Money Box - Saturday 6 January 2001

A RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT. BECAUSE OF THE RISK OF MISHEARING AND THE DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS THE BBC CANNOT VOUCH FOR ITS COMPLETE ACCURACY.

Tape Transcript by JANE TEMPLE

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 6th JAN 2001 1200-1230

RADIO 4

ANNOUNCER: Now it's four minutes past twelve and time for MONEY BOX with Paul Lewis.

LEWIS Hello, and welcome to MONEY BOX, the first of 2001. New Year but old problems - more questions for Equitable Life as the pension funds meet with the insurer next week to ask why should they leave their billions there? Tessa matures at 10 years old and 21 billion pounds of personal savings must find a new home - Chris A'Court is with me - is Pearl a swine Chris?

A'COURT The question raised by Pearl Assurance telling this listener to cancel her young daughter's dream holiday to Florida because it had made a mistake:

WOMAN I said you come round and tell my 10 year old she's not going on holiday. She thought she was going there to swim with the dolphins and meet Mickey Mouse and now you tell her that she's not going. I said because that's what this is about -I don't think it's fair.

LEWIS And how much will you waste on holiday insurance this year? Well less if you listen. But first Equitable Life - 2000 companies have their employees' funds invested with Equitable - a big chunk of the 34 billion pounds it has under management. On Tuesday pension fund bosses will meet the troubled insurer. Some want to get their money out and without the 10 % penalty which Equitable imposed on all fund withdrawals when it closed for new business on December 8th. Now with me is Alan Pickering who's chairman of the National Association of Pension Funds which represents most of the big pension schemes in Britain. Alan, it almost seems another week, another crisis at Equitable - what's this meeting you're having on Tuesday about?

PICKERING I think first of all one needs to get the issue in perspective -those 34 billion pounds that you refer to are there and are being professionally managed. One has to avoid panic, although having said that I feel almost personally for the millions of people, salt of the earth people who have money with Equitable Life - not get rich people, not double your money overnight people, but salt of the earth people. What we're hoping for next Tuesday is for Equitable Life to explain to us all the information which is in the public domain and provide that in a much more codified, much more co-ordinated form than has hitherto been the case. And secondly to tell us what is actually going on behind the scene, because some of these things are going on behind the scene and it's a fair balance to strike what do you tell worried consumers, and then having found exactly what all - what the information is we'll then move on to - to debate with Equitable the way in which we can manage the transition to the next phase in Equitable's life, because there is life left in Equitable. We have to manage that process because if - if uncertainty continues there is a real danger that panic, fear will lead people to - to take action which will not be in their long term best interest.

LEWIS But is it possible that when you've heard this information and there are questions aren't there - about the - the exact financial state of Equitable Life - when you've heard the information it could be that you'd have to advice your members to pull out?

PICKERING The NAPF is not authorised to provide to what amounts to investment advice. We will make sure that as much information is in the public domain as - as possible. There are a number of options that will need to be explored in the wake of next Tuesday's meeting - all of which will be aimed at trying to ensure that there is a fair crack of the whip across all the categories of Equitable Life policy holder.

LEWIS Well with us too is Geof Pearson who's pensions manager of Sainsbury and he has about 4,000 members with money invested in Equitable Life. Geof what do you hope to hear at this meeting that will encourage you to keep your members loyal to Equitable Life?

PEARSON Well we're trying to do our best for our members that are with the Equitable Life - and being a supermarket we have got a shopping list as you might expect. What we're trying to do is to examine the - the 10% penalty and to see if we can get that no higher for 2001 - to stop people panicking and withdrawing because it might go up for ¿¿.

LEWIS But it will only go up if people pull out and if company pension funds pull out then Equitable's actuaries say we've got to raise it to keep enough money to pay these guarantees?

PEARSON Well that might be right and it might not be - that's one of the reasons why we've got to investigate it - the other thing - the other main thing of course is this cross subsidisation between members -Peter paying Paul effect where the non guaranteed people are subsidising the guaranteed annuity¿.

LEWIS But that's inevitable isn't it because the guarantees have to be paid under the court order and the only source of money to do it is the other customers?

PEARSON It's inevitable but it would be much better if it was capped - if this liability could be bought out so everybody knew with some certainty where they're going in the future, and the third thing on our shopping list would be to examine these investment returns which Equitable say will be half to one percent lower in the future and we just want to sort of check the assumptions they're using for that, cos that's not necessarily a bad thing for some people - it's very similar to sort of life styling that's in some existing products.

LEWIS Will you be pulling money out though - will you be recommending to your - your employees that are in this scheme that they either pull existing money out or don't put new money in?

PEARSON There's different types of members and we've certainly got lots of feedback from people who want to stay with Equitable Life who want us to do our best to get Equitable Life off its knees, patch up these unknown liabilities and get it up and running again - if not in a...and that's what we will be trying to do. Now inevitably there's some collateral damage to Equitable Life and we also want to do our best for those people who do want to transfer - getting better terms with any new providers.

LEWIS Alan Pickering, do you think in a way you're trying to get the best of both worlds? - you're trying to get easy moving out for those that want it, but really you don't want people - you think people should stay in?

PICKERING We want to try and deal fairly across the whole spectrum so that if there is any pain, that pain is fairly shared. If there is any potential gain then that gain too is shared across all categories of members.

LEWIS There's a difficulty for trustees though isn't there of company pension schemes, because they have a legal obligation to do the best for their members - getting out might be the best for their members regardless of the collateral damage to others?

PICKERING Yes I mean trustees are in an invidious position - they can't behave altruistically - their first responsibility is to their members. One of the ways in which we can help trustees do the job properly is to make sure that as much information that can properly be in the public domain is in the public domain so that trustees take decisions for proper reasons not based on uncertainty.

LEWIS Alan Pickering thanks, and no doubt we'll hear more of that after Tuesday and also Geof Pearson from Sainsburys- pensions manager at Sainsburys. Well Equitable goes on but some things do change and good news from the government - in September Money Box reported on problems ahead for the thousands of people who'd lived in Australia but were now back in Britain. From March 1st they wouldn't be able to count time in Australia as if they'd paid national insurance contributions here, so when they claimed their retirement pension it would be much less. The change was caused by the Australian government cancelling a 42 year old Social Security agreement with Britain, but just before Christmas our government made a big concession. It announced that although the agreement was ending, time spent in Australia before April this year would still count towards a retirement pension here. Good news for people like Money Box listener Jane from Brighton who spent 10 years in Australia and faced a cut of more than £20 a week in her pension.

JANE It would have been devastating. Obviously it's a significant part of one's income. Now that I believe I am going to get my pension I am pleased about that and thank the government which has decided to do that which is only right and just in this instance.

LEWIS Well good as far as it goes. But the government hasn't addressed the problem which caused the Australians to cancel the Social Security agreement. UK pensions paid in Australia and in most other countries around the world are never increased with inflation. The Australian government tops up these frozen pensions at a cost of 40 million pounds a year. Earlier I talked to Pensions Minister Geoff Rooker and asked first why he had made the concession:

ROOKER If I hadn't made the concession the British government would have actually gained out of the Australian's terminating the agreement so I think it's not costing anything and we're only going to do for people who've lived in Australia up to April this year the same that we would have done even if the agreement had carried on.

LEWIS But in the future people who are living in Australia after April, if they come back to Britain will find it harder to get a British pension when they come home?

ROOKER First of all - they - they know the current situation. They know there is no agreement following the 1st March this year and therefore they can make voluntary contributions to protect their basic pension here in Britain, or if they're young enough of course to make alternative arrangements for their pensions.

LEWIS So you've solved this problem but the real problem behind this is - is why the Australians broke the agreement which was because Britain is refusing to pay full pensions to people living in Australia?

ROOKER` As I've said in the Commons there's - there's history to this. I'm not prepared to defend the logic of it - for British people in some 30 countries around the world they have their pensions up rated but in another say 120 they don't. And there isn't much of a logic to choose between the various countries, but I have to say people knew clearly what the position was - it isn't as though there's been a change of policy.

LEWIS No but you've said you can't defend the logic of it - to put that right would cost a relatively small amount wouldn't it - 200.?

ROOKER 300 million pound a year

LEWIS 300 million pounds a year -

ROOKER That's the latest estimate I've got.

LEWIS In - in the context of what your government has given to pensioners - that's quite a small amount of money

ROOKER Yes but we've also repeatedly said our main priority is the poorest pensioners, and it's the poorest pensioners in the United Kingdom is the - is the key priority and it's - it's a question of priorities - there's no plans to change the present policy regarding the frozen pensions.

LEWIS So although this is something that you were against in opposition, as a Minister you can hold out no hope to these 400,000 odd thousand people?

ROOKER No we have no plans to change the present policy.

LEWIS Geof Rooker, the implacable pensions minister. Now how would you feel if you were told how much money you had in an investment account, booked a dream holiday on the strength of it and then were told you didn't actually had the cash? That happened to Money Box listener Caroline before Christmas. Pearl Assurance said it had made a mistake years earlier and instead of having the cash to book her trip she owed them more than £2,000. Chris A'Court is with me - extraordinary tale Chris?

ACOURT And one which first took me to the outskirts of London Paul, where I met Caroline who's a lone parent and her 10 year old daughter.

CAROLINE Hello. Hi

ACOURT Hello - Caroline - Hello Charlotte

CHARLOTTE Hello

ACOURT How are you? The dream holiday was to take Caroline and Charlotte to Florida, and when I visited them this week an excited Charlotte couldn't wait to tell me about their plans.

CHARLOTTE That's the whole place there- they have like rides and things, but I really really want to go - it's my dream really.

ACOURT The Florida trip hinged on the money mum was getting from her Pearl Assurance investments that she's held since 1993. All the statements the company has ever sent looked good, so last September Caroline asked for an up to date quote. The Pearl said she had several thousands pounds left in her fund, so Caroline booked the holiday on a credit card thinking she'd convert investment units to cash when the time came to pay the card bill. At that point things started to go wrong.

CAROLINE They phoned up late November and said to Pearl we need to release some money, and that was the point where the service clerk on the phone said you don't have a policy - it's been closed. The service clerk said I'm sorry but we've overpaid you three years ago and we've taken it back, and no only have we taken it back but you actually owe us £2,500.

ACOURT What the Pearl had done was to make a crucial mistake in l998 when Caroline made a withdrawal of money - instead of taking units away from her investment account it added more to it - increasing the value. But no-one spotted the error, even when Caroline herself questioned if the investment was doing as well at it appeared, Pearl always insisted the figures were right.

CAROLINE I rang and I was quoted over £3,000 in the policy. I thought it was mine and I've spent it because I thought it was mine. This isn't my mistake. You know when you're told by a huge company that everything's fine, who am I to think that it isn't?

ACOURT Only after the dream holiday was booked last autumn did the Pearl realise the mistake it had made in l998. And it was then that it told Caroline to cancel the Florida trip because it wouldn't provide the money. The error was Pearl's but staff were firm that she now owed them money. Pearl suggested it might waive her £2,500 debt if Caroline could prove she was poor enough, but that it demanded to see her bank statements, pay slips and other personal documents. So instead of having everything to look forward to, Caroline suddenly found herself deeply in debt and dreading having to tell her daughter that the trip was off.

CAROLINE It's what every child dreams of you know - and she's told all her friends - we're going to Florida - nothing short of a miracle's going to get us there I don't think, but I'm not looking forward to telling her I have to say.

ACOURT We asked Pearl for an interview - it refused but said it would review the situation. Then yesterday afternoon the Pearl backed down. The firm acknowledged that it was what it called 'an unfortunate but rare mistake'. Still no-one would be interviewed, but its statement went on:

WOMAN We have apologised to Caroline for the extremely poor level of service she has received from Pearl and have reassured her that the over payment on the policy will be waived without question. We have also told her that we will cover the costs she has incurred as a result.

ACOURT That means the holiday is safe. Caroline got a faxed letter at work to say Pearl would be paying, so what was her reaction at the outcome?

CAROLINE I'm ever so pleased that I got in touch with yourself cos I think that made the difference, I really do - and I think it's nice if it can make people out there - the little person out there realise that they have got a chance of winning if they fight for it really.

ACOURT And good news for Charlotte.

CAROLINE Oh she's over the moon yes - I rang her as soon as I got the letter through actually and told her that everything was okay so - so we've both over the moon about that and can start relaxing and looking forward to the holiday now which is lovely.

LEWIS Well Chris - great news for Caroline and Charlotte, but it does show how finance firms can blame us if they make a mistake?

ACOURT And unfortunately Paul there isn't any official time limit to protect consumers if errors like this are made. After hearing about Caroline's case the Association of British Insurers told that it would welcome a legal ruling on exactly where and when it's reasonable to ask customers to pay back money given through mistakes exactly like this.

LEWIS well thanks Chris. Well it could be the marketing opportunity of the decade. In the next year 21 billion pounds of personal savings must find a new home: Tessas, tax exempt special savings accounts opened on January 1st l991. Five years later much of the money was rolled over into a follow on Tessa, and now those are reaching the end of their five year life. 14 billion pounds matures in the next 3 months, another 7 billion following in the rest of 2001. Many Money Box listeners want to know what they can do. David Gay e-mailed us at :[e-mail] from Bedfordshire:

DAVID My second Tessa is maturing this week and I would like to invest in another Tessa for the next 5 years. I'm not a stocks and shares man - I've got Isa - cash Isas already and I would just like to go in for another Tessa - could the experts advise me please where I might find the best rates of interest - or any general advice please?

LEWIS So what can we do with our maturing Tessa money? Live first to Leeds and James Dalby from Bates Investment Services. James, Tessas have gone now putting it in another Tessa isn't an option is it?

DALBY That's right - it isn't. But what is an option is a Tessa only Isa - Tessa only Isas were set up to receive the maturing capital from Tessas if you wish to put that capital into them.

LEWIS Now Isas - these are the things that Gordon Brown replaced Tessas with - individual savings accounts and there's a special sort just to take Tessa money?

DOLBY That's right and it is a Tessa only Isa and of course Gordon Brown also replaced Peps with Isas as well. Tessa only Isas do offer some very good interest rates - Britannia Building Society for instance offers 6.85% gross - if you look at the banks - Barclays are doing quite well with 6.75%.

LEWIS And that's all tax free?

DOLBY Yeah when I say gross - it is gross and it's tax free yes.

LEWIS And what if you don't do this? - what if you either though ignorance or laziness or all the other things that drive us - you don't actually take your money out of the Tessa?

DOLBY Well absolutely - you do actually have up to 6 months to move the maturing capital into a Tessa only Isa. During that 6 months most providers will move the money into a holding account - some of those accounts pay very low rates of interest - we did a telephone survey last month and out of 11 providers we found that the lowest was point one percent gross - the highest was 3.25% gross.

LEWIS No brilliant aren't they?

DOLBY Not brilliant no.

LEWIS Well stay with us James, but listening to us in Chelmsford is Christine Ross who's director of financial planning at UBS Warburg. Christine, some independent financial advisors are calling this a 21 billion pound sales bonanza. Do we have to be a bit careful about the advice we take?

ROSS I think we do - everybody's out for some of this money and as James said, there's some very, very good rates around at the moment, but we'll have to keep our eye on them in the future. Secondly, I think before you rush into safe the money again, although that's of course a good idea, is to look if your circumstances have changed - have you got any debts, credit card balances - it is just after Christmas - you might be paying up to 20% on those, and getting about 7% on your savings, so you should really take care of those first.

LEWIS I thought for a minute you were going to tell us to go out and spend it.

ROSS Oh I might do.

LEWIS Apart from Tessa only Isas, what are the other choices though because it isn't just Isas we should put it in or think about is it?

ROSS No you could actually look at unit trusts, I mean the gentleman that spoke earlier really wasn't into the stock market, but some people might be. Whilst Tessa only Isas are tax free, they are cash rates, and interest rates are probably going to come down in the near future Now unit trusts are just collections of shares - they're not a tax free investment, but you do have - everybody - a £7,200 annual allowance against capital gains, so even if you're using up your normal Isa allowance this year - your £7,000 - and you have more, then you could use a unit trust.

LEWIS And I suppose it might be worth thinking of paying maybe something off your mortgage, particularly if you have an endowment that you're a bit worried might not be enough?

ROSS Absolutely - that or you may have a flexible mortgage or one that doesn't actually have any penalty, although you must check first - it's worthwhile reducing your mortgage or any other debts, and if you still have money left over then you may want to look at stakeholder pensions that come in in April.

LEWIS We'll be dealing with those nearer to the time- Christine Ross thanks very much from UBS Warburg and earlier we heard from James Dalby of Bates Investment Services. Well the New Year has barely begun and already we're being bombarded with the inevitable holiday adverts - whether it's ski-ing at Easter or somewhere sunny in the summer -one thing is for sure, if you are booking a holiday you'll be asked to take out insurance. Holiday companies can no longer offer incentives to get you to take out their insurance, but some still insist that you have insurance at the time of booking, so it's all too easy to agree to an extra few pounds on the bill, but that could be costly mistake. Jill Murphy is at the head office of insurers Direct Line. Jill, is the holiday company insurance always going to be a bad deal?

MURPHY I think the fact is that a lot of people unwittingly accept the insurance that the travel agent offers without realising that they're in fact paying twice as much more than they need to. And in fact sometimes the cover that they're buying might well be inappropriate for their needs because research that we've undertaken shows that often they're not asked about particular medical conditions or any adventurous activities they might be undertaking to ensure that the policy will cover them for those things.

LEWIS This is always the fear with insurance isn't it? - that you pay up the money up front - but when you come to claim it's often difficult. Now do you make sure you get the cover you need then?

MURPHY I think the - the point that people should really have in their minds is to make sure that as well as the cover being adequate in terms of adequate medical expenses, the suggested level there is around 5 million pounds worth of medical cover because of the high costs of treatment overseas, particularly in America and obviously there's a huge growth in travel much further afield, but also to make sure that the cover that's being offered to them actually - is explained. If there are any particular exclusions with regard to medical conditions that they are made fully aware of them.

LEWIS No that's obviously good advice once you're there, but is it more sensible to have perhaps annual insurance or at least insurance in advance so that you're not trapped into signing on the dotted line when you book the holiday?

MURPHY Well certainly the trends to purchase annual insurance is growing - people increasingly are taking more and more holidays each year. Again research that we undertook recently shows that on average now 40% of consumers are actually taking more than one holiday a year. Increasingly there's a trend for short breaks and things of that kind, so with an annual policy you can actually take advantage of better value cover and have peace of mind knowing that the cover's appropriate for you to take advantage of last minute deals.

LEWIS Yes insurers always use those - that phrase, peace of mind don't they? - but of course once your annual policy runs out there's no point in renewing it is there till the next time you go away?

MURPHY Well that makes good sense and certainly obviously it does not make sense to automatically renew if you haven't already got in mind the plans that you have for the coming year, but we do find with out experience that peoples' holiday trends do tend to fall in cycles.

LEWIS Jill Murphy from Direct Line thanks for talking to us. Now Chris what's this week carpet bagger news?

ACOURT Yes this is becoming a bit of a habit Paul. For the third week running there's a building society under attack from members seeking windfall bonuses. Recently it's been the Nationwide and the Chelsea - now it's the Portman, the 4th largest with over a million members. Forms have gone in this week asking for a vote on whether to become a bank. The Portman is studying

them. LEWIS And a touch of déjà vu about another item - a warning about a Spanish based share service?

ACOURT Yes another one. This one has been backed up by a court order -the Financial Services Authority has successfully blocked a Barcelona based firm trading as Trident Market Advisors from operating its investment business in the UK and frozen its assets - just like the firm called Thibault which the FSA warned about last week - Trident had been using a London address to attract investors. Both these firms are unauthorised to do business either here or in Spain, so investors aren't protected.

LEWIS Thanks for that Chris and that's all we have time for today.

If you'd like more information about any of the items on today's programme you can call the BBC Action Line on 0800 044 044 Calls are free on 0800 044 044 Or you can look at our website: www.bbc.co.uk/ updated shortly and with links particularly to the Financial Services Authority if you think you've been involved in a dodgy company.

You can keep up with personal finance stories on Working Lunch - BBC-2 at 12.30. Vincent Duggleby's back on Monday with our phone-in MONEY BOX LIVE about savings and investment. E-mail us questions now on [e-mail]- the same address for any of your financial problems.

I'm back with MONEY BOX next Saturday at noon - this week the reporter was Chris Acourt, the producer Penny Haslam, and I'm Paul Lewis.

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