Money Box - Saturday 17 February 2001

THIS TRANSCRIPT WAS TYPED FROM 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 17th FEB 2001 1200-1230 RADIO 4

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

Children's Tax Credit

American Banks Consumer Rights

Equitable Life

Stakeholder Pensions

Individual Savings Accounts

Divorce Insurance

LEWIS Hello - in today's programme the 2 billion pound tax give-away to parents with children under 16 - Chris Acourt's here:

ACOURT Looking into American banks in Britain - some are accused of denying customers maximum consumer rights.

LEWIS Did Equitable Life mis-sell investments to 20,000 people after it first lost in the Court of Appeal?

MAN Equitable Life should have warned me that there was the possibility that the House of Lords would support the Court of Appeal's decision and if that was the case I would suffer financially.

LEWIS The stakeholder pension that's on virgin territory - and eenie, meenie, minnie Isa - how independent are guides to tax free savings? All that and more in Money Box today, and we start with the government's attempts to give more than 2 billion pounds away to parents away with children - not a very demanding task you might think. This is how the Inland Revenue is trying to do it.

(Fx advert)

ADVERT Millions of families can get an extra £442 a year. I know that because I - I - am a super parent. If you pay tax through PAYE.

LEWIS Adverts for the new children's tax credit which starts in April have been running on radio and television this week. The credit will be worth £8.00 a week off your tax bill, and it's given to a parent who has a child under 16 living with them. But more than a million people who could be eligible still haven't filled in the form to claim it. With me to explain the new relief is John Whiting of accountants, Price Waterhouse Coopers. John, a very basic guide to children's tax credit?

WHITING It is a tax credit. It's not actually given to the children of course - it's given to somebody earning and I mean this is one of the problems in a sense - it's a reduction in your tax bill. It comes out actually at £442 a year, so that's the maximum you can get and one of the catches that many are aware of, it gets phased out as your income goes up. If you're into a higher rate tax bill situation then it starts being phased out.

LEWIS And you have to have a child under 16 living at home and dependent on you, and it's only one per family, it's not one per child?

WHITING Exactly - it's one allowance per family per family unit if you like and that also translates into the income side of it that this phase out, one of the great catches with it is that is given to the person with the higher income. It attaches to - so you can't say oh I'm a £40,000 income earner - I'll give the allowance to my £20,000 earning spouse - sorry it attaches to the higher one and is therefore potentially phased out.

LEWIS And this means - so it's basically a means test with a tax allowance and there's also a cohabitation rule because you have to declare if you're living with someone as a couple?

WHITING Absolutely. I mean in many ways it's rather unusual, very unusual I think for tax that we got into very much equality in tax a few years ago - husband and wife completely separately - well this sort of brings it back and it's not just husband and wife as a unit, it's cohabitation, it's people living together - the legislation talks about as husband and wife, man and woman living together as husband and wife.

LEWIS And it has to be a man and a woman, not a man and a man?

WHITING Well there is this curious little quirk that it does seem that if you have a gay couple with a child then they aren't caught by this cohabitation

LEWIS Okay, well tax never was simple. It's described in one of the papers today as a dream for accountants and a nightmare for tax payers.

WHITING Well there is a bit of that yes I think it will take some sorting out - definitely.

LEWIS Martin Barnes is also here from the Child Poverty Action Group. Martin an extra £8 a week for tax paying families with children must be welcome?

BARNES Well yes it is and actually the Chancellor has sort of flagged up that it could actually be increased to £10 a week. We don't yet know whether or not that will come in this April. It's basically replacing the old married couple allowance - the additional personal allowance which went a year ago, so we have had a bit of gap in the meantime. But yes it is quite a significant boost to the incomes of middle - lower earning families.

LEWIS And why - why is it not being taken up? - I mean you say middle to lower earning but it is everybody who doesn't have someone paying higher rate tax. Now I know that more people do that but certainly a great majority of households don't pay higher rate tax. Why aren't people taking it up? - a million people haven't claimed?

BARNES Yes I know - an amazing number - £10 a week you think they'd be rushing to get their claim forms in. I think firstly the publicity has only really started coming out - Inland Revenue sent out 8 million forms to households last summer. I think a lot of people probably put them to one side or didn't actually appreciate that this could apply to them. And I think it's fair to say that because we have the word credit mentioned so many times now for different payments both in the tax and the benefit system, people do get a bit confused, I think for example some families who are perhaps better paid do think that this is part of the working families tax credit system which it isn't - you can get that children's tax credit and working families tax credits, so I think there is some confusion, but hopefully this publicity campaign will encourage people to put the forms in. The forms themselves are really not that complicated.

LEWIS No but there is this cohabitation question isn't there and I think people do object to revealing things like that don't they - are you living with someone? - what's your income? I know it's a tax form but the government has found - every government has found that anything with a means test attached has a low take up?

BARNES Oh yeah that's right - that's right, and obviously we are seeing a unique situation as has been said where for the first time I believe the Inland Revenue do have to make assessments on cohabitation. Now probably what they will do is to use the rules that apply for social security benefits because of course means tested benefits have always been subject to the income and savings of a partner - the sort of factors they look at for example are whether or not you're having a sexual relationship, so there are sometimes some quite personal questions to be asked, but the important thing is that actually in two years time this payment will then be a total household means test when the government introduces a new scheme for children.

LEWIS And that's the integrated child credit. We won't go into that because that will also mean the end of child benefit as we know it. Can I ask you one more question John? - people who filled the form in and sent it back - when will they know if they've actually got the money?

WHITING They will eventually get a - if they're employed a revised coding notice. That I presume will probably have to wait until after the budget for whereas the higher tax kicking in - it'll probably come out in April and may hit the pay packets May/June. It maybe a bit delayed. The Revenue will try and get it out as soon as possible.

LEWIS So complicated but our advice if you have a child under 16 living with you is get that claim in. It's worth - John has corrected me - £8.50 a week at the moment - it might go up to £10 in the budget - £442 a year. Now some American banks operating in the UK are being accused of not giving their customers enough consumer rights. Capital One, MBNA and the Associates - that's a new name to me but part of City Group which owns Citibank - have signed up hundreds of thousands of new customers, particularly for their credit cards, but none of these banks subscribes to the banking code so peoples' protection is limited. Chris you've been investigating this.

ACOURT Yes Paul. The banking code is the voluntary set of rules that almost every UK bank and building society agrees to and abides by and it lays out exactly what customer's rights are and how complaints are dealt with. But even though they're now a big part of the scene here - those American banks you've mentioned aren't interested in joining. Now the chief executive of the banking codes standards board which sets and polices the banking code has told Money Box he thinks the time has come for a customer warning:

FORTESCUE The banking code gives bank customers and credit card holders real protection. I'd like to say to anyone who receives a mailing from Capital One, the Associates, MBNA, which don't subscribe to our code at the moment think very carefully about signing up for one of their cards because you don't get the protection which you would with most other card issuers.

ACOURT Seymour Fortescue, chief executive of the Banking Codes Standards Board. He says the main pitfall for customers of banks not signed up to his code is that they're often denied the right to take complaints beyond the bank itself. So if there's a dispute you can't go to an ombudsman who'd give a fully independent judgement on who's right and wrong. We've found that two of the banks - MBNA and the Associates have decided to abide by a lesser known code run by the Finance and Leasing Association. It offers some independent arbitration but doesn't go as far in protecting people as the banking code. Capital One hasn't signed up to either code, though it told us customers can be assured that Capital One complies to the spirit of the banking code. Seymour Fortescue doesn't think that's good enough:

FORTESCUE Those who don't subscribe to the code but say they adhere to the spirit of it we have no sanctions over them and therefore we can't enforce it. As far as I can see Capital One has virtually no redress scheme at all - there's no arbitration scheme and there's no ombudsman arrangement so I think their customers are in a very weak position.

ACOURT One person who agrees with him is Money Box listener Martin Stuart from Worcestershire. He got into dispute with Capital One over penalty charges for late payment on his credit card. He wanted to take his complaint to an ombudsman for an impartial judgement but was told he couldn't:

STUART When I did write to the complaints manager to advise me on who their regulator was she just came back basically with the Office of Fair Trading and when I rang the Office of Fair Trading they didn't really seem to think that this was a complaint that they could deal with. It was going nowhere quickly. I'm afraid in the end I sent the card back with a cheque and effectively closed the account.

ACOURT Capital One couldn't provide anyone for interview on Money Box today but said it's unfair to suggest its customers are in anyway less looked after. At the same time it confirmed it doesn't have an independent arbitration system for complaints and customers cannot take disputes to an ombudsman. Capital One can point to a few others who haven't signed to the banking code, most significantly the government's national savings with 30 million customers. It'll soon be producing its own code but national savings Steve Downie told us its customers already have more rights than those of the American banks:

DOWNIE We have a full complaints procedure which is backed by parliamentary ombudsman and the adjudicator for national savings. We feel we need to have a customer code that reflects the industry practice. However, there are issues around the banking code being designed by banks and building societies for that industry and therefore we are saying out customer code is the approach that we will take which will be referred to the Banking Codes Standards Board as well as part of the process.

ACOURT And that's Steve Downie of National Saving.

LEWIS Thanks Chris and if you'd like to know if your bank subscribes to the banking code and exactly what rights that gives you the details will be on our website and with our helpline. Now did Equitable Life mis-sell investments to thousands of new customers in the first half of last year? That's the question being asked by the Financial Services Authority this week. It was a question first raised by Money Box in our special programme on the troubled insurance company in January, and now the regulator has decided to act. As its chairman Sir Howard Davies told MPs on Thursday:

DAVIES We have received complaints about the selling of policies in the year 2000 - both before the House of Lords and after - and we are carrying out a review of those selling practices during that period to see whether there is a case for action on mis-selling and whether there are investors who have been mis-sold and who therefore should be compensated or given their money back.

LEWIS Sir Howard Davies on Thursday. Equitable of course lost its crucial court case over pension guarantees in the House of Lords in July but it lost for the first time in the Court of Appeal six months earlier - in January. The court defeat meant it had to honour promises made many years ago to pay high, guaranteed pensions to some of its customers. The decision which will cost it at least 1.5 billion pounds, but after losing for the first time in January it carried on selling investments to new customer without warning them of the consequences if it lost its further appeal to the House of Lords. In the past Equitable as refused to say how many new customers were taken on between the two court hearings, but this week the company admitted to Money Box that in that period it sold investments to 20,000, and some of them are very unhappy. Alistair Garland from Killearn in Scotland:

GARLAND I invested the sum of £5,000 in March 2000 in an Equitable Life personal pension policy. That was some two months after the Court of Appeal's decision. I think in retrospect that Equitable Life should have warned me that there was the possibility that the House of Lords would support the Court of Appeal's decision and if that was the case I would suffer financially.

LEWIS Peter Nellist a lawyer with Clark Wilmott Clark has several customers who are also unhappy. How did he take the news of the Financial Services Authority investigation?

NELLIST I think it's a good thing and I hope they look at it very thoroughly and look not only at the period after the Court of Appeal decision but at the whole background to how the salesman were remunerated them and what motivated them.

LEWIS Just - just tell me about how the staff at Equitable were paid because one of the big things they featured in all their promotional material was we don't pay commission to third parties?

NELLIST I think that's definitely right. My understanding however from talking to someone who was formerly at Equitable is that they got a basic salary and they then got additional remuneration depending on what was sold. One of the questions I think the FSA should be looking at is was that variable remuneration - for example would there have been more remuneration for selling product A than product B?

LEWIS And what do you think Equitable Life should have done in the last year after it lost in the Court of Appeal - to be fair to people? - it still wanted to get new business, how could it have got that in a fair way?

NELLIST For consumers to be able to make a reasonable decision they have to have information. And one of the problems here is that information was not readily available.

LEWIS And the information that they needed being what?

NELLIST Well the information as to the potential liabilities of the company and for example if a lot of consumers two years ago knew then what they know would they have still gone ahead? I personally wouldn't have gone ahead - it's their choice. It's a free market economy.

LEWIS If the FSA carries out this investigation and decides there has been mis-selling what compensation can there be for customers?

NELLIST Well that raises two spectres - how to calculate it which would be done presumably on an actuarial basis of some type, and where the compensation's actually coming from,. Does it come from the Equitable pot? - does it come under the policy holders' protection act? Or does it come from the government or indeed does it come from the FSA and the FSA's insurers?

LEWIS Peter Nellist. We invited the Financial Services Authority on to the programme but they refused. A spokeswoman told Money Box that the inquiries were into the selling practices of Equitable Life during last year. But the fact they were investigating did not imply there had necessarily been mis-selling. If you think you've been mis-sold an investment you can complain to the FSA or of course tell us - details of how to do that later. Now most Money Box listeners will know that stakeholder pensions begin in April, but what if you already have a personal pension? Should you change? Delia e-mailed us from Hampshire to say she was alarmed by a letter she'd received from Virgin telling her that her personal pension plan will automatically become a stakeholder:

DELIA I suddenly received a letter saying that my pension was changing to a stakeholder pension with effect from midnight 5th April and I was just concerned because of the lack of detail. I just wanted to know if it's still my own personal pension what a stakeholder pension is and who is this pension better for? - myself or for Virgin?

LEWIS Virgin says they've sent similar letters to all 25,000 of their personal pension customers about the automatic conversion to a stakeholder, but why have people not been given a choice? - a question I put to Gordon Maw, marketing manager for Virgin Direct:

MAW The point here is that at the moment there is absolutely no real difference - or no material difference between the Virgin pension as it stands at the moment and the new stakeholder pension. We actually believe it will be far more confusing if we - if we ran two schemes side by side that were different only in name and then actually asked people if they wanted to switch to the stakeholder pension, so the simplest thing all around is that we actually confirmed to people that their pension now meets these new high standards automatically.

LEWIS And at the end of this letter you say there'll be a few small changes to your terms and conditions. Are any of those worse terms and conditions than the current scheme?

MAW The sort of differences that are contained in the terms and conditions are very very slight indeed and they are to do with the legal wording behind stakeholder pensions and don't actually mean that people get a worse deal at all.

LEWIS Can you guarantee to us and our listeners that the stakeholder pension you're offering is not worse in any way than the current personal pension that Virgin offers?

MAW It's not worse in any way - absolutely not.

LEWIS Gordon Maw of Virgin and with me is Mike MacLeod from independent financial advisors Everett MacLeod. Mike this Virgin move is automatic but a lot of companies are not writing to customers aren't they offering a choice to move to stakeholder?

MACLEOD Oh yes they certainly are. I mean some of the big names like Legal & General, Standard Life, Norwich Union are doing that.

LEWIS Is it a good idea?

MACLEOD I think it's in the main it is a good idea.

LEWIS There must be some disadvantages though?

MACLEOD Oh there are some disadvantages. It's one of those cases where perhaps 80% of people will have no problems with this and the other 20 have to look carefully. There are issues such as addendums to the personal pension contracts such as waiver of premiums.

LEWIS Now that's an insurance against if lose your job and you can't pay your premiums they will pay them for you?

MACLEOD Sadly I wish it was about losing your job - it's actually about falling ill and thus being unable to earn and thus being unable to pay into pension - then they'll pick up the tab.

LEWIS Right - so a sort of insurance policy but not if you lose your job?

MACLEOD Definitely

LEWIS Now the change to stakeholder has brought down costs - is this the end of the personal pension as we know it - because why put money into a more expensive product?

MACLEOD well that's a good fundamental question. I don't think it will be the end of personal pensions if you already have one - the situation is that quite a few contracts will offer better terms on the old basis for existing contributions and so should be continued. The problem is finding out whether your contract does do that.

LEWIS No doubt you'll be telling us to go to an independent financial advisor in a minute. Now employers will be offering stakeholders from April - they'll have to do it from October. Is it better to go through your company's stakeholder or have an independent one?

MACLEOD Well that's an interesting question again. I think the majority of the situations will be easier to go through your employers. The main - there is not going to be much cost difference in going through your employers or through an individual one in most cases.

LEWIS But employers may put money into it of course.

MACLEOD Oh if they do that's a fantastic opportunity for you. The other aspect that'll be easier is the collection of contributions. They can take it from your salary and a pay roll deduction rather than going through your bank.

LEWIS Painlessly disappearing out of our pay

MACLEOD Before you get it

LEWIS Before we get it - Mike MacLeod from Everett MacLeod thanks very much. Now the Isa season is upon us and as the deadline of the end of the tax year looms newspapers are full of supplements to help you choose your own individual savings account. But can we trust the information in these free supplements? Janet Walford is Editor of the industry magazine Money Management and also a member of a working group looking at whether companies should be able to sell us investments on the basis of past performance. Could we trust Isa guides?

WALFORD They are from independent financial advisors and the Isa season coming up and of course there's nothing like a deadline to focus the mind on the need to act now before you miss out on tax free savings. But as far as trusting them is concerned it is very much a case of perception: - people might wonder if they see advertisements in these guides whether these advertisements are there because their funds are being recommend or whether they are recommended because they are advertising and I think this is where concerns are being raised over these guides.

LEWIS You're cynical about the independance of these guides and obviously it would then be foolish to be guided by them?

WALFORD Precautionary tale I would stress here is that for people might wonder whether these are recommendations of information. Now an IFA if he's putting these guides out must be very careful that he has researched these funds properly and I would be amazed if some of the recommendations they were making were not all good performers because otherwise he would be in trouble, so I suspect that all of these guides will carry information on Isas that have performed very well over given periods.

LEWIS So if they've performed well can we rely on that as a guide to how they'll do in the future?

WALFORD Ah here is the $64,000 question. This is one of the things that the FSA has been considering its task force has been looking at this very subject - there's all sorts of arguments about this -some people say if a fund manager's had an excellent track record and he's still there then this is a guide to how he might continue in the future. But on the other side of the coin if you have had a star fund manager who has left then it is quite possible that he has been the guiding light in that fund and it will stumble.

LEWIS I know you're on this committee that's looking into past performance. What are the concerns that that committee is looking at?

WALFORD Well Financial Services Authority is very concerned that people will see headlines in the newspaper - for example claims that the fund has grown by 18% a year and assume that that is going to continue into the future. I mean take for example the very volatile technology, media and telecom stocks- the so called TMT sector which was very much flavour of the month last April in the run up to the end of the then buyer - Isa buying season and the bottom fell out of the market last year so anybody that bought into the technology, media and telecom stock market in April last year is probably finding that they're sitting on a sizeable loss right now.

LEWIS But it's not just those extraordinary events is it? - some funds do tell us that they are consistently the best for five, six or seven years - isn't it reasonable to think that they are well run funds with a good investment team and that those people can beat the market?

WALFORD It's human nature that if you see something that is performing consistently well it will attract more money simply for that very reason, but really there isn't any long term proven track record that somebody that's been doing well for the last five years is going to really continue to do well in the future regardless of stock market circumstances.

LEWIS Janet Walford and I'll be taking your calls on Isas on Monday on our phone in MONEY BOX LIVE here on Radio 4 Monday at 3.00 p.m. And finally with Valentine's Day just behind us couples can now ensure against their romance going wrong Chris?

ACOURT Yes that's right Paul. You can now insure against a divorce it seems - a German insurance firm called Arag is reported to be offering husbands and wives that opportunity. It'll cost about £50 a month and if the worst happens the couple will be able to claim up to £20,000 when they break up. The policy's started being offered in Germany. It's unclear yet whether couples living here will be able to take advantage of it.

LEWIS Thanks Chris and on that cheery note 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: 0800 044 044 Or you can look at our website: www.bbc.co.uk/moneybox, which will be updated shortly after the programme. You can keep up with personal finance stories through the week - Working Lunch - BBC-2 at 12.30. As I said I'm here on Monday with our phone-in MONEY BOX LIVE on choosing an Isa investment. E-mail questions now on [e-mail]. It's the same address to tell us about any of your financial problems. I'm back with MONEY BOX at the same time next week live from the Home Buyer's Show at Olympia. Today the reporter was Chris Acourt. The producer was Penny Haslam and I'm Paul Lewis.

Useful Contacts:

Children's Tax Credit Over one million people could miss out if they don't fill out a form. For more details visit the their website by clicking on the link (top right). Or call the Children's Tax Credit help line on 0845 300 1036.

For more information on the Working Families Tax Credit, call the Tax Credit Office help line on 0845 609 5000.

American Banks and the Banking Code in the UK Some American banks issuing credit cards in the UK don't give customers the protection offered by the Banking Code. Is your bank signed up to the Banking Code? Or the protection of the alternative FLA code? Read the full story.

For more information, visit the website, by clicking on the link (top right).

Equitable Life Many people bought policies AFTER the company's problems came to light. Money Box asks: Were they mis-sold? If you think you have been mis-sold a policy, contact us via email: [e-mail] Or contact the Financial Services Authority's website, by clicking on the link (top right).

Stakeholder Pensions Should you be moving your personal pension plan? To find out more about stakeholder pensions, visit the official government website by clicking on the link (top right).

ISA Guides Should they be trusted? To find our more about Individual Savings Accounts go to the Treasury web site - click on the link (top right).