THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. MONEY BOX Presenter: PAUL LEWIS TRANSMISSION 22 JANUARY 2005 12.00-12.30 GMT RADIO 4 LEWIS: Hello. In today’s programme, half a million pensioners may get a bigger state pension at no cost. After 2 years of rising share prices, insurance companies are still cutting returns on our pensions and endowments. A million pound fine on Legal and General will be cut after a court criticises the regulator. Samantha Washington’s with me today. WASHINGTON: Investigating the cost of business banking. CAROLYN: It looked like my costs were going to be three to four times higher. I was left feeling that I had no alternative but to accept punitive charges. LEWIS: And BT apologises after confusing customers about a £5 fine for paying their bills late. But first, the Government is writing to half a million pensioners telling them they can boost their pension if they pay extra national insurance contributions. These letters are being sent to put right a mistake made in 1996 when the Government stopped warning people if their national insurance contributions fell short. As a result, many people who could have paid extra then didn’t do so. Well now they can. But the four- page letter has been criticised as “hard to understand”. Pat from Bristol is 65 and she retired 5 years ago. PAT: It says that if I wished to pay £950, I might be entitled to at least £1.59 per week extra in the future and also I might be entitled to some back payment. I suppose it is helpful, but there’s just not enough information in it for me to make an informed decision. LEWIS: Pat’s MP is Liberal Democrat pensions spokesman Steve Webb. He’s concerned many people may miss out on the extra pension because they wrongly believe they can’t afford to pay back the extra money. WEBB: The reality is if it’s some years since they retired, when they make this contribution to fill the gap they’ll get extra pension not just for the future but backdated to when they were a pensioner; and if that’s several years ago, actually the extra pension they get backdated could be more than the money they have to hand over. So in short, it could be free money. It could be they never actually have to hand over the cash. The Government will just say here’s some backdated pension and everybody’s happy. But it is a complex issue and it’s one, therefore, that the Government must make sure people understand. LEWIS: Now Gary Vaux is head of money advice at Hertfordshire County Council. Gary, will everyone who gets a letter benefit? VAUX: No and in fact the situation’s probably even more complicated than Steve Webb has mentioned. For example, a lot of married women who’ve already got a full pension based on their husband’s contribution record, a lot of widows are in the same position, so there’s no point in them making up the contribution that will give them a pension no greater than what they’ve already got. LEWIS: But the Government’s still writing to them? VAUX: Yes, because the Government doesn’t really know exactly who will stand to gain. It’s such an individual matter because some people, for example, who’ve already been getting pension credit or income support may gain or they may lose depending on their individual circumstances. LEWIS: And, as Pat said to us, the letters tell you how much you might have to pay but they don’t tell you how much you’d get, so it’s hard to do the equation and see whether it’s worthwhile. VAUX: It’s very difficult. There’s a phone number on the letter with an advice line. We’re hearing that the advice line is very competent, is very good at giving people advice. But it is very much an individual thing; you can’t make a blanket assumption that some people will gain, some will lose. Every individual has to check it out for themselves. LEWIS: Yes and I bet they couldn’t cope with 483,000 calls if they were made in a short space of time. But it is true though that some people could find the backdated pension covers the cost of the extra contributions and they’ll get more every week. VAUX: That is one possibility. However, it’s very much about each individual case. LEWIS: But you should overall be left a bit better off. VAUX: Generally speaking, yes. If they say to you you’re going to get an extra 2, 3, 4, 5 pounds a week, yeah you should. You may not gain all of that, but you’ll gain some of it. And of course, as Steve Webb said, you will offset the arrears against the cost. LEWIS: But don’t ignore the letter. VAUX: Absolutely not. LEWIS: Gary Vaux, thanks very much indeed. VAUX: Thank you. LEWIS: Well more bad news this week for people whose pensions or endowments are tied up in with-profits investments. The major life insurance companies will all tell us over the next few weeks how much our money has grown, or not. First up this week was Norwich Union and the news wasn’t good for its 3 million customers. Annual bonuses, as the industry likes to call the return on our money, ranged from 4¼% down to 0%, as Mike Urmston, the chief actuary at L&G, explained. URMSTON: The regular bonus rates that we pay on unitised contracts for new business are unchanged at about 4¼% for life, 4% for pensions. The bonus rates on our unitised contracts have fallen from 2½ to 2 for the period 1999 to 2000. Our conventional regular bonus rates are pretty unchanged. LEWIS: So these are sort of between 0 and 1%? URMSTON: That’s correct. LEWIS: But that’s I think what people don’t understand. You’ve had 2 good years; the stock market’s risen for the last 2 years. The return, you are saying, on your fund is about 11½% and yet people are still seeing at the very most 4¼% and down to nothing. URMSTON: Yeah, I think a lot of our policyholders have got real values in their policies in terms of the guarantees. I think the problem is, Paul, we look on the investment performance as good, but if you go back - it was 1997, I think, when the stock market was last at 4800. So if you look at the last 7 years, we’ve not achieved a lot, have we? LEWIS: But that raises the question as to why you have so much of people’s money still in the stock market. URMSTON: Well I think we’re hoping that real returns will start coming back to the long-term average. LEWIS: I’m sure you’re hoping that, but what I’m asking you is why when the stock market has been so poor are you still putting so much of your clients’ money in that gamble? URMSTON: In the long-term, I think most people can see that equity investment has delivered a real return to our policyholders. LEWIS: A million of Norwich Union’s customers have mortgage endowments. This year 40,000 matured and 17,000 of the endowments were on average £1400 too little to pay off the mortgage. I asked Mike Urmston what he was offering them. URMSTON: What we’ve done, Paul, is reconfirm our mortgage endowment promise, which is something that Norwich Union offered in the year 2000. And we’ve disclosed that our current reserves for this promise are around a billion pounds, and that’s genuine support that the company has provided to its customers who have mortgage endowments and who have shortfalls at maturity. LEWIS: So those people who’ve had a shortfall last year, you will have made that up from this fund? URMSTON: We have made some payments. We will not have made all that shortfall up. This is support which really puts people who were on target at the beginning of 2000 back on target, and that was the terms of the promise. LEWIS: But given that these products were sold to pay off the mortgage, why won’t you guarantee that everyone’s will do that? URMSTON: I don’t think we can sort of guarantee investment performance for the next 10 years; that’s not the nature of the contract. The customer is taking some investment risk. What we’d said in 2000 is, look, we didn’t tell you quite enough about these policies in the last few years. We accept that that was our fault. Any shortfalls that arose at that time, we will try to make up, we will do our best to make that up. I think we’re one of the few companies who now have stayed with that promise and tried to help its customers. LEWIS: Mike Urmston. Well live now to Patrick Connolly. He’s research and investment manager at the IFA’s John Scott and Partners. Patrick, many people will feel let down, won’t they? The stock market up for 2 years on the run now, but with-profits bonuses down again. CONNOLLY: Yeah, that’s absolutely correct. The major reason behind that is that companies have been using the gains they’ve made in the last couple of years to offset the losses made they made before that. LEWIS: So it’s smoothing, as we’re told. That’s what with-profits is about: in the good years, you get less; in the bad years, you get a bit more? CONNOLLY: To a degree, yes. There’s one important point to make though and that is when the markets were falling, companies had over 60% invested in shares. Since they’ve been rising, most companies have had somewhere above 30%, so they’re not actually getting the full rise of the markets anyway. LEWIS: No. Mike Urmston though sounded very committed to shares and last year I mean a late surge meant that investment in shares did do better than putting your money on deposit. Is he right to keep so many of our eggs in the shares basket? CONNOLLY: He is right. I mean Norwich Union funds tend to have about 50% in shares. If you go back again a few years, they were up in the 70 odd percents before, so he’s still got less than he had previously. But you’re right, because there is more than certainly many other providers have. LEWIS: And people who’ve got money with Norwich Union in with-profits, what should they do? Should they just stick with it and trust Mike and his colleagues to keep their money growing at some rate or other, or should they try and get out? CONNOLLY: There’s not a blanket answer for that. The first thing I’ll say is that policyholders with Norwich Union are in a much better position than policyholders with a number of other companies, and Mike and his team are actually not doing too bad a job. That said, whether you should stay or whether you should go really is dependent on a case-by-case basis. You need to look at the policy, look at the terms and conditions and then also look at your own circumstances. LEWIS: You mention other companies. And of course Norwich Union is the first, but we’re expecting all the others, aren’t we, over the next few weeks? I think Scottish Widows and Standard Life will be next. Will the news be any better for their investors? From what you say, it’ll be worse. CONNOLLY: I think we’re going to see a bit of a mixture. You’ll see those companies that are still committed to with profits – the likes of Prudential, Legal and General, Liverpool Victoria – and their returns are likely to be fairly similar to those offered by Norwich Union. Those that have pulled out of the market or already have much lower bonus rates, then we can expect more bad news. LEWIS: Patrick Connolly, thanks very much. A fine of more than a million pounds on the insurer Legal and General will be cut after an appeal tribunal found that the Financial Services Authority hadn’t proved widespread mis-selling of mortgage endowments. The case has been going on since 2000 and the appeal itself has lasted 15 months and cost millions of pounds in lawyers’ fees. Samantha Washington has been following the case. Samantha, why did the FSA impose such a big fine in the first place? WASHINGTON: Well the regulator said that L&G had not made sure these mortgage endowments were only sold to customers for whom they were suitable. The FSA claimed that flawed procedures led to nearly 4 out of 10 policies being mis-sold. That would be nearly 16,000 sales between 97 and 99. L&G claimed it did follow the rules. Indeed it says its procedures were specifically agreed by the regulator, and it denied those procedures had caused any mis-sales. So it appealed to the Financial Services and Markets Tribunal, which ruled this week. LEWIS: And what did the tribunal say? WASHINGTON: It found that L&G had not made sure its sales staff explained the risk that the endowment may not pay off the mortgage and it said the wording used in the documents may have misled customers. LEWIS: Yeah, but did that lead to mis-sales? WASHINGTON: Well although the tribunal said these defects will have caused or contributed to mis-sales, it said the regulator’s estimate of the numbers who were mis-sold was far too high. It only found hard evidence of 8 actual mis-sales. LEWIS: And what about the 1.1 million pound fine? WASHINGTON: The tribunal said it should be cut and is considering by how much. L&G may ask for the fine to be waived altogether and for its 2 million pounds of costs to be paid back by the FSA. LEWIS: Thanks, Samantha. Well neither the FSA nor Legal and General would come on Money Box to talk about the case, so I spoke to Janet Walford. She’s the editor of Money Management magazine and a close observer of the financial services industry. I asked her if the case would change anything. WALFORD: I was trying to work out actually who’d won this one, and I think if it was a boxing match Legal and General would have won on points. And I think because of that the FSA has got to look to its procedures and make sure that in future if it issues fines to insurance companies, it’s got to make very, very sure that all its procedures are watertight so it can’t be criticised like this again. LEWIS: Will it make the FSA less keen though to take on the big insurance companies who can afford to get the whole case reviewed? WALFORD: I don’t think so. I think as long as the FSA does show willing to put its house in order and it can prove irrefutably that its fines and its criticisms of insurance companies are well founded, I don’t think this will make it draw back. LEWIS: Do you think it might make other insurance companies more willing to challenge the FSA because it’s the first case of its kind where a fine has been challenged at the tribunal? WALFORD: I think we’d have to be very careful to watch out for a potential feeding frenzy on behalf of the insurance companies who suddenly challenge every ruling of the FSA. But I think as long as the FSA does take the steps to make sure its procedures are watertight in future and it’s seen to be taking those steps, then the insurance companies, if they know that the fine is justified and valid, then they won’t challenge the FSA. LEWIS: Janet Walford. Well with me is Mick McAteer, principal policy adviser at Which? Mick, do you agree it was a draw? McATEER: I think it’s more a question of let’s wait and see whether or not consumers lose or win from this decision. I think talks of score draw are pretty meaningless at the moment because the central point is that the tribunal confirmed that L&G’s processes and internal controls were insufficient to make sure that people understood the risks involved. That is the central point of the tribunal’s findings. Now it’s a pity the FSA let them off the hook because their own internal processes had failed to establish the extent of mis-selling. LEWIS: If mis-selling of endowments is as widespread though, I mean Which? has said there’s 5 million cases – if it’s that widespread, why could the tribunal only find 8 out of the 16,000 the FSA was claiming? McATEER: I think it’s really important to establish exactly what the tribunal did look at during its review, and what it did say was that it could actually … the FSA’s procedures were so flawed in terms of the way it actually gathered and investigated the evidence that it could actually only decide with certainty on a very, very small number of cases. But the interesting point is on those cases that it could decide on, it actually ruled around 2 to 1 there was mis-selling, so the idea that L&G are trying to claim that there wasn’t widespread mis-selling is not actually borne out by the facts of the tribunal’s decision. LEWIS: No, it was just it couldn’t be proved. McATEER: It couldn’t be proved because of the way the FSA had gathered the evidence. LEWIS: Will this decision though, regardless of these … I mean it was a very long judgement and we could argue about it all day, but will it give a boost to the insurers? The first case to go to the tribunal has been won to a certain extent, the insurers claim anyway, by them. They said widespread mis-selling was got up by the press and consumer groups like yours. McATEER: I think the other important point to remember is you know when we did our surveys we found that over 60% of the people that responded to our surveys had said the insurance company had told them that the endowment was guaranteed or would definitely repay their mortgage. And not only that; they were actually promising these sort of windfall bonuses on top of that. So the idea that there is widespread mis-selling still holds very much. Now this case has very serious implications for the FSA because we’re at a defining moment here. I hope the FSA doesn’t get frightened off from challenging the industry. I hope it becomes a more robust and a more effective regulator as a result of it. LEWIS: Mick McAteer, thanks very much. Four years ago, the big UK banks were slammed for treating small businesses badly. There’s been surprisingly little change since then and now one of them, HSBC, has sharply increased some of its charges. Samantha Washington’s been finding out more. WASHINGTON: Carolyn from Saltburn is an aromatherapist. Her business is small. She has a turnover of around £5,000 a year. She relies on her local HSBC branch to pay in cheques and cash that she gets from her mainly elderly patients. But now the cost of doing these transactions in an HSBC branch has increased significantly. For businesses like Carolyn’s, this could be crippling. CAROLYN: Each cheque paid in over the counter was going to now be 27p a cheque; cash paid in over the counter, 50p per £100. It looked like my costs were going to be three to four times higher, which for a small business like me was a big increase. WASHINGTON: Unhappy, Carolyn went along to her HSBC branch to see what her alternatives were. CAROLYN: Well when I spoke to the small business manager, the suggestions they made about asking my debtors, who are my patients, to pay me by telephone or Internet banking, I just felt were totally inappropriate. I was left feeling that I had no alternative but to accept punitive charges. WASHINGTON: The new tariffs apply to the 350,000 HSBC customers with turnovers of less than half a million. But the Federation of Small Business says this will hit the smallest of these, like Carolyn’s, the hardest. FSB spokesperson David Bishop. BISHOP: We’re extremely disappointed by the decision that HSBC have taken. I think it discriminates against businesses that do need to be branch based. We estimate that that’s about a third of the businesses in the UK. They need to ensure that they don’t keep cash on their premises, so they need to get rid of cash and cheques at the end of the working day. WASHINGTON: But how does HSBC now compare to other business current accounts? Nikki Cann is editor of Business Moneyfacts, which monitors the marketplace. CANN: HSBC were the cheapest of the “big four”. They offered very good value for money. Since they’ve changed their tariff, they’re probably the second most expensive. Whereas before they used to appear in quite often our top ten cheapest accounts given set businesses, they now have fallen right out of the running. WASHINGTON: HSBC wouldn’t be interviewed by Money Box, but did tell us that, “this is the first change in their charges for 15 years”. They went on to say that “the increases in branch costs have been balanced by cheaper electronic banking” and that “new customers can still bank for free for up to 12 months”. But this criticism about charges isn’t new and it isn’t just about HSBC. Back in 2000, a Government report criticised all of the big banks - so that’s Barclays, Lloyds and Natwest too – for giving small businesses a bad deal. Back then, the “big four” had 85% of the market and were found to be overcharging by £725 million a year. They have made some improvements, but 5 years on David Bishop from FSB says the market is still far from competitive. BISHOP: The situation remains that the big four banks in the UK account for 80% of the small business banking market, and despite the best efforts by some of the smaller banks they’ve only made small in-roads into that figure. WASHINGTON: But with more than 50 current accounts to choose from at nearly 2 dozen different banks, why do 80% of small businesses still bank with the big four? Professor Francis Chittenden from Manchester Business School, says shopping around takes time and time is money. CHITTENDON: Well we’ve calculated each of the steps that a business owner will have to go through to identify what they require and then collect the information from the banks and reach a decision, and we estimate that that will take 840 minutes, which is actually 2 days work, from start to finish. At £40 an hour, then it’s going to cost a business owner £560. WASHINGTON: But putting in that time can actually save you money overall. Nikki Cann from Moneyfacts. CANN: What a small business person can do – first of all they need to analyse exactly what’s going in and coming out of their account, what kind of transaction do they do most frequently; then to have a look for an account where obviously the charges for that kind of transaction are lowest. If you visit the British Bankers’ Association website, there is actually a business account finder on there. You can compare two accounts which you’re eligible for and you can actually look and see which would be cheaper for you. It can save businesses a fortune. WASHINGTON: So do have a look around. Alliance and Leicester has recently launched an account where cheques written and paid in are free and unlimited and you can deposit up to £1,000 a month without charge. Abbey, the Co-Op and Bank of Scotland also have free or cheap branch banking. For a business like Carolyn’s, these savings could be well worth the time and effort of shopping around. LEWIS: Thanks, Samantha. And you can have your say on small business banking on our website: bbc.co.uk/moneybox. BT is to fine its customers if they’re more than 26 days late paying their phone bill. The £5 penalty began in December and the January bill is the first warning for most customers. Many Money Box listeners don’t like it. Ailsa e-mailed us from Oxfordshire. AILSA: The bill was dated 6th January, but I didn’t receive it until 12th, and the payment date was 17th, so by the time I’d actually received the bill there was only 5 days left to pay it. LEWIS: Another listener, Judith, also contacted us. She’d found the bill when she returned from a short break. JUDITH: It’s very hard to come back from holiday and find that you’re only just in time to avoid a late payment charge. If we’d been on holiday for a little bit longer or the bill had been dated a little bit earlier, we’d have been landed with the charge with no way of avoiding it apart from battling against BT. LEWIS: Well Gavin Patterson is managing director of the Consumer Division at BT. I asked him why the change. PATTERSON: We’ve introduced a late payment charge to make sure that customers who are good payers and pay on time don’t subsidise the customers who are late payers. It’s in response to customer feedback. LEWIS: Yes, but you’ve heard customer feedback from these two people who do try to pay their bill on time but they say there just isn’t enough time now to do that. PATTERSON: We haven’t changed the amount of time that a customer has to pay the bill. We continue to offer 26 days from the date on the top of the blue bill. LEWIS: Now I’ve got a bill in front of me and it’s dated 10th January. It says ‘please make sure we receive payment by 21st January’. And then it says, ‘to avoid a £5 late payment, please pay this bill by the date shown above’. What does that mean? PATTERSON: We apologise to anybody who’s confused by this. LEWIS: Well I think everybody’s confused by it really. PATTERSON: Yeah. I mean we have made an error. We realise the wording is confusing and we’re urgently correcting that message, so that anybody who pays their bill within 26 days will not be charged the late payment charge. LEWIS: Right, so that’s 26 days from the date of the bill, which is 10th January. So that takes you up to I think, on my arithmetic, the 5th February. PATTERSON: That would be correct. LEWIS: So will it say that in future? PATTERSON: It will say that in future. LEWIS: It still does raise questions though, doesn’t it, about people who go on holiday? At exactly the wrong moment, they come back and there’s barely a week left to pay their bill. PATTERSON: Late payment charges are standard practice not just in the telecoms industry but across other utilities such as water, gas and electricity, so it’s no different from other industries. LEWIS: Well you say that. But what about a different approach though? What about saying to people if you do pay on time, we’ll give you a discount, rather than if you don’t pay on time, we’ll fine you. PATTERSON: Well that’s why we offer an incentive to any customer who pays by direct debit - £12 a year. LEWIS: A lot of people don’t like direct debit though, do they? PATTERSON: No, I can understand that. But from BT’s perspective, it’s a lot more cost effective if customers pay by direct debit and we want to share that saving with the customer, which is why we offer them a discount. LEWIS: And what about the people who are good payers but just happen to miss a payment because of a holiday or maybe a bereavement, maybe an illness? Will you waive the charge in their case? PATTERSON: Any customer who’s in that type of situation, we would look to waive the charge on one occasion. LEWIS: Kevin Patterson of BT. And Samantha there might be good news for mature students in the next few weeks? WASHINGTON: Yes, at the moment full-time students over the age of 54 in the UK are unable to get a student loan. Age Concern says this is age discrimination and fewer than one per cent of full-time students in higher education are over the age of 50. Now Money Box understands the Government is considering scrapping the age limit as part of its Ageing Society Strategy. A decision is expected in the next few weeks. LEWIS: Thanks Samantha. Well that’s it for today. You can find out more from the BBC Action Line – 0800 044 044 – and our website: bbc.co.uk/moneybox. Don’t forget our phone-in Money Box Live on Monday. Vincent Duggleby takes your calls on tax. I’m back next weekend with Money Box. Today the producer was Jessica Dunbar, the reporter Samantha Washington, and I’m Paul Lewis.