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Wednesday, 21 October 2015

GET £140 OFF YOUR WINTER ELECTRICITY BILL

UPDATED 30 OCTOBER 2015

Two million people can get £140 off one electricity bill this winter. It's called the Warm Home Discount. Some will be paid automatically. Others have to claim or they will not get it. And the sooner they claim the better. Some who should be eligible are excluded. And some who switch to a smaller supplier will lose the right to claim it.

Low income pensioners
The biggest group – called the ‘core group’ – are more than one and a half million older people who get pension credit. They must get the guarantee part of pension credit - which means their income is no more than £151.20 a week (single) or £230.85 for a couple. Pension credit guarantee credit will make their income up to that amount. They must have received it on 12 July 2015. which means they must have been born on 5 December 1952 or earlier. They qualify even if they also get the savings credit part of pension credit. But not if the ONLY get the savings credit. 

Most people in the core group should not have to claim. Suppliers will use information from the Department for Work and Pensions to pay them automatically. However, some who qualify may not be identified. If you have heard nothing by Christmas and you get pension credit guarantee credit contact your energy supplier. Some of the smaller suppliers do not pay the discount and if your energy is supplied by one of them you will not get it. Supplier details below.

In past years some pensioners who did not qualify automatically could qualify under the broader group described below. That is less likely to happen in 2015/16.

Younger people
The broader group who qualify are low income households where there is a young child or someone with a disability. People in this group have to make a claim.

The energy suppliers now all have the same rules for what is a low income, what age of child counts, and what counts as a disability. In the past they set their own rules. This year some who qualified last time may not qualify this year. 

The rules are complex. But if your income is low and there are young or disabled children or disabled adults in the household you may be entitled to the discount.

If you think you may qualify contact your supplier using the phone number on your bill and say you are asking about the Warm Home Discount. Or look online on your supplier's website and search for Warm Home Discount. This list of suppliers has links to their websites. Almost all take you direct to the Warm Home Discount page. With one or two you may have to do a search.

Claims should be made as soon as possible. Suppliers have a fixed amount of money for this group and when that runs out the supplier will close its scheme for the broader group. Some may close by the end of December.

People in the broader group should not switch supplier until the discount is made. They could lose it if they do. 

Payment
The discount is normally taken off your winter electricity bill which could mean waiting until March 2016. People in the core group who have moved supplier since 12 July 2015 will be sent a cheque by their old supplier. Broader group customers who move supplier before the discount is made will probably lose it. People on prepayment meters will have the credit added to their key. Some will be sent a voucher to take to the Post Office to credit the key. Other suppliers will update the key automatically. All discounts should be made by the end of March 2016. 

Supplier
The bigger electricity suppliers are legally obliged to offer the Warm Home Discount and some others do so. Twenty brands offer it.

Atlantic Energy (SSE)
British Gas
Co-operative Energy
EDF Energy
E.on
Ebico (Equipower and Equigas operated by SSE)
First Utility
Manweb (Scottish Power)
M&S Energy (operated by SSE)
Npower
OVO Energy
Sainsbury's Energy (British Gas)
Scottish Gas (British Gas)
Scottish Hydro (SSE)
Scottish Power (SSE)
Southern Electric (SSE)
SSE
Swalec (SSE)
Utilita
Utility Warehouse

Twenty smaller suppliers do not give the Warm Home Discount. Some of these are in the top ten for cheap tariffs. But switching to them will mean you will not get the warm home discount in future years and will not be able to claim it this year. 


Better Energy
Daligas
Ecotricity
Extra Energy
Fairerpower Energy
Flow Energy
GB Energy
GnErgy
GoEffortless Energy
Good Energy
Green Energy UK
Green Star Energy
iSupply Energy
LoCO2 Energy
Peterborough Energy
Robin Hood Energy
Southend Energy
Spark Energy
Woodland Trust Energy
Zog Energy

The Warm Home Discount applies in England, Wales, and Scotland. It does not apply in Northern Ireland.

The Warm Home Discount scheme does not apply to people in park homes (static mobile homes) though for the first time this year suppliers do have the discretion to extend it to them or to offer other help.

More information
The official Government guide to the Warm Home Discount.

The Home Heat Helpline 0800 33 66 99 can give advice about the Warm Home Discount and other schemes to help with heating bills. You could also contact the Energy Saving Trust or the Centre forSustainable Energy  They can give advice about local help with insulation as well as national schemes.

30 October 2015 
version 1.16

Tuesday, 20 October 2015

FROZEN PENSIONS ABROAD

When the state pension rises in April by £3.35 a week to £119.30 more than half a million state pensioners who paid for their pension for all or most of their working lives will get no increase. 

They live in more than 150 countries around the world where the UK pension is paid but is frozen - it never increases with inflation.

Unequal abroad
UK pensioners living abroad fall into two groups.
  • About 660,000 UK pensioners who live in the EU or one of 20 or so other countries get their UK pension increased each year as it is back home.
  • Ex-pats living in the other 156 sovereign states of the world do not get this rise. Their state pension is frozen at the rate it was first paid abroad. So 560,000 UK pensioners who live in these countries are locked out from any rise even though they have paid their taxes here, often for all their working life.
Nine out of ten of these ‘frozen’ pensioners live in four countries - Australia, Canada, New Zealand, and South Africa. People in their nineties may be living on a UK basic state pension first paid to them abroad in 1985 which is just £21.50 a week instead of the £115.95 which would they would get in 2015/16 if they lived in the UK. In 2013 the record was said to be held by Annie Carr, aged 100, who got a pension of just £6.12 a week, first paid to her in 1970 when she moved to be with her daughter in Australia.

But another 55,000 live in more than 100 countries around the world. 

John Markham, the Director of UK Parliamentary Affairs for the International Consortium of British Pensioners, is trying to gather support among people in the UK aged 45 to 65 who may plan to retire to a frozen country without realising it. 


"A lot of people of that age consider emigrating and they don't know their pension will be frozen. Also true of a lot of ethnic minorities. People from India and Bangladesh, for example, simply don't know that if they return to their birth countries their UK pension will be frozen." 

The reasons for this odd division between frozen countries and the rest are historical. After World War II the UK entered into agreements with a number of countries where it had interests or a special relationship to pay full pensions to UK citizens living there. Joining the EU added more countries to the list as no discrimination is allowed against citizens of member state and EU enlargement has brought more in.

Border anomalies
The result is that UK pensioners living in the USA get their pensions uprated each year as if they were back home. Across the border in Canada they are frozen. In the Philippines UK pensions are raised each year with inflation. In nearby Australia they are not. Other anomalous pairs of neighbours where UK ex-pats live include Barbados, uprated; Trinidad frozen. France uprated; Andorra frozen. Israel, uprated; Lebanon, frozen. Mauritius uprated, Madagascar frozen.

Cost
The latest estimate for paying all ex-pats the same pension as they would get in the UK this year is £655 million. 

John Markham recognises that cost is a key issue.
"We want to discuss an age-tiered solution. This year index the pensions of the over 85s. Next year, 80-85s. Then those 75 to 80. And so on. That would cost around £100m in the first year, a figure they could slip through without anyone noticing. An alternative suggestion is just to do it for new retirees from, say, next year. That would cost nothing. Once it is done for one group it's a foot in the door and harder to defend doing for others."

He also says that every UK pensioner who chooses to live abroad saves the country a lot of money by not relying on the state support they would get at home.  - they don't use the NHS or care services. The campaign puts that figure at £7,700 per year in health care, age related benefits and miscellaneous pension credits for each 'frozen pensioner' a total of £3 billion a year. 

The Campaign believes that unfreezing pensions would encourage more people to retire overseas, potentially saving UK taxpayers more money over future years.
Government view
Many politicians have taken up the cause of frozen pensions over their years in opposition. But once in Government they look at that cost and decide they prefer to uphold the status quo. As a result governments of all colours have ignored parliamentary motions and whipped their MPs to win every vote in Parliament. 

In 2014 Parliament passed the Pensions Act which introduced the new State Pension. It also set in legislative stone the discrimination between frozen and uprated countries.

A DWP spokeswoman told me "People who are considering emigrating abroad should always consider the impact the move could have on their future State Pension entitlement.”
Court action
Governments have also defended the current rules in court. A key legal challenge was brought by a campaigner living in South Africa, Annette Carson. Her case was finally rejected in 2005 by the House of Lords. 

Twelve years ago the ex-pat campaigners began a parallel case in the European Court of Human Rights to try to find some fresh lever to move the Government. Thirteen pensioners argued that under the European Convention of Human Rights the UK government had to protect their property and was prohibited from discrimination. The state pension was property, paid for by National Insurance contributions. So by paying increases in some countries but not others the UK Government was discriminating against their enjoyment of their property according to where they chose to live.

It was a clever argument but in March 2010 the Grand Chamber of the European Court of Human Rights rejected it by 11 votes to 6, ruling that freezing the state pensions paid to people in 150 overseas countries was not a violation of their human rights because the circumstances of people were different depending where they lived and therefore discrimination in their treatment did not breach the convention.

Countries where the UK state pension is uprated 
Only in the 51 countries listed here does the UK state pension rise each year as it does in the UK.

Alderney, Austria, Barbados, Belgium, Bermuda, Bosnia Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Falkland Islands (frozen but Falklands Legislative Assembly tops up to UK level), Finland, France, Germany, Gibraltar, Greece, Guernsey (includes Herm, Jethou, Lihou), Hungary, Iceland, Ireland, Isle of Man, Israel, Italy, Jamaica, Jersey, Kosovo, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Mauritius, Montenegro, Netherlands, Norway, Philippines, Poland, Portugal, Romania, Sark (includes Brecqhou), Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United States of America.

Background with links to official documents up to the start of 2014 are contained in this House of Commons Library note

The Pension Justice website contains a lot of useful information and case studies. The campaign also has a Facebook page and is on twitter @pensionjustice
21 November 2015
vs 1.01



Monday, 19 October 2015

GAD paper on the Triple Lock

This paper, "Triple Lock" increases to state pension - Background, effects, and risks was prepared by the Government Actuary's Department and published on its website on Friday 9 October 2015. Within a very short time it was taken down and replaced with a page saying it had been published in error. Later the Treasury said it was a 'discussion paper' which had been uploaded by the IT department by mistake.

Its finding that the triple lock cost £6 billion in 2015/16 and would eventually take nearly a quarter of the National Insurance Fund will be controversial. As will the implicit conclusion that the triple lock is unsustainable in the long-term. That is a view which I understand the Government Actuary himself holds. 

Personally I think the triple lock will last for this Parliament but not beyond. How pensions will be uprated after that will be a major political issue at a time when benefits for younger age groups will have been frozen for four years and those for others linked to CPI - which is currently around zero - or cut sharply.

The paper is published here in the interests of open government. 















19 October 2015
vs. 1.01


Wednesday, 14 October 2015

FILL THAT GAP - reach pension age before 6 April 2016

These rules apply to men born before 6 April 1951 and women born before 6 April 1953. There are different rules for younger people

You need 30 years of National Insurance contributions to get a full state pension. If you have fewer than 30 years National Insurance contributions you will get a reduced pension. So if you have 20 years you will get 2/3rds of a full pension. 

It may be possible to pay some extra contributions now to fill that gap. They are called voluntary Class 3 National Insurance contributions. But the rules about which gaps you can fill are complex and can seem unfair.

Contributions at work
You will have got contributions by being in work and paying full Class 1 contributions. You may not even have noticed as they are just deducted from you pay. If you earned very little then no NI contributions would have been paid. For a narrow band of earnings above very little but below where you actually started to pay them then you would have been credited with them. 

Reduced rate contributions paid by some married women do not count. If you have gaps caused by paying those contributions you cannot fill them. It was a very unfair system but nothing can be done about it now.

If you were self-employed and paid Class 2 contributions they count towards your pension equally with Class 1.

Credits
Some people who did not pay contributions were credited with them. The rules about credited contributions are very complicated. But broadly speaking you may be able to get credits for years you 
  • Got child benefit for a child under 16 (that changed to under 12 from 2010)
  • Were unemployed and looking for a job on Jobseeker's Allowance - sometimes even if you were not on benefit
  • Were on employment and support allowance, or were eligible for it, or got statutory sick pay
  • Received working tax credit 
  • Cared for someone who was sick or disabled
  • Got maternity or paternity benefits 
  • Were male and did not work in the few years approaching the age of  65.
Some credits are given automatically; others have to be claimed. The gov.uk website publishes a full list of credits and which have to be claimed. There are also details of how to check your record. It is all ridiculously complicated but can be very worthwhile!

If you find you still have gaps in your National Insurance record and you have less than 30 years contributions you may be able to fill them now. 

Six years back
The general rule is you can only fill a gap which is up to six years old. So now, in 2015/16, you can fill gaps back to and including the tax year 2009/10. The cost of those contributions depends how old they are. For 2009/10 to 2012/13 they will cost £733.20 for each year you fill. Filling 2013/14 will cost £704.60 and 2014/15 will be £722.80. Those rates will probably change from 6 April 2016. 

Longer ago
Some people are allowed to fill much older gaps going right back to 1975/76. The people who can do this are 
  • men born 6 April 1945 to 5 April 1950 
  • women born 6 April 1950 to 5 October 1952 
They all reached state pension age between 6 April 2010 and 5 April 2015. They must also have at least 20 years National Insurance contributions – paid or credited (though at least one must have been actually paid).

You must pay these extra contributions within six years from the date when you reached state pension. So it is too late for the oldest in this group and there is not long left for some of the slightly younger ones. The cost is £733.20 for each year paid. 

This group can also pay to fill gaps back to 2009/10, but only for years before they reached state pension age.

What you get
Remember it is only worth paying enough contributions to ensure you have 30 years. Paying for extra years after that does not increase your pension further. In exchange for the contributions you will get extra pension of around £200 a year from the date you pay. So the payback time for the cost of the contributions is less than four years. The pension you buy is basic state pension and will rise by at least 2.5% a year until April 2020 and after that in line with earnings, unless the law is changed.

More information: Filling older gaps
Paying Class 3 voluntary national insurance contributions

14 October 2015
vs. 1.00


   

BIGGER PENSION FROM DEFERRING

One of the best ways to boost your state pension is to defer it - just don't claim it and it will be increased for every few weeks you put it off. Needless to say the rules are complex. And they are different for existing pensioners and those who reach pension age from 6 April 2016. 

The rules depend on when you were born. Men born 5 April 1951 or earlier and women born 5 April 1953 or earlier reach pension age before 6 April 2016 and come under what I will call the ‘old rules’. Men and women born later than those dates will come under the new rules when they reach pension age on 6 April 2016 or later.

The old rules
You can claim your state pension as soon as you reach state pension age – 65 for men and just over 62½ for women at the moment. But if you do not claim it that is called ‘deferring’. You do not have to do anything special to defer, just not claim your pension. When you eventually do claim it the amount you get will be increased. For each five weeks delay the whole of your state pension is increased by 1% which works out at a 10.4% increase for a year’s delay. So a pension of £120 a week would become £132. If you delay by five years it will be 52% higher – turning a £120 pension into £182. The actual amount you get will be more as the basic state pension rises each year with the so-called ‘triple lock’ of at least 2.5% a year

As an alternative to the higher weekly pension you can choose to be paid a lump-sum equal to the pension you have not received. The Government adds interest to it at a good rate of 2.5% a year. The lump-sum also gets favourable tax treatment. It is taxed at the same rate as the rest of your income that year. So if you were a non-taxpayer the lump-sum would be tax-free and if you pay basic rate tax the lump-sum can never push you into paying a higher rate of tax. 

The new rules
If you reach pension age from 6 April 2016 the rules for deferring your state pension are far less generous. You get an extra 1% added to your pension for each nine weeks you defer rather than five weeks. So each year’s delay enhances your pension by a shade under 5.8%. A one year delay will increase a £120 a week pension to £127 and a five year delay to less than £155 – much lower amounts than people get under the old rules. The new rules do not allow you to take a lump-sum.

Is it worth it?
During those years of deferring you do not get your pension. If you defer a year and give up £120 a week you will have lost £6,240 in pension you did not draw. So you will have to live quite a while to get that amount back from the higher pension – in fact under the old rules it is about 11 years to show a profit. But as life expectancy at 65 is around 20 years most people will gain from deferring for a year. Women retire at a younger age and live a couple of years longer than men so it is even more worthwhile for them.

The arithmetic is much the same for a five year delay. You need another ten years of life to make a profit under the old rules. Most men will live longer than that, and most women will live longer still. On the other hand if you defer until you are 90 you will get an enormous weekly pension but you probably won’t draw it for very long if at all. So you will end up with less pension over your lifetime.

That raises the question ‘what is the ideal time to defer for?’ When will you make the most money from the state pension?

That was the question that statistician John Dagpunar unleashed his maths on in a recent article in the statistics magazine Significance.

He found that for an average man the optimum time to defer is five years. By doing that he will get the equivalent of an extra two years of state pension before he dies. In fact the gain is almost as high for deferring for four years and not much less for three. So if you do not want to delay five years then four or even three is almost as good.

For an average woman the calculation is more complex because of rising state pension age. But John’s calculations show that the optimum deferment is around seven years for those reaching pension age now and around eight years for older women.

For younger people who will get the new state pension, men should not defer at all – they will on average not make a profit. A woman may find a short deferment worthwhile especially if expects to live beyond the average age. But the new rules were designed to be cost neutral for the government, and John’s calculations show they pretty much are.

Life expectancy
These figures assume you will live the average length of time for someone of your age. If you live a shorter time than the average you will not gain as much or may even lose money. If you live longer than average you will do better.

If you defer under the old rules John has a simple rule to decide when to stop deferring. Add ten to the number of years you have deferred. If that is the same as your life expectancy then stop deferring. Under the new rules John doesn’t recommend deferring at all. But if you do then use 17 instead of ten in the calculation.

The ONS has published this handy way to check your life expectancy. It uses more optimistic projections than John did and shows a man of 65 can expect to live to 87 and a woman to 89.

If you expect to live longer you can defer for longer. If you expect to live a shorter time then start claiming your pension. If you have deferred and then discover you are unwell, claim your pension and take the extra as a lump-sum.

De-retiring
If you have already drawn your pension you can give it up temporarily. It is called ‘de-retiring’ and you will get your pension enhanced by 1% for every five weeks you give it up, or nine weeks if you come under the new rules. You can then reclaim your pension when you want to.

Once you have drawn your pension, the extra amount you earned by deferring will rise each April with inflation, currently measured by the Consumer Prices Index, not by the triple lock. So in April 2016 with inflation negative it will not go up at all.

Further information
·         ‘Deferring a state pension – is it worthwhile?’ John Dagpunar Significance, April 2015, pp 30-35.

·         Go to gov.uk and search ‘deferring state pension’ 

This blogpost is based on an article I wrote in Saga Magazine 'Delaying Tactics' July 2015.

FILL THAT GAP - reach pension age from 6 April 2016

These rules apply to men born 6 April 1951 or later and women born 6 April 1953 or later. There are different rules for older people

You need 35 years of National Insurance contributions to get a full state pension. If you have fewer than 35 years National Insurance contributions you will get a reduced pension. So if you have 21 years you will get 21/35ths or 60% of a full pension. 

It may be possible to pay some extra contributions now to fill that gap. They are called voluntary Class 3 National Insurance contributions. But the rules about which gaps you can fill are complex and can seem unfair.

Contributions at work
You will have got National Insurance contributions by being in work and paying full Class 1 contributions. You may not even have noticed as they are just deducted from you pay. If you earned very little then no NI contributions would have been paid. For a narrow band of earnings above very little but below where you actually started to pay them then you would have been credited with them. 

Reduced rate contributions paid by some married women do not count. If you have gaps caused by paying those contributions you cannot fill them. It was a very unfair system but nothing can be done about it now.

If you were self-employed and paid Class 2 contributions they count towards your pension equally with Class 1.

Credits
Some people who did not pay contributions were credited with them. The rules about credited contributions are very complicated. But broadly speaking you may be able to get credits for years you 
  • Got child benefit for a child under 16 (that changed to under 12 from 2010)
  • Were unemployed and looking for a job. Usually you would be on Jobseeker's Allowance - but you may get credits even if you were not 
  • Were on employment and support allowance, or were eligible for it, or got statutory sick pay
  • Received working tax credit 
  • Cared for someone who was sick or disabled
  • Got maternity or paternity benefits 
  • Were male and did not work in the few years approaching the age of  65.
Some credits are given automatically; others have to be claimed. The gov.uk website publishes a full list of credits and which have to be claimed. There are also details of how to check your record. It is all ridiculously complicated but can be very worthwhile!

If you find you still have gaps in your National Insurance record and you have less than 35 years contributions you may be able to fill them now. 

Nine years back
You can pay contributions back to 2006/07. Each tax year from 2006/07 to 2009/10 will cost you £689. Contributions for years 2010/11 to 2014/15 may be a little less or a little more than that. The cost to pay voluntary contributions to fill the current year 2015/16 is £733.20.

You must buy the extra contributions by 5 April 2023. But you may find they are more expensive if you buy them after 5 April 2019.

Should you pay?
It is immensely complicated to decide if it is worth paying to fill gaps. The rules are complex and there is plenty of time to pay the contributions in the future so it is probably as well to wait until after 2016 to do so when things will be a bit clearer.

But in summary: If you have fewer than 30 years contributions under the old system it is probably only worth filling old gaps to bring that up to 30. However, in some circumstances it may be worth filling old gaps to bring it up to 35. If you can do so it is always worth filling gaps up to 35 by paying contributions from 2016/17. And it may be worth ensuring you pay contributions under the new system even if you have 35 years contributions.

Confused? Most people are! Wait until things are clearer after 6 April 2016. Still time to take action then.

In exchange for one year's contributions you will get extra pension of at least £225 a year from the date you pay. So the payback time for the cost of the contributions is less than four years - or a bt longer if you pay tax. The pension you buy is new state pension and that should rise by at least 2.5% a year until April 2020 and after that in line with earnings, unless the law is changed.

More information
Paying Class 3 voluntary national insurance contributions

22 October 2015
vs. 1.15

THE UPRATING OF BENEFITS APRIL 2016

UPDATED 20 NOVEMBER 2015

PENSION RATES ANNOUNCED

Figures revealed by the Office for National Statistics on 13 and 14 October will be used to set the level of the state pension and other benefits from the week of Monday 11 April 2016.

State pension
Under the current triple lock rules the basic state pension - paid to those who reach pension age before 6 April 2016 - will rise by prices, earnings, or 2.5% whichever is the highest. Prices are measured by the September CPI which was published on 13 October. It was -0.1%.

The earnings rise is measured by the annual increase in pay across the whole economy from May to July 2014 to the same period in 2015. The final revised figure was published on 14 October and confirmed an annual rise of 2.9%. As that is above 2.5% then under the triple lock that earnings figure will be used to increase the basic state pension from April 2016.

A 2.9% rise means the basic state pension will increase by £3.35 from £115.95 to £119.30 a week. The same 2.9% rise will apply to the basic pension even for those who get less than that - married women who still get the Category B pension or those who basic pension is reduced because of lower contributions.

However, all the extra bits of the state pension - SERPS, State Second Pension, Graduated Retirement Benefit, extra pension from deferring, and the additional pension from purchasing the new Class 3A contributions - are linked to the CPI. It was -0.1% so they will not rise in April. A negative CPI means there is no rise, rather than a reduction.

Pension Credit
The means-tested benefit Pension Credit guarantees that no-one over pension age will have an income below a set amount known as the standard minimum guarantee (SMG). In 2015/16 that was £151.20 a week. Under existing law that also be increased by the rise in earnings over the previous 12 months. So that 2.9% rise will take the SMG to £155.60 a week. The Government has now confirmed that amount.

The government had already decided that other means-tested benefits would be frozen for the next four years 2016/17 to 2019/20. But it has has gone ahead with the full rise for pension credit. To do anything else would have meant changing the law.

New State Pension
The Government is committed to setting the full rate of the new State Pension above the SMG. That is achieved by setting it at least 5p a week more (the standard amounts of all these benefits are rounded to the nearest 5p). And it's announcement late on 20 November means that the new State Pension will be £155.65. Theoretically it could be set at more than that. But the poor economic datat also published on 20 November make that very unlikely.

Only a minority of those reaching pension age in 2016/17 will get that full amount. My latest estimate based on DWP figures is that less than one in four women (22%) and half of men who reach state pension age from 6 April 2016 will get the full new State Pension or above in 2016/17. 180,000 of the rest will get a pension which is at the same level as they would have got under the old pension system. In most cases, the balance of £36.35 is supposed to be made up by the company or private pension they paid into. That will not be true for everyone.

Pension Credit Savings Credit
The savings credit of pension credit is not available to anyone who reaches state pension age from 6 April 2016. For older people who already get it, the rates are likely to be frozen as they have been in previous years, meaning that many will see very small rises in their weekly income as the extra £3.35 on their state pension will be largely offset by a cut in their pension credit. Those rates will be announced in the first week of December.

Other benefits and tax credits
The government has already decided that most benefits would be frozen for the next four years 2016/17 to 2019/20. Now the CPI has come in at -0.1% that freeze will in effect apply to all benefits bar the basic state pension and pension credit. So benefits for disabled people, carers, war veterans, and widows will all stay the same in April.

Tax credits may be subject to a series of cuts in April which would reduce the amount paid considerably. The final decision on that is expected to be announced on 25 November. If those cuts are made less severe than planned, cuts in housing benefit may be used to save the money instead.

Official confirmation
The Government announced the 2016/17 pension rates at 2200 on 20 November 2015. Changes to tax credits will be announced in the Autumn Statement on 25 November. Details of other benefit rates - which will probably all be frozen - should be formally announced in the first few days of December.

21 November 2015
vs 1.51




Tuesday, 13 October 2015

BOOST YOUR PENSION - Class 3A

UPDATE 25 MARCH 2017
The take-up of this offer has been very low. To the end of January 2017 just 7600 people had bought extra pension. That compares with the original estimate of 265,000 when the policy was announced. 

The offer
The Government is offering millions of pensioners the chance to boost their state pension by up to £25  a week. The offer applies to everyone who is already entitled to a state pension or will be before 6 April 2016. That is all men born before 6 April 1951 and all women born before 6 April 1953.

The extra pension can be bought in units of £1 a week up to a maximum of £25 a week - an extra pension of £1300 a year. The cost depends on age. At age 65 each pound a week of pension costs £890. So for the full £25 a week you would pay £22,250. At 70 the cost is £779 per unit or £19,475 for the maximum £25. At 75 it is £674 or £16,850 for the full £25 a week. 

If you have a birthday coming up shortly it is worth waiting. For example at age 67 the cost is £21,175 for the full £25 a week. But if you wait for your next birthday the price falls by £500. So it is worth waiting if your birthday is less than 20 weeks away. The time varies depending on your age but about 20 weeks is a useful guide. 

Annuity comparison
The cost may seem high. But it is a much better deal than buying an annuity on the insurance market. A pension for life of £1300 a year at age 65 would cost a healthy single person around £37,000. A married person who wanted their widow or widower to have 50% of the annuity on their death would have to pay around £45,000. Put another way, for £22,250 a 65 year old could buy an extra pension of £790 or £630 with a 50% widow/er's pension. So £1300 a year is good value. That is because the Government has no costs for commission, sales, holding capital, or profits as commercial firms do.

But remember if you buy an annuity with money in a pension fund you have paid no tax on that and are taxed on the annuity. You cannot pay for the pension top-up from a pension fund. So if you do buy it you do that with savings that have already been taxed AND you pay tax on the income it generates. 

Inflation proofing
The extra pension starts the week after your money is received but it may take a few weeks to actually arrive in your payment. The extra pension is index-linked so it will rise each April in line with inflation measured by the CPI the previous September. The September 2015 CPI was -0.1% so there will be no rise in any deferred amounts from April 2016.

At least half the extra pension can be inherited by a spouse or civil partner. The amount depends on the age and sex of the one who dies first. In some cases the survivor can inherit all of the extra. 

Is it worth it?
The Government says the cost is 'actuarially neutral'. In other words by the time they die the average person would have had as much back in extra pension as they spent buying it. It is not clear on what basis that calculation was done. The price is the same for women and men. But as women live longer it is more likely they will get back more than the cost. On the other hand they are less likely to be survived by a spouse.  The healthier you are the longer the pension will last and the better the deal is. If you are unwell or you smoke then it may not be worth doing.

Tax and benefits
The extra pension is taxable. So the deal is not as good for anyone who pays tax and even worse for those who pay higher rates of tax. Ironically they are precisely the people who may have a spare £22,250 hanging around waiting to be used! They may be better just putting it into a cash ISA as and when they can, or into a normal savings account, and drawing it down at £1300 a year. Those withdrawals of their own capital are of course tax-free whereas the taxed additional pension would be worth £1040 after basic rate 20% tax, £780 after higher rate 40% tax, and £715 after additional rate 45% tax.

The most optimistic measure of life expectancy produced by the Office for National Statistics (called 'cohort') indicates that men aged 65 have an even chance of living for 21.4 years and women for 24.0 years. The break even point where the net income equals the outlay at 65 is 17.1 years (no tax), 21.4 years (basic rate tax), 28.5 years (higher rate tax) and 31.1 years (additional rate tax). 

If you get a means tested benefit such as pension credit, council tax support or housing benefit they will normally be reduced. In these cases the deal is unlikely to be worthwhile.

How to get it
The deal opened on 12 October and will close on 5 April 2017. You can buy the extra pension at once or in stages. If you change your mind you can get your money back and give up the extra pension within 90 days of paying.

The scheme is called State Pension Top-up (technically voluntary Class 3A National Insurance contributions!) and you can check what it would cost you and apply on the official gov.uk website or call 0345 600 4270. You will need proof of your ID and your National Insurance number if possible.

Further information: Link to the full table of the cost by age of each extra pound per week of pension.

Full DWP guide

21 November 2015
vs. 1.16

Friday, 9 October 2015

DOING NOTHING FOR 39 MONTHS

“What I like doing best is Nothing."

"How do you do Nothing," asked Pooh after he had wondered for a long time.

"Well, it's when people call out at you just as you're going off to do it, 'What are you going to do, Christopher Robin?' and you say, 'Oh, Nothing,' and then you go and do it.
(A A Milne, The House at Pooh Corner, Ch.X, 1928)

How much does it cost to do nothing? For the last 79 months the Monetary Policy Committee has met and decided to keep the Bank Rate where it was, no change, at 0.5%. It last cut the rate – from 1% to 0.5% – at its March 2009 meeting. In its 79 subsequent meetings, the latest on Thursday, the nine members have decided by an overwhelming majority to keep the interest rate lever stuck on its lowest 0.5% notch.

The Bank Rate cuts from 5% in April 2008 leading up to that final March 2009 decision were attempts to stimulate an economy in dire straits after the 2008 world banking crisis. Until then Bank Rate was the Monetary Policy Committee’s only lever. It controlled inflation by raising or lowering Bank Rate to stimulate or rein back borrowing and therefore growth in the economy.

But when it cut rates to 0.5% in March 2009 the MPC realised it need another way to control the economy. So it had a second lever fitted. It was called Quantitative Easing or QE (technically the Asset Purchase Programme). That meant magicking up money out of thin air in and using it to buy back Government bonds from businesses and pension funds. As the interest rate lever hit its bottom notch of 0.5% the new QE lever was pushed up to its first notch of £50 billion in the hope that this would stimulate growth by pumping money into the economy.

Over the next three years more and more money was magicked out of nowhere until in July 2012 the final £50bn was pumped in making the grand QE total of £375bn created out of nothing and passed on to business. The magic money tree was in full bloom. I did suggest at the time that the MPC renamed itself the MoneyTree Policy Committee. It didn’t.

That decision in July 2012 was the last occasion the MPC actually decided to change anything. Since then inflation has consistently missed its target of 2%. Currently it is 0% and the Bank’s regular forecasts that in two years’ time it will be back on its 2% target look more and more laughable every time one is made.

This Thursday 8th October the MPC voted to “maintain Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion”. The same decision it has taken every month for 39 months. For more than three years both levers have been stuck.

The MPC has nine members. Five are grand employees of the Bank of England from the Governor down. Four are independent members who serve for three years, though occasionally they are reappointed. The independent members are paid £135,751 a year for work the Bank describes as on “a part-time basis”. At the end of their term they are restricted in what they can do for three months and paid for that time too. So in effect they are paid 13/12ths of their annual pay or £147,063 a year for each of their three year’s work.

There are four of them and for the last 39 months they spent their (part) time on visits round the country, meeting at the bank for three and a half days, discussed the economy. And then taken that important decision on how to maintain price stability and support the Government’s economic policies for jobs and growth. And for 39 months they have voted to do nothing. To leave both levers where they are. The cost of the four of them for that period at today’s rate (it hasn’t changed much) is £1.9 million.


This blogpost was first published in the Money Box newsletter 9 October 2015. Get the newsletter every week by subscribing here.

Sunday, 4 October 2015

FCA IS WRONG ON PLEVIN REDRESS

The Financial Conduct Authority published a statement on 2 October 2015 indicating the rules it intended to make on how firms should pay redress to PPI customers in the light of the Supreme Court decision on Plevin dated 12 November 2014. It has taken nearly a year to do so. And it is hard to imagine an implementation of Plevin which was less favourable to consumers or more favourable to the banks.

The case
Susan Plevin took out a loan of £34,000 in 2006 to which was added £5780 premium for PPI. Of that premium £4910 was taken in commission by the firms that arranged it leaving £1630 as the actual cost of the insurance. So nearly 72% of the premium went in commission. None of those figures were revealed to her and she brought a claim in 2009 that the PPI deal was unfair because the amount of commission was not disclosed to her. The Supreme Court agreed. 

FCA scheme
The FCA proposes to make the following scheme, subject to consultation. It will apply to any PPI deal where a premium was paid on or after 6 April 2008, the date from which the law used in Plevin applies.

The FCA says it will only expect firms to pay limited redress under these rules which will consist of
  • the premiums minus what they would have been if the commission had been 50%
  • the interest paid on those premiums by the customer
  • 8% a year simple interest on that total
In my view the scheme contains two errors.

Amount of redress
First, the Plevin judgement makes it clear that where the commission on a product is excessive and the customer was not told the rate of commission that creates an unfair relationship between the buyer and seller. In those cases a court can make an order "requiring the creditor to repay in whole or in part any sum paid by the debtor " (para 9 of Plevin judgement). In Mrs Plevin's case the court held that if she had known the true rate of commission she would not have entered into the deal, either not buying it at all or finding a cheaper source elsewhere (para 18).

The implication is that PPI deals sold with excessive rates of commission were invalid and the customer should have their premiums refunded in full. And the court has the power to do that (para 9).

The FCA takes a  different view. It says that the redress in such cases is not the whole cost of the product but just the excess commission over an amount that is fair. In other words it allows the bank to turn the deal into a fair bargain retrospectively by giving up the excess commission.

Fair commission
Second, the FCA picks 50% as a fair rate of commission. In other words, if I pay £100 for a product and the person selling it keeps £50 for themselves and passes £50 on to the insurer that is fair. The FCA gives no indication where that figure comes from.

The Supreme Court said that "Commissions paid to intermediaries were high, typically between 50 and 80 per cent of gross premium" (para 1) and in Mrs Plevin's case the commission was 71.8%. The FCA could be taking the view that if the lowest rate of commission was 50% then someone who shopped around could not find a better deal than that so the rate of 50% is somehow 'fair'. The FCA told me that it was a 'matter of judgement' but in the Plevin circumstances the FCA view was that 50% was a reasonable rate of commission. 

Redress cut by five sixths
Under its proposed rules the FCA says the bank will only have to refund the difference between the unfair rate of commission and 50%. Commission on PPI sales averaged 67%. So on average the bank would have to repay just 17% of the premium. Under the normal rules that apply to redress it would then have to add any interest paid by the customer on that amount and then the standard additional simple interest on that sum of 8% a year.

Under the current PPI redress rules customers have all their premiums refunded. And under one interpretation of Plevin that would also be the case. Instead, under the FCA's Plevin scheme redress would be based on 17% of premiums, costing the banks on average just one sixth of the normal PPI redress.

The FCA points out that the Supreme Court did not rule on how much redress was due. Nor did it say the insurance was mis-sold. So again the FCA view is that this is a reasonable way to assess the redress. 

Time bar
Complex as all this is, the FCA plans to limit claims under these provisions to a period of two years from when the rules are made.

Next steps
Some of these matters may be addressed by the FCA in its Consultation Paper which is promised before the end of 2015. After that period of formal consultation it will make the rules probably in Spring 2016. The FCA stresses that the rules could be different depending what the consultation responses are.

8 October 2015
Vs. 1.10







Saturday, 3 October 2015

FCA OPENS FLOODGATES ON PPI CLAIMS

Everyone who bought Payment Protection Insurance (PPI) and paid premiums on 6 April 2008 or later can claim redress* after a court ruling last year. Yes. Everyone. The floodgates have been opened by the Financial Conduct Authority, though that was not the regulator's intention.

The problem was caused by the greed of the banks who mis-sold PPI on an industrial scale for more than a decade. The Supreme Court ruled last year in a case brought by Susan Plevin that the commission earned by the banks was so excessive they should have told customers what it was. If they didn't the sale was invalid.

In the Plevin case the commission was 72% of the sale. The FCA says the average mark up was around 67%. In other words for every £100 paid by customers the bank kept £67 and passed on only £33 to the insurer to pay for the actual insurance - and that still left a hefty profit for the insurer! And the FCA says - though it is not immediately clear why it picked this figure - that any commission of more than 50% means the sale was unfair.

That ruling opens the door to fresh claims from everyone whose PPI redress claim has been turned down.

Under the rules the Financial Conduct Authority (FCA) says it intends to make, it seems likely that every sale of PPI which was still being paid on 6 April 2008 (the date a key law came into force) will be covered if
  • The commission was over 50% (it just about always was), and
  • The customer was not told what the commission was (they never were).
Anyone who has already had PPI redress will not, of course, qualify again.

Claims under existing rules
Anyone who has not yet claimed would do better claiming under the existing rules initially as they will probably get more.

The average payout is between £2500 and £3000. Around seven million successful claims have been made. Banks are paying out an average of £388 billion a month in redress.

You can find out how to claim full PPI redress yourself at Money Saving Expert or Which? If your claim is refused go to the Financial Ombudsman Service as it upholds seven out of ten appeals. You do not need to use a claims management company. They will be no more successful than you and will take up to 40% of the money you're paid.

Plevin rules
Anyone who has claimed and been turned down - or that happens to them in future - can now claim again under these new Plevin rules. The rules above are only indications of what the FCA will eventually do. The final rules are expected in Spring 2016.

The FCA says it will only expect firms to pay limited redress under these rules which will consist of
  • the premiums minus what they would have been if the commission had been 50%
  • the interest paid on those premiums by the customer
  • 8% a year simple interest on that total
That view may be challenged. There is an argument that if the sale was invalid then all the premiums should be refunded not just the bit over 50%. Nor is it clear why 50% commission is 'fair'. My latest blog explains why they are wrong. Wait for the full rules to be published in Spring 2016 before making any Plevin claim.

Meanwhile claim full redress for mis-selling under the current rules if you have not already done so. If you have and have been turned down consider an appeal to the Financial Ombudsman Service. That normally has to be made within six months of a final Ombudsman decision.

2018 cut-off
The FCA also wants to stop any new claims - under the old rules or the new Plevin rules - from Spring 2018. The banks have been demanding a cut-off for some years. If it goes ahead with that plan there are just two and half years left to get your claim in.

For a full PPI claim under the existing rules do it as soon as possible using one of the two websites linked to above.

For a fresh claim under the Plevin rules it is probably best to wait until the final rules are made in Spring 2016.

*Redress?
I use the word 'redress' not 'compensation' because there is no compensation being paid. You are simply being repaid - with interest - the premiums you were tricked into paying by venal banks determined to make as much money from their customers as they could get away with.

4 October 2015
vs 1.02