Wednesday 30 November 2016

GOVERNMENT LEAVES CARERS STUCK IN BENEFITS TRAP

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.

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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

PENSION AND BENEFITS UPRATING APRIL 2017

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. 

Frozen
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

HAMMOND'S POPULAR HEADLINES

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

SAVINGS PROTECTION LIMIT TO BE RAISED BACK TO £85,000

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

CLAIM COMPENSATION FOR A MIS-SOLD ANNUITY

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.

Timing
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.

BROADER CASES
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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missold annuity

Wednesday 19 October 2016

BENEFIT RISE LESS THAN THE PRICE OF A STAMP

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

BENEFITS AND PENSION UPRATING APRIL 2017

Inflation hit 1% in September (CPI) and the revised rise in earnings May to July (KAC3) was 2.4%. So unless the new Government changes the rules or modifies the policy benefits and pensions will be uprated by four different rates from Monday 10 April 2017. The rates will be 0%, 1% and 2.5% with a fourth rate for pension credit, probably 2.4% for the guarantee credit but less for the savings credit. All amounts are rounded so may be slightly more or less than the stated rate of increase.

These figures are my estimates on the current rules. The Government could change the rules. The actual amounts will be announced around the time of the Autumn Statement which is on 23 November.

Frozen
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
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 Scotland and Wales that may not be true.

Women’s state pension age at April 2017 will be 63 years and 9 months.

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 a week for higher rate and 55p a week for lower rate
  • Personal Independence Payment - up by 80p a week for higher rate and 55p for lower rate
  • Disability Living Allowance - up by 80p, 55p, or 20p a week for lowest rate
  • Carer’s Allowance - up by 60p a week
  • Bereavement Allowance - up by £1.15 a week
  • Maternity Allowance - up by £1.40 a week
  • Statutory Maternity/Paternity etc Pay - up by £1.40 a week
  • Statutory Sick Pay - up by 88p a week
  • All parts of the state pension which are NOT Basic State Pension or 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%.

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 them 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.
  • 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. in 2016/17 or later.
Based on past years,
  • The guarantee credit must rise by at least the rise in earnings and that was 2.4% (KAC3 May-July revised) which would add £3.75 a week to the single rate and £5.70 to the couple rate. It is conceivable but less likely that it could increase by the £3.90 a week rise in the new State Pension which would be a 2,5% increase.
  • The savings credit will almost certainly rise by a smaller percentage in order to claw back some of the increase in the guarantee credit.
We will not know the rates of Pension Credit until late November.

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 benefits that will increase 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 expected in April 2017. The extras paid with the basic state pension were frozen.

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1 November 2016

Monday 25 July 2016

PENSIONS MINISTER DEMOTED

The new Minister for Pensions - as he will be called - was demoted before he even began his job.

Richard Harrington the MP for Watford was appointed to his post on Monday 18 July after the dismissal of his predecessor Baroness Altmann late the previous Friday.

Lady Altmann was a Minister of State, second in the ministerial pecking order below the Secretary of State and above the lowest rank of Parliamentary Under-Secretary. But Mr Harrington was put in that lowest rank. Above him are three Ministers of State - one for Employment, one for Disabled People, Work, and Health, and one for Welfare Reform - and the Secretary of State Damian Green. The only other Parliamentary Under-Secretary Caroline Nokes is Minister for Welfare Delivery, junior to the Minister of State for Welfare Reform.

Steve Webb, the previous Pensions Minister but one, was clear what this meant.

“an Undersecretary of State is junior to a Minister of State so it is a demotion for pensions. The seniority of ministers really does matter, not least in dealings with other government departments such as the Treasury. This…demotion for pensions sends a worrying signal.”

It is not just seniority Mr Harrington has lost. As a Minister of State in the Commons he would have been paid £9,305 a year more than he is as an Under-Secretary. He won't be poor. His total pay as an MP and a Minister will total £90,397. But that is 9% less than the £99,702 paid to his Minister of State colleagues in the House of Commons.

Lady Altmann has made it clear in newspaper articles and radio interviews since she left Government how tough it was for her even as a Minister of State to get her voice heard, still less effect any real policy change. An Under-Secretary will face an even bigger challenge.

But perhaps it doesn't matter. Unlike his two predecessors Mr Harrington has no apparent background in pensions or indeed social policy. I understand his job will be to continue with the implementation of existing policies rather than to introduce anything new or radical. A spokeswoman told me

"Pensions remain a key priority for the Government and the important work to bring in the new State Pension, roll-out automatic enrolment and safeguard the pension freedoms will continue under our new Minister for Pensions."

No date could be given for the new Pensions Bill which would make important changes to protect consumers, increase their freedom, and provide new ways to give them advice and guidance. But "it remains a priority and is expected in the Autumn". New Pensions Bill see p.30

On his appointment Richard Harrington is quoted as saying

"I am delighted to take responsibility for this important ministerial post, and I look forward to tackling the full range of state and private pension matters, including the new Bill and automatic enrolment, among so many others."

That will keep him busy.

Footnote: Under the three Labour governments 1997-2010 Pensions Ministers lasted in post on average for 14 months (426 days). The Coalition government benefited from having one Pensions Minister for its full five year term. Baroness Altmann also lasted in her job just 14 months (431 days). 

Footnote 2: The previous Pensions Minister, Baroness Altmann, was a member of the House of Lords. Ministers of State in the Lords receive the standard Minister of State pay in the House of Lords of £78,891 which has been frozen at that level since 2011. Peers do not get MP’s pay and Ministers are not allowed to claim the standard £300 per day for turning up which applies to other Lords. So in total the new Minister gets more than his predecessor, though the bulk of that for being an MP (£74,962) not a Minister (£15,435). See Minimum Wage Ministers.

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25 July 2016

Sunday 24 July 2016

MINIMUM WAGE MINISTERS

Thirty junior Ministers in Theresa May’s Government earn barely the minimum wage for their ministerial duties. Just £15,435 a year which is £7.42 an hour for a 40 hour week.

The lowest rank on the Ministerial ladder is the Parliamentary Under-Secretary. Above them are Ministers of State and at the top in charge of the Department is the Secretary of State who also attends Cabinet.

A Minister’s pay comes in two parts. 

First, they are paid as an MP. That salary is determined now by the Independent Parliamentary Standards Authority (IPSA). Currently that it is £74,962, a rise of £962 on the £74,000 paid to MPs returned at the 2015 General Election. 

Second, they are paid as a Minister. The Government no longer publishes a list of Ministerial Pay. The House of Commons, IPSA, the Cabinet Office, and Downing Street, all told me they did not know what Ministers were paid. Eventually I was sent a list of Ministers’ salaries in Regulations dated 14 July 2011. Since then, I was told, Ministers’ pay had been frozen.

But the amounts in the Regulations were clearly not right. It then turned out that when David Cameron froze Ministers’ pay he froze the total, including the MPs’ pay. So as MPs’ pay rose each year the extra paid to a minister was cut. In 2011 a Cabinet Minister was paid £68,827 on top of their pay as an MP of £65,738. A total of £134,565. But year by year as their pay as an MP rose the extra paid as a Minister was frozen leaving them with same total. When their pay as an MP rose to £74,000 in April 2015 their pay as a Cabinet Minister fell to £60,565. That is a cut in their Ministerial pay alone of 12%.

That offsetting ended in April this year. So when MPs’ pay rose by 1.3% in line with overall public sector pay to a total of £74,962 the pay as a Cabinet Minister stayed fixed at £60,565. So the total now is £135,527. That figure was confirmed to me by the House of Commons but no one could say what junior ministers was paid.

Applying the same arithmetic and the 2011 Regulations it turns out that a Minister of State is paid £24,740 on top of their MP’s salary and a Parliamentary Under-Secretary gets just £15,435 for their ministerial duties on top of their MP’s pay. If they work 40 hours a week on purely ministerial duties then they are being paid £7.42 an hour for doing them, barely above the National Living Wage of £7.20 an hour.

The total of £90,397 paid to a Parliamentary Under-Secretary is, or course, a very high income. By itself it would put a Minister without a family among the richest 1% of the population. But 61% of that population has a total income higher than the amount Ministers are paid for their Ministerial work.

History
The history of Ministers' pay is complex. After he became Prime Minister in June 2007 Gordon Brown decreed that Ministers would not take available pay rises and their pay was frozen in 2008/9, 2009/10 and 2010/11. So even though available pay was higher Ministers did not take it, keeping the pay that was set on 1 November 2007 plus the MP's pay set on 1 April 2008. 

After the 2010 election David Cameron went further and announced a 5% cut in Ministers' pay. The 5% was calculated from the amounts Labour Ministers had taken. He also followed Gordon Brown - who had cut his pay by £25,000 - and reduced his own pay to around £8000 more than a Cabinet Minister. It is those amounts which are set out in the 2011 Regulations.

On 1 April 2010 the total actually paid to a Parliamentary Under-Secretary was £94,142 comprising £63,291 as an MP and £30,851 as PUS. Today’s Parliamentary Under-Secretary gets half the pay as a Minister and £3,745 (4%) less in total.

Lords
Ministers in the House of Lords have their own pay scale as they do not get paid as an MP. These were also set out in the 2011 Regulations. It sets pay for a Cabinet member in the Lords at £101,038, a Minister of State at £78,891, and a Parliamentary Under-Secretary at £68,710. These amounts have been frozen since then and are still paid at those levels.

Peers can claim a tax free allowance of £300 for each day they attend the House of Lords. But Ministers and others who are paid a salary for their duties there cannot claim this daily allowance. The House of Lords sits on average for 150 days a year. So an assiduous Lord who attended every sitting day could claim £45,000 which is equivalent to earning £64,712 before tax. Ministers do attend frequently and the extra they get as a Minister on top of the allowance they could claim as non-Ministers is probably less than their Commons equivalents.

More information

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25 July 2016



Monday 11 July 2016

FTSE 250 AFTER THE BREXIT VOTE

THE FTSE 250 FALLS AFTER THE BREXIT VOTE

There is no doubt that the FTSE 250 index has fallen following the vote to leave the EU on 23 June announced on 24 June (Brexit).

Many people – mainly it seems those who voted Leave – have been questioning this analysis. They are wrong. Of course there are dates you can pick which show the FTSE250 lower in the past than it was after the Brexit vote. But not many.

This analysis compares the FTSE250 post Brexit with previous months before the vote was announced on 24 June 2016.

It compares the previous run of the FTSE 250 with two figures for the Brexit level of the FTSE250.
  • The average closing price from 24 June 2016 to 8 July 2016 – the Brexit mean.
  • The closing price on Friday 8 July 2016, two weeks after the Brexit vote was announced.


The Brexit mean of the 11 closing prices from 24 June 2016 to 8 July 2016 was 15899.66.

Over the previous year – 24 June 2015 to 23 June 2016 the FTSE 250 closed higher than that on 241 out of 250 occasions (96.4%) and closed lower on 9 occasions (3.6%).

The Brexit mean was
  • 5.4% lower than the average from the day the vote was called (19 February 2016) to the day before the vote (23 June 2016).
  • 4.4% lower than the average from 1 January 2016 to that date.
  • 6.1% lower than the average over 12 months from 24 June 2015 to 23 June 2016.


The closing price on 8 July 2016 was 16177.8.

Over the pre-Brexit year – 24 June 2015 to 23 June 2016 the FTSE 250 closed higher than that on 229 out of 250 occasions (91.6%) and closed lower on 21 occasions (8.4%).

The closing price on Friday 8 July 2016 was
  • 3.7% lower than the average from the day the vote was called (19 February 2016) to the day before the vote (23 June 2016).
  • 2.7% lower than the average from 1 January 2016 to that date.
  • 4.5% lower than the average over 12 months from 24 June 2015 to 23 June 2016.

Of course this effect may disappear in weeks or months. But the immediate effect on the FTSE 250 index of share prices in mainly UK medium sized companies is clear and unarguable.

Why the FTSE 250?
The FTSE 250 is a better indicator of the effect of Brexit on UK companies than the FTSE 100. The FTSE 250 index measures the share prices of the 250 companies ranked under the FTSE 100 in size. The FTSE 100 contains mainly overseas companies with foreign earnings. They of course have benefited from the fall of 10% or more in the pound against all other major currencies including the US dollar and the euro. The FTSE 250 comprises mainly UK based companies trading in Sterling.

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10 July 2016

Tuesday 14 June 2016

CASH BEAT SHARES FROM 1995 TO 2015

PRESS RELEASE 15 JUNE 2016

Money in best buy cash savings accounts would have produced a higher return than a FTSE100 shares tracker over a majority of investment periods since 1995.

That is the shock finding of new research using best-buy cash data which has never been available before.

The results challenge the traditional view that putting money in a savings account is the poor relation of investing in shares.

The analysis also found that since 1995 investments in funds that track the FTSE 100 would have lost money up to a third of the time over investment periods from one to eleven years. Cash in a savings account always ends up higher than it started.

The new research compared returns from a simple tracker fund – which follows or ‘tracks’ the FTSE100 index of shares in our biggest hundred companies – with cash that is moved each year into a best buy one year deposit account with a bank or building society – sometimes called a ‘one year bond’. The tracker has dividends reinvested and the cash is reinvested each year with the interest earned.

It found that money put into this ‘active cash’ beat the total returns on the tracker in 57% of the 192 five year periods beginning each month from 1 January 1995 to the present. The tracker won in just 43% of periods. For some longer time periods the result were even more marked. For example, for investments made over the 84 fourteen year periods from 1995 cash beat shares 96% of the time.

The research was done by financial journalist and presenter of Radio 4’s Money Box programme Paul Lewis. He gained access to best-buy cash data back to 1995 from the financial information publisher MoneyFacts. Data back to 1995 has never been made available since it first appeared in the monthly MoneyFacts magazine. He says this data makes the research unique.

“This analysis of the new data shows that people who prefer the safety of cash can make returns that beat those on tracker funds in a majority of time periods.

“It also confirms that the risk of making losses on a shares investment is very real. Over any investment period from one to five years from 1995 to 2015 there was about a 1 in 4 chance or greater that the value of the investment would fall. Even over nine or ten years the chance of losing money was around one in ten. Few advisers know those odds still less inform their clients of them.”

“I have long suspected that the merits of cash were underplayed by traditional research which compares poor cash rates with often exaggerated gains on investments in shares.”

The new analysis produces different results for three reasons.

  • It uses a real tracker fund so the gains or losses are after all charges
  • It uses new data on best buy cash accounts which has never before been collated and 
  • It moves savings once a year into the latest best buy – what Lewis calls ‘active cash’.

Further analysis of the data shows that for many starting dates from 1 January 1995 investing in shares over any possible period from one year upwards would have produced a lower return than using properly managed best buy cash. That is true for example for the whole of the two years from 1 October 1999 to 1 September 2001 and for four months from 1 October 2007 to 1 January 2008. Money invested on the first of any month on those dates and left for any period from 1 year to the maximum possible 15 or 16 years would have done better in cash than shares.

There are fewer comparable times when shares produced a higher return over every possible investment period:- 1 November 2008 to 1 September 2009 is the longest run and two earlier dates are 1 October 2002 and 1 October 2003.

Overall for investment periods of five years or more there are 38 starting dates when cash would always have produced a better return but only 24 starting dates when that was true of shares.

Lewis adds: “Cash is not right for everyone in all circumstances. But for a cautious person investing for periods of up to 20 years this research indicates that well managed active cash beat a FTSE100 tracker more often than not. And unlike a shares investment it can never lose anyone money.”

Money invested in best buy cash over the whole 21 year period from 1 January 1995 to 1 January 2016 would have produced an average annual compound return of 5.0%. Over the same period the tracker would have produced a compound annual return of 6.0%. The 1% difference is far lower than the 3% to 8% typically quoted for the ‘risk premium’ of investing in shares.

NOTES TO EDITORS
Comparison
Lewis compared the gains on best buy ‘active cash’ with the actual returns on an HSBC tracker fund which followed the FTSE100 index of shares in the biggest quoted companies on the London Stock Exchange. Dividends earned by the shares are reinvested. Tracker funds are seen as a cheaper and safer alternative to funds run by managers who seldom beat the market consistently over long periods of time.

The calculations used by the research have been carefully checked by experts in the investment industry and by a professional actuary.

Shares
It is assumed that the money is invested in shares on the first of the month and cashed in on the nth anniversary where n is the investment period.

The FTSE100 tracker used in the analysis was the HSBC FTSE 100 Index Retail Inc. The data provided by Morningstar is the actual growth in the fund with dividends reinvested minus any charges and reflects the actual net return on the date at the end of the investment. The current charges of the HSBC fund are 0.18% p.a. but in the past they were higher. The analysis was also run with other FTSE100 tracker funds and a FTSE100 All Share fund – all in the Investment Association Retail Primary Share Class – over dates to the end of 2015 beginning from 1 January 1996 and 1 March 1998. The results were not markedly different from the original HSBC tracker. So that tracker – the HSBC FTSE 100 Index Retail Inc. – was used for all analysis as the data goes back the furthest. Earlier data for trackers is not available. 

Cash
The best buy cash data was from the Savings Selection in the MoneyFacts monthly periodical using the top return for a one year bond (or closest) for smaller investments less than £2500 where possible and not exceeding £10,000. This data prior to 2007 has never been released before. The figures were extracted from MoneyFacts monthly periodical as published beginning January 1995 to match the period of the tracker data.

It is assumed that the money is invested in a cash one year bond on first of each month, cashed in one year later, and reinvested at once in the current best buy. That process is repeated n times where n is the investment period in years. The delay between the end of the one year bond and reinvesting it in a new one could have been around two weeks in the past, though nowadays would be much shorter or negligible. That is hard to account for. One way is to assume that interest rates were in fact 50/52nds of the true rate. Running those numbers does not change the overall result.

Tax
The returns on cash do not take account of income tax. Money in cash ISAs or cash in a pension fund is not liable to income tax. And from 1 April 2016 the Government says 95% of people with cash savings will pay no income tax on the interest. If the numbers are run with the interest reduced for basic rate tax (which was 20% on interest throughout this period) cash still beats shares in the majority of time periods, though the effect is smaller.

Inflation
The results do not take account of inflation which affects investment returns to the same degree it affected cash returns. Deflating the results for cash and for shares by inflation would not have changed the relative position of the two nor changed the number of ‘wins’ for each.

Other research
The best known and longest running research which compares different forms of investment – the annual Barclays Equity Gilt Study – overstates the returns on a real investment in shares by excluding the reduction in yield caused by charges. Over the 21 years 1995-2015 its data show a compound growth of 7.3% in reinvested shares compared with the 6.00 of this research. It also understates the return on cash by using a cash surrogate – three month Treasury Bills – for its analyses. That data shows compound growth over 21 years from 1995-2015 of 3.9%. The 2015 return on Treasury Bills is 0.45%. For comparison it also uses the interest paid on cash in an instant access postal building society account. That data shows compound growth over 21 years from 1995-2015 of 2.7%. The Nationwide account used since 1998 pays interest of just 0.25% a year. These two methods both produce lower figures than best buy accounts, understating the returns particularly badly from 2008. At January 2016 the best buy cash was returning 1.65% on easy access and 2.10% on one year bonds – the accounts used for this study.
 
The past and the future
Like all research using data this study is about the past. The results are clear. But the lessons for the future are complex. Interest paid on cash is at historically low levels and seems to be heading lower. The charges on trackers have come down from their past levels. But losses on trackers are still happening – in 2015 for example.

The mantra about the past being no guide to the future is true of managed funds providing good investment returns (though bad returns do tend to persist). But they are not relevant to a study such as this which assumes that no moment is special and looks at the results of picking a random date (on 1st of month) and investing for a random period (1-20 whole years). Analysis shows that beginning on any date in the month produces identical results.

There is nothing to indicate that the stock market experience of the last twenty-one years is not typical. Barclays Equity Gilt Study found on its own figures that the percentage of periods when shares beat cash over the 21 years 1995 to 2015 and the 115 years back to 1899 were very similar over six investment periods from 2 to 18 years.

Further information
This is the  original press release as issued to the press and some others on 13 June 2016.
Read the full research also on this blog.

Paul Lewis
15 June 2016