25 a week. 
  • Savings credit paid to men and women aged 65 or more who reached state pension age before 6 April 2016. Savings credit is NOT paid to anyone who reached state pension age from that date. The savings credit will rise by around 2.6% and the threshold at which it ends will rise by just 1% to £13.20 and £14.90.

The overall effect of the rise in the state pension and in pension credit will mean that people on pension credit will see a rise in their overall income of £3.75 (single) or £5.70 (couple) for the poorest 1.1 million who get no savings credit. For the 1.2 million who do get savings credit the rise will be £3.43 (single) or £5.31 (couple) for most of them. For many that will be a percentage rise of less than 2%.

Compared with April 2016
In April 2016 all benefits except the state pension were frozen. Some by the decision announced in the Summer 2015 Budget and others because CPI inflation in September 2015 was -0.1% which led to a zero rise. So for those on working age benefits that are increasing in April 2017 it will be their first rise for two years. 

The basic state pension rose by 2.9% in line with earnings. That £3.35 increase was more than the £3.00 due in April 2017. The extras paid with the basic state pension were frozen.

Benefit Rates 2017/18

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28 November 2016

Tuesday, 22 November 2016


The Treasury has released details of half a dozen of the more popular measures to be announced in the Autumn Statement this afternoon (23 November). Here are three.

Reduction of the Universal Credit taper rate from 65% to 63%. This is the deduction from Universal credit for every extra £1 earned. For those who also claim council tax support in most areas the taper will reduce from 72% to 70%. For those who also pay National Insurance and Tax the taper will fall from 81% to 80%. In other words those people will keep 20p in every pound earned rather than 19p. The Treasury says this will "increase work incentives" for 3 million families. As if being poor wasn't enough of an incentive. 

Benefit specialists say this will be a small improvement but will not offset the cost of the loss of the amount they can earn before their benefit is cut which happened in April. The change will probably happen in April 2017.

Banning letting agent’s fees in England. This measure will help 4.3 million tenants in private rented housing. Agent's fees, which have to be paid upfront, average £337 according to Citizen's Advice. Shelter has found that 1 in 7 pay more than £500. 

Housing specialists say that agents will simply make landlords pay the cost and landlords will simply pass the cost to tenants through higher rents. Housing Minister Gavin Barwell has opposed this move in the past, tweeting in September "Bad idea - landlords would pass cost to tenants via rent. We're looking at other ways to cut upfront costs & raise standards". Which is slightly embarrassing.

No date for the change has been announced.

Increasing the National Living Wage to £7.50 an hour from April 2017. The National Living Wage rate of the National Minimum Wage was fixed at £7.20 in April 2016, There will also be more money spent to enforce the National Minimum Wage.

This 4.17% rise will keep it well below the Living Wage as assessed by the Living Wage Foundation. It puts that at £9.75 in London and £8.45 an hour in the rest of the UK. Someone earning £7.50 an hour for 40 hours a week will lose 82p an hour to tax and National Insurance (using announced or predicted thresholds). 

The new language
The statement strings together the new Government's buzz phrases increasing fairness" "an economy that works for everyone" "help people’s money go further" "those who are struggling to get by" "ordinary working class people" and "a country that works for everyone". 

The Chancellor will make his Autumn Statement at 1230 on 23 November 2016.

23 November 2016
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Monday, 21 November 2016


The Bank of England has announced that the amount of savings that is protected if a bank or building society goes bust will rise from £75,000 to £85,000 on 30 January 2017. 

In reality it has little choice. The limit is set by an EU Directive at €100,000. That came into force in 2010. Before that the UK had a limit of £50,000. When the EU harmonised protection in all member states the countries which did not use the Euro had to fix the limit by converting €100,000 to their own currency.

At the time that level was £85,000 and that was the new limit from July 2010. The conversion rate is normally reviewed every five years and by the middle of 2015 the pound had strengthened against the euro, When the new level was set on 3 July 2015 €100,000 was worth a little over £71,000 which the Government rounded up to £75,000 - the maximum the Directive allowed. It also delayed the introduction of the new limit until 1 January 2016. 

Normally the limit in Sterling would be fixed for five years regardless of currency fluctuations. But the EU Directive has a provision which forces Governments to review it earlier in “unforeseen” circumstances. 

The wording of the Directive means the Government must take action if it accepts the fall in Sterling was unexpected. “Member States shall make an earlier adjustment of coverage levels, after consulting the Commission, following the occurrence of unforeseen events such as currency fluctuations.” (Directive 2014/49/EU Art.6 para.5)

Since the Referendum on leaving the EU the pound has fallen by about 15% against the euro and today €100,000 is worth about £85,000. 

The Bank of England, through the Prudential Regulation Authority, has accepted that this fall in Sterling and the vote to leave the EU were unforeseen when the level was fixed in 2015. So it has taken action to change the UK protection to its current level against the euro. It has chosen the level of £85,000 at which it was fixed for five years from 2010. 

Although the change will start from 30 January the regulator proposes giving banks, building societies, credit unions, and others which offer savings accounts up to five months after that date to adjust all the information they give to customers. It will not require them to tell customers individually of the change but expects their staff to be able to answer questions correctly at least from 30 January 2017. 

While the UK remains in the EU the Government will have to consult the European Commission about any change. It is not clear if it has yet done so.

In August, when I wrote about these rules in the Financial Times, the Treasury would not say if it was considering putting the matter to the Commission. A spokesman told me “The Government will abide by EU regulation until we leave. So we are where we are.”

Technically this change is also subject to public consultation but it would be very surprising if it did not go ahead as planned. If you want to comment read the Consultation Paper CP41/16 and submit your views by 16 December.

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21 November 2016 

Sunday, 23 October 2016


More than 100,000 people who bought an annuity since 2001 could get compensation worth thousands of pounds because insurance companies sold them the wrong product and did not do enough to help them buy the right one. If you have an annuity you should read this blog.

A new report from the Financial Conduct Authority has found that some firms did not always ensure their customers got the best annuity deal. If they did not then compensation may be due. That compensation could be thousands of pounds for the past and they will also get a higher income for life in the future.

The people who are definitely affected 
  • Bought an annuity at some time from July 2008
  • Bought it from the same insurance firm where they saved up their personal pension
  • Had a health issue - including smoking - when they bought it
  • Were sold an annuity that did not take account of that health issue

If that is you then you should ask the firm who sold you the annuity for compensation to cover the money you have lost. The FCA estimates it could be worth on average between £120 and £240 for every year the annuity has been paid. It could be a lot more. Over a number of years even the average amount could, with interest, be in the low thousands of pounds and the annuity could be increased by hundreds of pounds each year for the future.

There may be hundreds of thousands of others who can also get redress. See BROADER CASES below.

Who can get redress?
The people affected bought their annuity from the same company they saved their pension with. For example, they saved up in a personal pension with Standard Life and at pension age they bought a Standard Life annuity. I mention Standard Life because it is the only firm so far to admit it has been asked to review its cases. But all annuity providers are in the frame. It does not matter who you bought it from. Other major providers in the past include Prudential, Friends Provident, Legal & General, Norwich Union, Scottish Amicable, Scottish Equitable, and Scottish Widows. But these are just examples to jog your memory. It does not matter who sold you the annuity. If you fulfil the conditions you could get compensation.

What went wrong?
An annuity is a pension for life. You pay the insurance company a lump-sum and it promises to pay you an income every month until you die. A standard annuity assumes you will live an average length of time – at age 65 that is now around 20 years. So your lump-sum has to be spread over that period. But if you have a health issue which will shorten your life the annuity will be paid over fewer years. So you should get more each year. These are called ‘enhanced’ annuities – or sometimes ‘impaired life’ annuities.

The health issues can include smoking, cancer, heart problems, diabetes, or dozens of other conditions which are known to shorten life. The increase in your annuity can be anything from 5% to 100%. Perhaps more in some cases. Smoking for example used to give an increase of up to 17%.

So if you had a health issue but were sold an annuity for a person with no known medical conditions you would have got less money each year than you should have done.

Insurers failed
In the past the insurance companies did not encourage customers to declare all their health issues nor inform them properly that a standard annuity may be too low. They used various techniques to encourage customers to use a pension fund to buy a standard annuity from them.

Research by MGM Advantage found that more than two out of three annuity buyers should have had an enhanced annuity but insurers who sold their own customers an annuity only paid enhanced rates to one in fifty. 

The Financial Conduct Authority found that some firms did not give clear information about enhanced annuities and sometimes understated the extra a customer with health issues might get. Some firms that did not sell enhanced annuities did not even mention them to customers.

So if you bought your annuity from the firm you saved your pension with and had a health issue that was not taken into account you have a clear case for claiming compensation. Remember that being a smoker is a health issue that should have been taken into account.

The official line is that claims can go back to July 2008. But the regulator has confirmed to me that claims can go back further. The previous regulator – the Financial Services Authority – published a report in August 2001 Buying a Pension Annuity and the trade body the Association of British Insurers issued guidance on the subject 8 August 2001. So people could get redress for annuities which were mis-sold back to then. So if you bought your annuity between August 2001 and June 2008 you should also put in a claim.

What to do next
  • Contact the firm where you saved up for your pension or, if you cannot remember it, your current annuity provider.
  • Give the reference numbers of your pension plan (if you still have them) and the annuity you currently get. If you have not got either then give as much information as you can including your full name and date of birth and all the addresses you have lived at since the date you are claiming from.
  • Mention the Financial Conduct Authority Review of Annuity SalesPractices TR16/7 published on 14 October 2016 (and the 2001 FSA report and ABI guidance if you bought the annuity before July 2008)
  • Say you believe you were mis-sold a standard annuity when you should have been sold an enhanced annuity due to your health conditions – list those conditions and remember to include smoking if you were a smoker.
  • Say you were not given clear information about the benefits of looking at the whole market to get the best deal.
  • Say you want your case to be reviewed and compensation paid for your past loss and you want your annuity to be enhanced in the future.
  • If having too little money has caused you distress or damaged your health further – perhaps by not being able to afford adequate heating or food – explain those circumstances and ask for compensation for that as well. 
If your claim is rejected, or partly refused, or you do not get any answer at all after eight weeks you should refer your case to the Financial Ombudsman Service . It is quite likely the insurance firms will be difficult. So don't take no for an answer!

How many cases
The official line is that 90,000 people have been mis-sold an annuity. But that only includes customers of seven companies back to July 2008. Those firms sell two thirds of all annuities. If we add on the other third the number rises to 135,000. And if we take sales back to 2001 then it could be 250,000 who were mis-sold.

Why claim?
The official line is that people with annuities who think they may have a claim need do nothing. The firms involved will review their sales and make contact with individual customers who have a claim. But those reviews only go back to July 2008 and only cover health issues. There is no guarantee that all the customers affected will be contacted. So it is safer to put in your own claim for compensation.

The Financial Conduct Authority concentrated on people who had a medical condition at the time they bought the annuity which would have led to them getting more money each year. But one annuity specialist has said to me that is only part of it. He believes anyone who bought an annuity from the same firm they saved up their pension with should consider making a claim.

That is for two reasons. 
  • If your own pension provider offered you an enhanced annuity it may not have been the best on the market. Different firms and different undertakers offer different rates for different conditions. So a firm that offered the best smokers rate might make a poor offer to a diabetic. So if you did not look around the whole market you probably did not get the best deal. 
  • The annuity offered by your own firm was very unlikely to be the best on the market. Standard annuities vary widely and if you do not look across all providers you cannot be sure you will get the best annuity. Firms were very skillful at leading customers to take their own annuity rather than going to the market. Only a half to two thirds looked at the offerings of other firms. And many of those ended up with their own pension provider.
Guidance on the importance of giving customers what was called the 'open market option' began in August 2001 and was strengthened after that. So anyone who did not get independent advice and look across the whole market could have got a better deal. In many cases that will be the fault of the insurer who did not make that information clear. When it sold you tits own annuity that was probably a mis-sale.

If you think these broader mis-sales may apply to you then follow the advice earlier about putting in a claim. 

Once all these broader options are taken into account the number of mis-sold annuities could be in the millions. Sadly many of those affected, especially those with health issues, could now be dead. It may be possible for their heirs to put in a claim, especially if probate has not been granted or their death was relatively recent.

24 October 2016
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Wednesday, 19 October 2016


Millions of disabled people on state benefits will get benefit rises next April that are less than the price of a first class stamp.

Their benefits will increase by 1% next April in line with the September rate of inflation measured by the Consumer Prices Index. That rise will be the first for two years because in April this year their benefits were frozen after a period when inflation was zero or negative.

But for many the April 2017 rise in their weekly benefits will be barely be enough to buy a second class stamp never mind a first class one.

More than half a million pensioners on the lower rate of attendance allowance will get an increase from £55.10 a week to £55.65. That 55p rise is just enough to buy one second class stamp. By April next year it may not even do that. Even the 880,000 who get the higher rate of £82.30 a week who will get an extra 80p will only be able to buy one 75p second class stamp for a large letter.

If their carer is under pension age they will be among 775,000 who get an increase in carer’s allowance from £62.10 to £62.70. But their rise of 60p will be 4p short of the current price of a 1st class stamp.

Younger disabled people on the lowest rate of Disability Living Allowance, 740,000 of them, will see their weekly payment rise from £21.80 to £22. They will have to save their increase for three weeks to afford one 55p second class stamp.

In some ways these groups are lucky. Millions of other face a second year of their benefit being frozen. Child benefit, Jobseeker’s Allowance, income support, housing benefit, and other working age benefits for people who are not disabled will remain frozen in April 2017. Those benefits were frozen last April and will not rise again for another three years until April 2020. And many on benefits will see a fall in their income as the latest round of cuts is applied.

The one group who will be able to afford to send parcels rather than letters are state pensioners. The will get a 2.5% rise under the triple lock which guarantees a rise by the highest of prices, earnings and 2.5%. The rise in prices was 1% (CPI) and in earnings was 2.4% (KAC3 revised). The 2.5% increase will mean the basic state pension rises by £3 a week from £119.30 to £122.30 and the new state pension will increase by £3.90 a week from £155.65 to £159.55.

Those on the means-tested pension credit will get a rise of 2.4% (£3.75 single, £5.70 couple) and those who get on the savings credit part of it will get lower increases.

More details of the April 2017 benefit changes which have now been announced

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29 November 2016