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: CHRIS A’COURT TRANSMISSION 4 JUNE 2005 1200-1230 BST BBC RADIO 4 A’COURT: Hello. In today’s programme, the tax credits clawback: nearly 2 million families have been asked to pay back money they’ve wrongly received. One employer tells its staff they can now work until 75 if they wish. How some people on low incomes are being turned away when trying to arrange the funeral of a loved one. LOFTUS: I’ve turned away about six or seven families, unfortunately. I didn’t want to do that, but if I can’t be guaranteed to get any payments, I can’t take the chance and lose all the money. A’COURT: And do savings accounts designed to attract the grey pound offer brighter returns on older people’s money? We start with confirmation this week that £2 billion of money has been wrongly paid to people in work claiming tax credits. Campaigners say it’s pushing thousands of families into hardship. The figures issued by Revenue & Customs this week revealed that a third of all the 5.7 million tax credits made to families in the 2003-4 tax year were overpaid. Overpayments were quite often down to computer fault or people not telling the Revenue that their financial circumstances had changed. Money Box has reported regularly on the problems ever since the new system of tax credits was launched in 2003. Many listeners have asked the programme to highlight the continuing difficulties, including Chloe from Northamptonshire who contacted us just this week. CHLOE: In February, I received on the same day four different tax credit award notices saying four different things. What’s happening now is I’m getting paid into my bank account my tax credits. However, they’re also sending me manual payments through the post. And every time I ring them to ask them what I do with it, they tell me that I shouldn’t spend any of the money because they’re likely to be asking for it back. I am grateful for the tax credit system, but when they can’t get it right it just gives you added stress, it makes you feel sick. I just don’t know what to do next. A’COURT: The problem is that overpayments of tax credits have placed many single parents and families in a boom and bust situation: one year they’ve received money they thought was rightfully theirs and spent it; and then the following year, when the annual assessment has been made, they’ve been told to pay the money back. On average, each overpaid claimant received £1,000 too much. Former Labour minister Frank Field said this week, that “the figures showed £1 in every £6 was wrongly allocated and that the system was hard to defend.” The opposition said “the figures exposed government incompetence on a grand scale” – points I put to the paymaster general, Dawn Primarolo, the treasury minister with responsibility for tax credits. PRIMAROLO: Yes, I think there have been real difficulties in the system and I have never shied away from discussing that, but I do plead that people keep it in proportion. If we look at the figures that were published, firstly we see the record take up. Secondly, we see that where payments were made in excess, the vast majority of that excess payment was as a result of increases in the earnings of the families; and for a very, very large proportion of that earnings increase, it was in excess of £10,000 a year. Now that shows positive effects of the tax credits and positive movement in the economy. A’COURT: We have listener, Chloe, telling us that she knows she’s being overpaid. She’s been unable to get the payments stopped though and she’s told to stick the money away into a savings account until it’s resolved. PRIMAROLO: I’m very concerned to hear that and I’ve had other examples that have been given to me. What I would say is we’re talking about the first year of the operation of the tax credits. Now the majority of people are not having problems with the operation of the system and so what I need to do is make sure that when the help line is notified, that that’s on the system and tracked immediately. A’COURT: Are you now saying there’s been a policy change in how people who’ve been overpaid tax credits are being treated? In what circumstances and how many overpayments are being written off? PRIMAROLO: Where the people have received more than they should have received, it will be dependent on whether or not their income’s increased and the notification wasn’t made quickly enough. For those who then believe that the information that we have provided to them is not accurate, they can challenge through what is called the Code of Practice. What I have asked the department to do is in cases where recovery of the excess payment is disputed, the recovery should be suspended while the dispute is resolved. A’COURT: It’s been said that the system is inherently wrong because it’s a system where you reassess the tax credit after you’ve been receiving it for a year. It’s always going to cause difficulties of over and underpayment, isn’t it? PRIMAROLO: Well this is a choice that is made between having a fixed payment system, which was the system we had before, where you have a snapshot of what the family’s income was in a particular six-week period and then you pay them on that basis regardless of whether their circumstances change. Or … A’COURT: Well some would say that’s much more straightforward. PRIMAROLO: Well with respect, that’s not what the voluntary and community sector and the anti-poverty lobby were saying to the Government during the very long consultation process. What they wanted to see was a responsive system to changes in the family that lasted for a year; and it was decided the previous year’s income, using information already in the tax system, was the way to do that. A’COURT: How confident are you that we’re not going to be talking in a similar way in the future? PRIMAROLO: I have confidence that the tax credit system is the way to proceed. But what I do need to do is I need to listen very carefully to what’s being said by both the families themselves and the voluntary and community sector and the anti-poverty lobby and then I’m going to make the decisions that I think best respond to people’s concerns. A’COURT: Paymaster general Dawn Primarolo. Well with me is Kate Bell, policy officer for the One Parent Families organisation, which deals on a day-to- day basis with people caught up in the confusion on overpaid tax credits. Kate, did this week’s figures come as any shock to you? BELL: Well I think we had been worried about the scale of overpayments. We’ve been hearing a lot on our help line about it, but I don’t think we quite realised that a third of all claimants would have been overpaid. A’COURT: Dawn Primarolo making the point there that these figures are historic really, the first year of the new tax credit system. Have things got any better in your opinion? BELL: I mean obviously she’s right that these figures do relate to the first year and we know that that were real problems in the first year, real IT problems, but unfortunately we don’t think it’s fixed yet. We’re still getting a steady stream of calls on our help line. For example, yesterday somebody phoned up who hadn’t received any tax credits for about six months and although he’d complained, he’d had no form of redress and no help. A’COURT: And what level of hardship is it causing people that you work with? BELL: Well, as you were saying, it’s when the tax credits are clawed back, the overpayments are clawed back from people’s ongoing award that hardship occurs. And we actually did a survey with lone parent members earlier this year and we found that three quarters of those who were having an overpayment recovered were experiencing financial difficulties. This ranged from things like not being able to pay utility bills, having to borrow money, and in some cases even not, for example, being able to buy their children new shoes for school. A’COURT: You agree though that you would like the system to stay, but you do want some parts of it to change. What are you proposing should be reformed? BELL: That’s right. We supported the introduction of the system. It has got the potential to deliver real financial gains for families, but we think it needs to work better. There’s two very specific reforms we’re calling for. One, we think there should be an independent right of appeal of the decision to recover an overpayment because at the moment it’s just at the Revenue’s discretion; and then, secondly, we think that stricter limits need to be placed on the amount of tax credits that can be taken from families when they’re recovered. At the moment the code of practice that the paymaster general talked about says that if you’re on benefit, you can only have 10% taken off your award; but if you’ve had more than one overpayment, then they end up taking more than 10%. Also that 10% only applies when you discover you’ve been overpaid at the end of the year. If, for example, you report a change in December and they decide you’ve been overpaid, then there’s no limit on the amount by which they can reduce your tax credits, so we really think that limits on recovery need to be much more strictly applied. A’COURT: And, finally, while this is still going on, advice we can give to people? Presumably contact organisations like yours which can help? BELL: Absolutely. You can challenge the recovery of an overpayment if you think it was by mistake on the Revenue or if it would cause you hardship to have it recovered, but the best advice we can give is to go and talk to a local advice agency or contact our organisation for some help. A’COURT: Kate Bell from One Parent Families, thanks for joining us, and details of your help line on our website and with the BBC Action Line. Organising a funeral for a loved one is always a distressing experience, but if you’re on a low income there are extra difficulties. Although financial help is available to people who rely on benefits, some funeral directors are refusing to organise funerals being arranged by poorer people amid fear they won’t be paid. Money Box’s Sarah Parfitt has been investigating. PARFITT: People on low incomes who suffer the loss of a close relative can get help paying for their funeral from the state. They can claim up to £700 plus fees. But the problem is they don’t find out whether they will get the money from the social fund grant until after the funeral. That can lead to many problems, as single mum Colleen found out. COLLEEN: This is a picture of Joel, who’s my son who passed away in March. He’d just had his first birthday and, bless him, it was two weeks after. PARFITT: Because Colleen was on income support, she was pretty sure she would get a grant eventually, but just 48 hours before the funeral, she says the funeral directors involved asked her to pay £600 upfront to cover some of the costs. When Colleen told them this was impossible because she had no savings and was reliant on the grant, they refused to go ahead with the funeral. COLLEEN: I was definitely shocked. I don’t know how I got through. It was a nightmare really. I mean it’s a hard time that you’re going through and for them to you know phone and say that they need the money otherwise your funeral’s going to be cancelled, I think it’s really disgusting. PARFITT: Fortunately Colleen found another funeral director who was prepared to organise her son’s funeral at short notice, and he agreed she should only pay when the grant came through a month later. But Colleen feels her experience illustrates how unsatisfactory the whole grant application system is. COLLEEN: They need to be more direct and specific to say yes or no whether you’re entitled to have the money or not. It was left down to me to be phoning the social fund department daily to find out whether I was going to be entitled to have this grant that I was asking for. I was just left distressed you know after each phone call. PARFITT: Colleen’s experience of being turned away by a funeral director because she was reliant on a social fund grant isn’t unique. An increasing number of funeral directors say they can’t afford to take the risk of being left out of pocket if a client isn’t eligible for a grant. Chris Loftus, a Manchester funeral director, says he’s been forced to turn bereaved families away and is now insisting that potential clients pay him a deposit first. LOFTUS: I’ve turned away about six or seven families, unfortunately. And I didn’t want to do that, but if I can’t be guaranteed to get any payments, I can’t take the chance and lose all the money on the funeral. In this day and age with technology, there must be a way of ringing your local social office and saying look, “I’ve got Mrs Smith with me now, her husband’s passed away. Can we please know if she’s going to be entitled to any money?” PARFITT: Money Box also spoke to other funeral directors who say they’ve been left with debts because of clients not receiving social fund grants. One funeral director claimed he’d lost tens of thousands of pounds over the last four years and said this wasn’t sustainable. Meanwhile, Citizen’s Advice has been receiving complaints. Sarah Deacon is assistant social policy officer for CAB. She thinks the blame lies not just with the system, but also with the funeral directors. DEACON: We do have some evidence that funeral directors have turned clients away if they know they’re going to be applying for a payment from the social fund. The more common problem we have with the funeral directors is that they are selling clients funerals that cost a lot more than the payment from the social fund but not actually telling clients that they won’t be able to meet all of these costs with a social fund grant. PARFITT: Sarah Deacon also says she has evidence that some funeral directors are using more extreme measures to ensure they’re paid by clients who don’t end up getting their funeral grants. DEACON: We have evidence of funeral directors using debt collectors and bailiffs to chase money from clients on very low incomes. They are at a very difficult time in their life, obviously they’ve just been bereaved, and so having all these problems with funeral directors and incurring these debts is really, really not very good at this time. PARFITT: So what should be done? The funeral industry is now calling for urgent talks with the Government. John Weir is from the National Society of Allied and Independent Funeral Directors. WEIR: The National Society would like to see an increase of the fee to £950 from the current £700, an annual review so that the fee can be index linked, that the Government or the benefits agency give an undertaking before a funeral that a claim will be paid because the funeral director can no longer be the bouncing ball. A funeral director is in business and whilst he wants to provide the best service for his client, he can’t do that unless he is paid. So it’s a very difficult situation and I do hope the Government are able to resolve it. A’COURT: John Weir of the National Society of Allied and Independent Funeral Directors ending that report from Sarah Parfitt. No government minister was available to come onto the programme today, but the Department of Work and Pensions did give Money Box a statement. It said the Government keeps the level of financial help on funeral costs under review and there are regular meetings with funeral directors. It said claimants can always discuss the likelihood of whether they’ll get an award with a job centre plus bereavement officer. However, formal decisions on whether people will receive a grant still have to be based on evidence provided by individuals. Now if you’re still in work, at what age would you like to retire? If your employer is the Nationwide Building Society, you now have the green light to go on until 75 if you wish. The UK’s biggest building society, employing 16,000 staff, this week became the first major employer to extend its compulsory retirement age well beyond the 60 or 65 point used by most others and it got the thumbs up from Nationwide’s staff union and the TUC. Nationwide’s move to only enforce retirement at 75 is highly significant, as more changes are in the pipeline and pressure is building on other employers to raise their compulsory retirement ages too. Nationwide’s Alan Oliver told me why the decision had been made. OLIVER: We recognise that people are living longer, they’ve got different needs. You know we wanted to respond to that. 12% of our employees are aged over 50 and we have 1% above 60, and we expect that as time goes on increasing numbers may well take us up on this offer. A’COURT: Well yes, you say 1% above 60, but that’s about, what, 160 staff by my reckoning at the moment. OLIVER: Your maths seem to be quite good. But certainly over time that number will increase because we have a policy of you know looking after people, whatever their age, providing they’re providing a good service to our customers. A’COURT: Is there a general welcome to this though because it does of course block off opportunity or potentially block off opportunity to younger people getting promotions and perhaps even people looking for a job for the first time with Nationwide? OLIVER: Well actually what we’re finding is a lot of older employees are tending to take part time opportunities with us as they come towards the end of their career rather than suffer the shock of complete retirement. A’COURT: Also on the line is Malcolm McLean of the Pensions Advisory Service OPAS. Malcolm, are you getting a lot of people asking if they can work to 75? McLEAN: No we’re not, frankly. More people seem to be interested in taking early retirement rather than working on longer. But we do have a massive problem looming in this country with falling birth rates, people living longer, so the reality is that in the long-term we do have a bit of a service crisis and really one of the only ways that people are going to be able to build up a bigger and better pension entitlement is if they do have the opportunities to work longer and do have the opportunities to stay for a longer period of time. So in that sense, what we’re seeing now with Nationwide may become the norm. A’COURT: There’s so much talk about pension age at the moment, isn’t there? Are you finding that people are coming to the advisory service and are confused about all of this – confused about the age they’re going to be made to retire or can choose to retire? McLEAN: Yes, there is a good deal of confusion about age and what it means in relation to pensions. There are in fact three ages that you could talk about here. The first one is the retirement from the job age – the requirement that the employer will impose on people to retire at a certain age, which from October next year can’t be less than 65. At the moment it can be anything. So that’s one age. The other age is the age you can draw your occupational pension scheme, and that would normally be the same age as the retirement from work age. But, again, from next year it will be possible (if employers agree) for you to carry on working and draw your pension whilst you’re still working. And the third age of course is state pension age, which is currently 65 for men and 60 for women, but will be brought in line for men and women at 65 progressively between 2010 and 2020. And one of the things that we need to make clear to people is that although it’s referred to as the state retirement age, you do not have to retire from work to draw your state pension. So I think there’s a lot going on in terms of pension ages and retirement ages and it’s understandable people get a little bit confused about it. A’COURT: These changes that come in next year, what if someone is approaching 60 now, working for a firm or maybe in the public sector where the employer’s retirement age has been 60 until now? Will they be able to go on longer? McLEAN: Well yes, the requirement to finish work solely on age grounds can’t be less than 65 from October 2006. And then at that point, the employee will also have the right to ask the employer if he may stay on at work and the employer is bound to consider that and give him a reason (other than on age grounds) if he finds it not possible to accede to that request. A’COURT: Malcolm McLean, chief executive of the Pensions Advisory Service and earlier Alan Oliver from Nationwide, thank you very much. New savings accounts are out to attract the interest of people who’ve passed the age of 50. This new trend is picking up pace as more banks and building societies target the so-called grey pound, but how bright are the prospects of getting a good return and what do you need to invest? Money Box’s Louise Greenwood has been looking into this. Louise? GREENWOOD: Well, Chris, since last autumn a number of new accounts have become available for those aged 50 and over. One of the first was launched by the Northern Rock in September. Called Silver Savings, it’s paying interest at 5.1% gross and can be operated by post or through a branch, but you do need a minimum of £10,000 to invest. Since the New Year, several more accounts have opened - three in the past month alone. Rachel Thrussell of the research service Moneyfacts says the banks and building societies have identified a new niche in the market. THRUSSELL: I think they’ve probably realised that there’s an awful lot of people out there over 50 now who need to supplement their income. With all the problems with private pensions and not getting enough state pension, cash is seen as a safe option so people are taking their money out of equities and putting it into cash based accounts. So I think the institutions have realised it’s a market that maybe they can help. GREENWOOD: So what other deals are out there specifically aimed at the older saver? Well another one is the Coventry Building Society’s 60 Plus bond for the over-60s. Available through phone, branch or on the Internet, it’s paying 6% on deposits over £500. But that includes a bonus of 1¼% which stops after the first year. After that, it reverts to matching the Bank of England’s base rate, which is currently 4.75%. This week, another new account was launched by the Universal Building Society. It’s paying 5% on its Primetime account for the over-50s. It’s available through branches or on the phone, but requires a minimum of £5,000 to invest. And also this week the Newcastle Building Society opened its Newcastle 55 for those aged 55 and above. Minimum deposit is just £1 and it can be run either as a savings bond or as a cash ISA, and it’s guaranteed to track the Bank of England base rate for the next five years. Steve Irwin is the society’s head of saving. IRWIN: At the Newcastle Building Society, we’ve recognised that over 40% of our customers are over the age of 55. Obviously they are looking for a decent return and I think because we’ve got our interest rate linked to the Bank of England base rate investors certainly know exactly where they stand with regards to that. We’ve also made this account available via a traditional method, so there’s a passbook with this account, and customers can access their money at any time. GREENWOOD: And it’s well known that passbooks and branch based accounts are very popular with older customers, but Rachel Thrussell of Moneyfacts warns that savers shouldn’t be taken in by the way these products are being sold if they’re after the best return on their money. And indeed there are several other accounts open to all adults that are worth considering. THRUSSELL: Top of the shop at the moment is Stroud & Swindon’s branch based Premier Saver account. It’s an instant access branch account paying 5.5%. Probably the next best rate we’ve got is the Chelsea Building Society, called Rainy Day Savings, and that’s paying 5.25%. ING Direct, they’re paying 4.89% monthly from £1. That’s a fairly straightforward account to operate. So if you’re looking at a straightforward account with no restrictions or bonus, you could probably get around 5%. GREENWOOD: Another option could be National Savings index linked certificates. They’re celebrating their 30th anniversary this week. Minimum investment is £500 and they’re currently offering a return of over 5% on both their 5 and 3 year certificates. The rate is linked to the retail price index and pays a bit extra on top. Here’s Alan Cook, head of savings at the NSI. COOK: The key advantage of the index linked savings certificate is not so much the rate it pays. It’s the fact that it’s guaranteed to track inflation, so if inflation runs away on us over the next few years, then the interest rate on this product will run away as well. This means that this product is one of the few on the market that guarantees that you will get a real return on your money. A’COURT: And that’s Alan Cook of National Savings. And Vincent Duggleby is here on Monday with our phone-in Money Box Live on saving and investing. But that’s all we have time for today. You can get more information on all the items on today’s programme by calling the BBC Action Line – 0800 044 044, calls are free – or you can go to our website, bbc.co.uk/moneybox. There are personal finance stories on Working Lunch on BBC2 this week at 12.30 and join Paul Lewis here at the same time next week.