Money Box - Saturday 9th December 2000

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 9th DEC 2000 1200-1230 RADIO 4

Equitable Life

£3 billion in means tested benefits remain unclaimed

Missing £20,000 inheritance

How to send money abroad

Equity release

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

LEWIS Welcome to MONEY BOX. Today as Britain's oldest mutual insurance company closes its doors to new business, the fears of Equitable Life customers:

CHRISTOPHER What is going to happen to my pension in future ? - will our pension payments be reduced? Or will there in fact be enough funding for the payments to be made at all?

LEWIS New figures show that 3 million people fail to claim 3 billion pounds a year in State benefits. I ask the Secretary of State what he's doing about it. Should you use your home as a piggy bank when you need more money? - and Money Box finds the £20,000 inheritance that last week had been lot for 3 months. First though Equitable Life, the world's oldest mutual insurance society announced yesterday it was closing its doors to new business after the board failed in its attempts to find a buyer. The managing director, Alan Nash, resigned. The president, John Sclater, apologised, but stayed. The decision means that many of its 650,000 customers including those with pensions, annuities and bonds will face cuts in their benefits, and if they try to leave the penalties for doing so have been increased. Shortly I'll be talking to Equitable Life's new chief executive but first Chris A'court's here. Chris, you've been following the story for us. What's brought this 238 year old company to its knees?

ACOURT Many years ago Paul, Equitable made the simple but major mistake of promising to pay out more money than it can now afford. It once sold pension policies that guaranteed the amount people would get when the time came to cash in, and realised too late that with falling interest rates the business couldn't afford it. Now Equitable fought through the courts for permission to break its payment promise, but this summer after a House of Lords hearing it threw in the towel and agreed to stump after all. But this meant it needed to find 1.5 billion pounds, and the people who run the Equitable immediately put the for sale sign up, hoping someone with deep pockets would come along as a buyer and get it out of the mess its in.

LEWSI But the crunch came this week because no-one in fact was prepared to buy it?

ACOURT Right. Money Box understand that talks with the Prudential which was the only one interested in the end broke down on Tuesday. We tried all week to confirm this and the Equitable just wouldn't talk. Then yesterday morning the news was finally confirmed. Since then Equitable policy holders have swamped us with their fears and concerns about what this means for their money, their pensions, their whole futures. Christopher in East London has the pension guarantee but now fears it may ultimately prove worthless:

CHRISTOPHER Will our pension payments be reduced - or will there in fact be enough funding for the payments to be made at all? What happens in the case of a mutual organisation if they have insufficient funds to meet their commitments? - if a limited liability company is in the same position it can in fact be declared bankrupt.

ACOURT Other people who are much younger and trusted Equitable to offer the best when they retired are commonly telling us they now want to consider pulling their money out. Here's Sheila from Cumbria:

SHEILA I'm not a malicious person but I certainly don't want to think that I'm sending my money down the river, suring up somebody else's pension. I need to make sure that I'm secure myself. Is there any way that I can switch my money out of Equitable in the short term, and is it a sensible thing to do? It's just something that I know nothing about.

ACOURT Another typical comment Paul. The point is that everyone with any Equitable policy now has reason for concern. If a buyer had been found then all Equitable pensions and investments would have carried on as before, but closing to new business means those people already in bear a huge burden to help pay for each other's benefits.

LEWIS Thanks Chris and advice for worried Equitable customers shortly, but first let's talk to Chris Headdon. He was the finance director of Equitable Life until Friday. Now he's chief executive of the troubled company. Chris Headdon. you were the finance director right through this long debacle - shouldn't you resign as well?

HEADDON Good morning. Before I answer that could I just say to all listeners that we are very sorry that this has happened. It is an extremely sad event in the society's history - we recognise that and recognise the concern that it causes to policy holders.

LEWIS Well it's those concerns we have to try and answer Mr. Headdon isn't it this morning and you've heard two of them. Let me just repeat the question - don't you think you and indeed the rest of the board should also have gone?

HEADDON Yes - er - just on a point of information I only became the finance director 18 months ago - Alan Nash decided he had to take responsibility and I respect his decision for doing that. The priority now is to look to the future and do the very best for policy holders in the circumstances that we find ourselves. The Equitable's a special company and in those circumstances a number of decisions will need to be taken in the near future.

LEWIS One thing that's puzzling people is if you in fact heading for insolvency or concerning people - can you tell us what your assets and your liabilities are?

HEADDON The society is fully solvent as we said yesterday by both ourselves and financial services authority. I think it is important to remember that the decision that was made yesterday was to stop writing new business. That has no immediate implications for existing policy holders at all. Their asserts are still there. They are still fully invested. Clearly the future situation - we need to look going forward but need to pick up on the point of your first policy holder you interviewed - all pensions will continue to be paid.

LEWIS But it does raise questions for them in the long term. His point was that if it turns out you can't meet these guarantees the company could be in a different position in the future and go bust?

HEADDON We will clearly have to manage business going forward in the circumstances that we find ourselves but I don't think the absence of new business particularly changes the management of a mutual society going forward.

LEWIS Well what about the absence of current business? -what about the 360,000 with profits customers who don't have guarantees - they've already been - had money taken off them to pay the guarantees, raising - you hoped anyway 1.5 billion pounds. What if they all decide to leave? - who's going to be left then to pay the 90,000 guaranteed policy holders?

HEADDON The priority now is to manage the organisation to the very best that we can achieve for all the existing policy holders. If people chose to transfer out and I would emphasis again there is absolutely no need to anyone to take any hasty decisions. Nothing has happened that requires sudden decision taking -we will help policy holders like Sheila that you interviewed to make a balanced decision looking at all the circumstances of their individual circumstances.

LEWIS But one effect of not taking new business is that you will be moving your assets from equities to saver investments - that will reduce the yield - estimates in the papers today indicate people could have 10% - sometimes more less than they were expecting. That's surely the best reason of all to leave?

HEADDON Well as we've said in a closed fund one would expect the balance to be weighted rather more to fixed interest and that will be one of the considerations that people will need to take into account, but that's going to happen really quite gradually over a period of time and the impact on that will be very different for people in different circumstances.

LEWIS And briefly, if it is a good idea to stay why have you raised the penalties for leaving? - surely that's just a way of trying to lock people in to a bad decision?

HEADDON It comes back to the point that our job now is to do the best for all policy holders. It would be irresponsible to let people out on terms which could potentially leave the people that decide to stay with us in a worse position that if those people had stayed - so we're trying to treat everyone fairly

LEWIS So if people leave it could cause difficulties for the company. Chris Headdon stay with us. Individual policy holders of course will know if their money's with Equitable life - it also holds the investments of 7.000 company schemes including I must say part of the BBCs - 650,000 people have investments with Equitable Life. Let's got to Bristol now and talk to Kean Seager an independent financial advisor from Whitechurch securities - but also the co-ordinator of Equitable Life policy holder's action group. Kean what are the main concerns of the action group members?

SEAGER Well I'm sorry - I have to say this whole story leaves us really - really quite cold. It started with mis-management - Equitable has had a poor financial ratio for many many years

LEWIS You mean it hasn't had the assets to back its liabilities you say?

SEAGER Well they did happen to - to cover them but only by a very small margin and that margin was getting thinner all the time. They didn't fully cover the liabilities they had which of course we now know all too well - they - I hated the shabby way that they tried to frankly weasel out of guarantees - I mean I know it's hurt us now but I think to any normal person the word guarantee means exactly what it says and now it's culminated in leaving a vast number of people who've trusted them with their life savings - frankly up the creek without a paddle.

LEWIS And what's your action group want to happen to help those people?

SEAGER Well we've been left with very little choice - we had hoped that there would be a good deal moving forward. We now obviously - it's no good crying over spilt milk - we're in a very difficult position here. What we want to do is to make sure that at the very least the - the company now manages their assets to the best of their ability, and indeed perhaps one of the ways forward and it might not be as bad as it feels at the moment - if at the end of the day one of the ways forward is if they can improve the performance of the assets they do hold. Perhaps have a look around, get some really good, good management groups in to manage part of their portfolio etc.

LEWIS Well I'm sure they'd say they will do that. With us also is Amanda Davidson who's a director at the independent financial advisor Holden Meehan. Amanda what should people do - Sheila from Cumbria first - she wants to know should she get out - is it possible, is it sensible?

DAVIDSON It is possible to get out but you need to be extremely careful because there are costs involved in doing so - but also if you're taking money to a new provider, a new insurance company, there will be charges on the new contract.

LEWIS So you're charged on the way out and charged on the way in to someone else?

DAVIDSON Exactly it's a bit of a double whammy. You also need to be - careful with some contracts because there are tax implications of coming out of the investments.

LEWIS And what about these penalties? - do you think it's reasonable for penalties to be raised to try and keep people in to try and save everyone's life?

DAVIDSON Well clearly what they're trying to do is to retain some money to cover the liabilities because otherwise they could run into deep problems but each individual policy holder has to make the decision of what is right for them.

LEWIS Now there are two groups - there's the ones with theses so called with profits products - that some have got guarantees, some haven't - and there's the ones with unit linked policies - simply straight stock market investments. Is the advice different for each of those 3 groups?

DAVIDSON Yes it is indeed. For with profits policy holders they're in the most worrying position because they're likely to see their profits reduced, and probably quite dramatically and also the ones with the penalties that are imposed. Unit linked policy holders have not quite so much to worry about at this particular juncture.

LEWIS They can get out without penalty but it is the with profits ones that don't have the guarantee whose profits are being squeezed - whose returns are being squeezed to pay for the guarantees. So they should all think about getting out. How do you make the decision as to whether it's worth it in your particular case?

DAVIDSON Well it's essential that these policy holders take independent financial advice. It's no good getting advice just from Equitable cos clearly they're going to be biased. So the first thing to do is to find an advisor - but as far as decisions on what to do is concerned you need to consider how exposed you are to the Equitable. If you have a substantial amount of your pension plan with Equitable then you really need to think very carefully whether you take the knock now or you sit with it - where the situation could worsen.

LEWIS Amanda Davidson thanks - and earlier Kean Seager and before that Chris Headdon, chief executive of Equitable Life - and there's coverage of this story with advice and questions and answers in many of the weekend papers. I personally pick out the Daily Telegraph which has 3 full pages and there's a link to that - electronic version on our website and we'll also be covering the Equitable Life problems and other insurance problems on our phone in MONEY BOX LIVE on Monday - that's at 3 p.m. here on Radio 4. Now new figures released this week show just how far the government has to go to get people to claim the means tested benefits that are more and more at the heart of its Social Security policy. The new statistics show that as many as 3 million pensioners, parents and unemployed people are not claiming about 3 billion pounds in means tested help. Most of the non claimers are pensioners -the reason could be simple. It's confusing and difficult to do so. One listener explained how her 81 year old friend got on.

WOMAN She got very very agitated and worried, anxious - she said she wouldn't go through it again if she had known what it was going to be like. I do feel that the forms could be a great deal simpler, especially if they were aimed only at pensioners. A great deal of the confusing detail would be removed because there's a great deal about work and tenancies and children and who lives with you and all the rest of it and it's all very complicated.

LEWIS Despite that changes in April mean that at least 300,000 more pensioners will be able to claim extra help and a couple of years after that the pension credit will extend means testing to half the population over 60. For the last 6 months the government has run a 15 million pound campaign to get pensioners to claim the money they're owed. So far not many have done so. Earlier I asked the Secretary of State for Social Security, Alistair Darling if he was disappointed with the results:

DARLING So far of the three quarters of a million pensioners who have got in touch there's been about 140,000 claims processed - just under half of them have been unsuccessful but what is interesting is when you look at those people who have not been successful just over half have failed because they had too much income and of course when we increase the minimum income guarantee level next year to £92.50, more people will qualify and nearly 40% of the people who applied lost out because they had too much savings in the bank. Now that is because the limits at the moment which we inherited were ludicrously low - we're doubling them the next year which will result in about half a million pensioners being better off an average by over £5 a week and of course when the pension credit comes in in 2003 there will be no limits so pensioners can have as much savings in the bank as they want and they could still be eligible. In other words it'll be a straight forward income test.

.LEWIS So let's be completely clear about this: - on the 31st October you told Parliament or one of your colleagues told Parliament - 24,700 had been successful - now you're saying 70,000 have actually got more money?

DARLING No - 62,555 people have got more money as at the end of November - that's the exact number. Clearly it will be a bit more cos over ten days or so have elapsed.

LEWIS I understand that but just go back to the point you made about the others qualifying because of the changes - that's not going to solve your problem is it?- it's going to increase it because even with 62,000 successful claims - that's not much more than 10% of those who will be eligible - if you increase the numbers eligible to 5.5 million as you will with pension credit, you'll still have 90% of those eligible not claiming?

DARLING Up until now the thought was that people hadn't claimed because they hadn't wanted to - because of stigma. Now the fact that nearly three quarters of a million pensioners have responded to the take up campaign suggest to me that a large number of pensioners are interested quite rightly in claiming money they maybe entitled to

LEWIS But the real problem is 750,000 have enquired - but only 140,000 have even applied - isn't it getting them to apply that's the problem?

DARLING No - 140,000 claims have been processed. There are other claims waiting to be processed. Of course once the pension credit comes in the whole way in which we process these things will change. What happens now is that when you retire you are written to shortly before that in order to check that your contributions are right. What I want to do is to do a one off assessment and then rather like the tax system you don't disturb them unless there's a major change in circumstances.

LEWIS So the claim and the amount they get will last for what - 6 months, a year - 5 years - life?

DARLING Well we're still working on the details but I would like it to work for as long as possible and one of the other things that is going to happen I hope slightly before the credit comes in - is the claim form we now use will be massively simplified. It's far too long, it's too complicated, it shouldn't be and we are changing it.

LEWIS It's 40 pages - how long should it be?

DARLING Well I'm hopeful that we can get the whole thing down to less than 10 pages - for example it is absolutely ludicrous that people ask pensioners whether or not they're pregnant - that's something we inherited- it's something we want to get rid of . Above all, we want to make the system simpler, easier to understand, and less trouble for pensioners.

LEWIS Alistair Darling. Well many people who have very little cash in old age nevertheless do have a valuable home. And the growing number are using that value to boost their income in retirement. In the first 6 months of the year the 8 leading providers of schemes that turn homes into income saw their income nearly double. In the l980s some home income schemes got a bad press with people finding themselves in debt and threatened even with losing their homes. So how safe are they now and indeed are they a good idea at all? Let's go to Gloucester - David McGrath from Equity Release specialists Hinton and Wilde is there - David, how safe are home income plans now? David McGrath can you hear me? - no we don't seem to have David McGrath. Let me just talk to Chris then about our case last week - last week we featured a missing £20,000 inheritance. Chris you brought us that story of City Bank - they apparently lost the money for 3 months when it was transferred from London to America. Thanks to you our listener Quentin Jennings has got it back?

ACOURT Yes Paul. We said we wouldn't give up and the really good news is that on Thursday we learned that the £20,000 Quentin had been missing since September is safely back in a British bank in London. So it's back here in Britain - he's decided to keep it here Paul you'll notice. He doesn't have any trust that it wouldn't go wrong again if he tried wiring it to America for a second time.

LEWIS So after all our work it ended up back where it started but at least he's got it - what went wrong Chris?

ACOURT Well we still can't say exactly which is still worrying. Listeners will remember our journey to track this international money transfer that went wrong - moved from London to New York to Scotland, to Ireland, back to London and to New York again. City Bank won't offer a full explanation of how the money went somewhere into limbo - but it's definitely here now safe and ready for Quentin to spend if he wants to.

LEWIS Right and what about compensation ?

ACOURT City Bank has offered over £300 in compensation for the interest he has lost on the money while it's been missing - and it will also pay him for a fruitless trip he made home to England when he tried unsuccessfully to sort it out himself.

LEWIS So Quentin's happy obviously but other listeners have been telling us since last week haven't they about bad experience with City Bank and getting money across the Atlantic?

ACOURT Yes among them Andrew from Oxford who told us it took 10 months to sort out where his money had gone in the US, and Chris in London made a couple of transfer of tens of thousands of pounds and each time it took weeks to trace the money. He said he believed the banks need to make a complete overhaul of their systems for transferring money across the Atlantic.

LEWIS But you do see a lot of adverts now for ways to send money abroad - what are the choices?

ACOURT There are quite a few and I asked someone who has tried them - Simon Calder the travel editor of the Independent. He says the most tempting to use are the specialist services that can wire money almost instantaneously across the Atlantic, but he's warning that the cost can be huge.

CALDER It's fantastically expensive if you don't watch what you're doing. For instance Western Union which is terrifically fast service will charge you anything from 5% to over 50% of the amount of money that you're actually transferring.

ACOURT One listener suggested drawing a dollars cheque here and actually couriering it across to the United States?

CALDER That would certainly be one way of doing it - if you happen to have access to a dollar account and you didn't mind paying the cost of couriering that over. It does seem bizarre though in these days when the whole globe is so fantastically wired that money can possibly go astray - it ought to be the most certain, the most secure thing in the world.

LEWIS Simon Calder of the Independent and now I believe that David McGrath from the equity release specialists Hinton and Wilde is there - David, just remind us how these schemes work?

McGRATH Morning Paul - yeah they enable people from 60 years and over to release some valuable cash or income from a property which they own - perhaps they've enjoyed many years in and have no mortgage anymore.

LEWIS I mentioned a few minutes ago that in the past they had been dangerous - are they now completely safe?

McGRATH Well the plans that we recommend are with companies who attribute to Ship - Save Home Income Plans - and they have very valuable guarantees including solicitor protection and solicitor's certificate.

LEWIS Now the old scheme - and there are two sorts aren't there really - there are the old scheme - the mortgage annuities where you borrow money and then use that to generate an income, pay off the debt and you still have something left - there are these newer ones, these so called equity release schemes - how do they work?

McGRATH Yeah the newer ones enable people as I said - ...from 60 years and above to actually raise money on their property - and they pay no interest at all during their lifetime.

LEWIS And they don't - they then give the property up don't they - so they don't own it - they carry on living in it - doesn't that seem a bit insecure for people?

McGRATH Well they have guaranteed tenancy for life and in that particular example they actually retain 100% ownership of the property as well, so therefore of course they - enabled to enjoy the benefits of further growth in the property.

LEWIS And also the problems, they have to insure it, maintain it presumably?

McGRATH Indeed yeah - in exactly the same way as they would continue to live in it in normal day to day at the moment.

LEWIS Now you say they have it for life - of course many peoples' fear is that towards the end of their lives they will have to move, either to an easier property or indeed into sheltered housing or even into a care home - how does this system cope with that flexibility in older age?

McGRATH Well each of the individual providers under the Ship rules would give guaranteed portability and being able to move in the future - and I say that ...to live, but also the plans comes to an end when people go into long term care, so on those two eventualities.

LEWIS David McGrath - thanks very much for talking to us. Now we've just got a couple of minutes to go back to Equitable Life because Amanda Davidson is still here - and I wanted to ask you Amanda specifically on the question of people who have a pension that they're paying into - should they carry on paying into it - or should they immediately stop that and then worry about what to do with the money that's already there?

DAVIDSON Our advice is that they should stop making payments to Equitable - there's far too much uncertainty there and they should think about re-directing those to another pension provider - indeed to diversify and then that will give them time to think about the pension fund that they've got existing with Equitable.

LEWIS So by stopping they'll incur no penalties - it's only when you take it out you might run these penalties and extra costs? DAVIDSON That's absolutely right

LEWIS So at least put some eggs in a new basket and of course a lot of these pensions aren't personal pensions - they're with - through a company- as I said earlier many people at the BBC have got money in Equitable through that route. How do you check on it - who do you go to cos you can't just stop paying if it's through t

he company can you? DAVIDSON No that's right - you need to talk to the trustees of the occupational schemes - whether it's an avc or your actual company scheme because they must be making provision and you need to know where you stand as far as that is concerned, so that you get some answers from them.

LEWIS And you say you do these things - obviously you're gonna tell me go to a financial advisor, but even that is going to cost money isn't it?

DAVIDSON Well unfortunately yes it can do. It rather depends on whether your independent financial advisor's going to work on fees or commissions and you need to sort that out, but I'm afraid the whole exercise is going to cost money for Equitable policy holders.

LEWIS Amanda Davidson from Holden Meehan - thanks very much for talking to us and that is 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 action line on 0800 044 044 - calls are free on 0800 044 044 You can of course look at our website :http:://www.bbc.co.uk/moneybox. And that will be updated shortly after the programme.

You can keep up with personal finance stories throughout the week - by watching our colleagues on Working Lunch - BBC-2 and next week that runs from twelve noon until one each day - disability at work and planning for retirement -two of the topics. As I said, I'm here on Monday with our phone-in MONEY BOX LIVE which now will be on Equitable Life.

You can e-mail questions now on [e-mail] or indeed you can use that address to tell us about financial problems.

I'm back with MONEY BOX next Saturday at noon. Today the reporter was Chris Acourt. The producer was Jennifer Clarke, and I'm Paul Lewis.

Uesful contacts:

Equity Release: As property prices continue to rise, a growing number of people want to use that value to give themselves more money now. We asked - is unlocking the value of your home a good idea, or are there hidden dangers ?

Hinton & Wild produce a free leaflet entitled 'Extra Income for Elderly Homeowners'. They also produce a booklet "Using your Home as Capital", originally written by Cecil Hinton in 1987 and published by Age Concern. Cost £3.99 to Money Box listeners including package & posting (normally £4.99). To order a leaflet or a booklet call: 0800 32 88 432.

Or click on the link - top right - to visit the website.