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 27 MAY 2006 1200-1230 BST BBC RADIO 4 A’COURT: Hello. In today’s programme, the future of state pensions. After years of talking, have this week’s government proposals brought the clarity people have been seeking? There’s new help for those who lost their work pensions when their firms went bust. Campaigners say it’s still not enough. We look at a new concept helping people to save even more money when buying over the Internet. And comedienne Ruby Wax on learning to manage money the hard way. WAX: I was suddenly left with 2,000 bonds – some of them in dairy milk, Illinois farmers and carpet cleaners of Sheboygan – and I was left with no instructions. Nor did I know where the banks were. A’COURT: More Ruby later. But we start with the future for all our pensions. This was the week when we finally heard what the government proposes and when we could make a proper assessment of how we’ll all be affected. Essentially the future holds the promise of better pensions but more work and savings to help provide them. Anyone who’s currently under 47 will work longer before getting a state pension as it gradually becomes payable at 66, 67 and 68 by the year 2044. Prime Minister Tony Blair presented the pensions white paper as the biggest change in pensions for 50 years. BLAIR: The idea is to make this something that lasts not just for this generation but for the generations to come, and that gives us a chance of having a really strong, sustainable, workable, affordable way of people saving for their retirement. A’COURT: So besides that longer wait to receive the state pension, what else is to change? Well the state pension we receive should be better and fairer because in future it will go up in line with the annual rise in wages rather than prices. And although people will have to wait longer to get their pension, they won’t have to have worked full time for as many years to qualify for it – only 30 years in future, a particular help to women and carers. And then there’ll be a new way for people to save to supplement state pension – what’s being called the National Pensions Savings Scheme. Altogether we have a package of changes drawn up after Lord Turner’s landmark report last autumn and announced in Parliament by the Pensions Secretary John Hutton. HUTTON: Mr Speaker, in November I set out five tests for the reform of our pension system. They needed to promote personal responsibility; be fair, especially to women and carers; simple to understand; and affordable and sustainable for the long-term. I believe we have met these five tests. A’COURT: Well is he right? Joining me are Malcolm McLean, Chief Executive of the independent Pensions Advisory Service; Christine Farnish, Chief Executive of the National Association of Pension Funds; and Tom McPhail, pensions expert from the financial advice firm, Hargreaves Lansdown. Malcolm McLean first. Working longer before getting the state pension. Is this at last political will catching up with reality? McLEAN: Well certainly putting back the state pension age to the extent decided was really inevitable, in my view. People are living longer, spending more time in retirement. The cost of pensions is going up. It was inevitable that the state pension age would have to go back over time and that’s exactly what’s happened. A’COURT: Tom McPhail, do you share that view? McPHAIL: Absolutely - a logical, necessary step. Turner had identified it. It was widely expected and I think we would have been disappointed if the government hadn’t done it. A’COURT: Well anyone under 27 now has to work 3 more years and those between 29 and 37, 2 more; and between 38 and 46, there’s an extra year. No one aged 47 or older on April 6th this year will be affected though and that’s an encouragement, I suppose, to save more if you don’t want to work longer, isn’t it Malcolm? McLEAN: Yes indeed, it is. We obviously need a better state pension than we have at the moment and the plans hopefully will produce that. A’COURT: Well we’ll come onto extra saving shortly, but first this better value pension linked to wages and not prices. How’s that going to work? McLEAN: Yeah, well from 2012 or some other date not too distant beyond that, subject to affordability questions, the government’s intension is to restore the link with earnings to the annual increases that are given to the state pension. For the last 25 years we’ve had a system whereby the rises have been linked to inflation, not to the movement of earnings. Now the plan is to restore that link with earnings, a link to average earnings, which will give people a much bigger increase in their annual pension than previously. A’COURT: Yes, rises have been linked to price inflation since the early 80s. And just to put a bit of a scope on that, a single pension would now be worth about £140, not the £84 that it actually is, if we’d retained this link with wages rather than prices that went in the early 80s. McLEAN: Yes and it’s a great pity that that didn’t happen because had that been the level of the state pension, you would have had a lot less people having to claim means tested benefits, which is a problem at the moment. A’COURT: So generally that’s seen as a welcome thing. Tom McPhail, qualifying to get a full state pension will take less time in future. McPHAIL: Absolutely and this is the good news in the white paper. They really are going a long way towards repairing the damage that has happened over the last 20 years. You will only have to work 30 years to get your full state pension entitlement, particularly relevant for women, for carers, for people with career breaks. It means that there’s a reasonable expectation that a large proportion of the population going forwards will qualify for the full state pension and that’s good news. A’COURT: Of course it does also bring another question, Christine Farnish, doesn’t it, as to what happens to national insurance beyond that 30 years because if you’re paying national insurance for only 30 years, what about the extra years you’ll be paying it for? What happens? Where’s it going? FARNISH: Well that’s a very good question. I mean national insurance, the whole concept of national insurance as being something that you pay and you get something in return that’s proportionate to how much you pay has got more and more diluted over the years. And I think now national insurance is really little more than a payroll tax, although of course the government doesn’t like to say that because it’s much easier to do things with national insurance than it is with direct taxation. So you know this talk of a contributory system – yes and no. It’s a partial contributory system that we now have. A’COURT: What’s very significant here – and you know would have been almost unthinkable up to a very short time ago – is that we’re moving away though from means testing towards giving everyone the same, though it’s going to take some time. Malcolm? McLEAN: Yeah, I think that’s absolutely crucial. There are many people who just don’t see the point in saving at the moment because they realise that all they’re doing is offsetting the pension that they’re getting against means tested benefits and they don’t see it as a necessary thing to do. One of the advantages of being able to increase the basic state pension to something like the level of the means tested benefits is it will hopefully restore an incentive to save, will encourage people to start saving. And the message really has to go out that if you don’t save and simply manage off the basic state pension, although that basic state pension is going to be at a higher level it will still only give you a fairly basic level of income. If you want a better standard of living in the years ahead, then you really have to look after yourself and start saving separately. McPHAIL: Chris, can I come in on that one for a moment? It was very telling in the report, the white paper that came out. There was a graph showing before the reforms and after the reforms and showing someone saving and someone not saving. Now after the reforms have gone through, someone who doesn’t save will end up with a smaller pension than under the current system and I think the government’s sending a very clear message there: we’re improving the system, we’re making it simpler, but if you don’t save you’re going to be worse off. A’COURT: Christine Farnish, we’re going to have this National Pensions Savings Scheme. From 2012 everyone in a job who’s not already in a company pension scheme will be automatically enrolled into this unless they say they don’t want to. 4% of a person’s earnings will be deducted and put into it. That’s roughly £50 on an average income. Their employer must put in another 3% and there’s a 1% tax relief from the government, all to provide this second pension when they retire of about £80 a week for an average earner. Is that a good thing? FARNISH: I think it’s a good thing that the government’s looking at auto enrolment and that the government is saying that it needs to be into a system that’s good value and low cost. That’s very important, but I think there’s a lot of debate and thought still to be had about the exact way in which this new system’s designed. And what’s noticeable is the white paper’s very, very thin on detail here and I think the government’s very receptive and open to new ideas and better ideas on how this new system could be designed. What’s really important is that the new system doesn’t have negative impact on existing good voluntary pension schemes. A’COURT: And that they don’t all move down and start just contributing 8% because some are contributing a lot more than that at the moment. FARNISH: Well virtually all of them are contributing more than that and people in company pension schemes are actually getting a very good deal and they do run at low cost. So I think it’s going to be really important that we don’t kill that very good voluntary provision off as a result of introducing a national scheme. A’COURT: Well even what some would say these fairly modest contributions from small firm owners is going to hit. Carl Ernsting runs a desert making firm in North West London and he’s very worried. ERNSTING: We’re a major user of electricity and electricity prices have absolutely gone through the roof, along with gas that we also use in production, so our margins are really being eroded already. And this additional 3% on our wage bill, I just don’t know where we’re going to find it. I mean we’re going to certainly have to consider very seriously the pay rises that we would normally effect on an annual basis and if this goes through, I mean we’ve certainly got to consider redundancies. A’COURT: Some big questions remain, don’t they? And briefly in the time we have, a quick word from all of you. Will all of this help to restore trust in pensions? Malcolm, first? McLEAN: Well we sincerely hope so, although it may take a while for people, particularly who’ve had a bad experience of the pension system, to regain that trust and confidence. A’COURT: Christine? FARNISH: It should help, but it’s going to take many years before this programme of reform is rolled out and we really do need all governments of all colours to stick with it. We’re facing a risk there. A’COURT: And Tom finally? McPHAIL: Yeah, definitely a step in the right direction, but I think we’ve still got a lot of work to do. A’COURT: Thank you all very much indeed for joining us. Well the government has been under pressure not just to reform pensions for the future but also to do more to put right past injustices. It’s been urged to do more to help 85,000 workers who’ve lost all or some of their occupational pensions because their firm went bust and, they claim, they were misled by the government into thinking their pensions were safe. Two months ago the Parliamentary Ombudsman issued a damning report saying governments should consider paying full compensation, but it was firmly rejected. It was a surprise then that the white paper did include some more money to help. The Financial Assistance Scheme or FAS will now also provide for people who’ve suffered and are up to 15 years away from their pension age. So people like former Allied Steel and Wire worker, Ray Lane, will qualify. LANE: It does include me now because originally when it first started, it only covered people within 3 years from retirement, and I believe I should get £7,000 to £8,000, which is good news for me. But overall it’s not the be all and end all because initially there were some 85,000 people affected and the FAS scheme was set up to help those, but the money they put in to start with only helped a very small amount. So they’ve put this extra money in and it helps obviously more people, but it’s not the final thing. A’COURT: And that’s why Andrew Parr from the Pensions Action Group told me they’d continue to fight until every worker was compensated. PARR: Well the announcement is certainly welcome, but it’s still a long way short of what the Ombudsman recommended that we should have. She produced a scathing report and said that because the government had said that pensions were protected by law, everybody should get the pension that they were entitled to. A’COURT: Now there is going to be a tiered system of financial help: you’ll get 80% of your pension promise if you’re within 7 years of retirement, 65% if you’re 8 to 11 years away from retirement, and 50% if you’re up to 15 years away. What’s your reaction to that system? PARR: Well if you’re 15 years away from retirement, you are older than 50 probably. You’re going to find it difficult to make a penny pension fund that’s reasonable in 15 years at that age of life. And in addition, it does penalise some people who have got long service. We’ve got one member who has got 27 years service in his employment and he misses the 50% just by 3 months. He’s not going to get anything despite the long service that he’s had with this company. A’COURT: So you don’t fully accept the argument that if you’ve still got 15 years before you draw your pension, that’s a reasonable amount of time to make up some of the shortfall? PARR: You can make up some of the shortfall in 15 years, but you’ll not get back to the pension that you thought you were going to get. A’COURT: You’re getting more money, more people are going to be helped under the scheme now, yet the terms aren’t changing and that’s what’s concerning you also. PARR: Yes, I mean the restrictions that are put on the FAS have not changed at all. There are still all the things that we object to - the fact that at best you only get 80% of your pension; it’s payable from the state age, not from the scheme age. My scheme age of 62 - I am 62 at present so I should have retired, but I’ve got to keep on working until I’m 65. There is very low capping at £12,000 a year, so if you had a pension entitlement even with the FAS of £15,000 a year, you are only going to get £12,000 a year. And there’s no protection against inflation so that your pension will progressively get smaller and smaller and will halve over 20 years. A’COURT: What would satisfy the Pensions Action Group members? PARR: Following the Ombudsman’s report. We just expect to get the pensions we were promised. A’COURT: So the campaign and the protests continue? PARR: The campaign definitely continues, the protesting definitely continues. A’COURT: And what’s your overall feeling about the other announcements of this week? The Pensions Secretary has said that in future pensions will be fairer, they’ll be more clear, people will be able to have more trust in pensions from now on. PARR: We had trust in what the government said to us and we were told that we were fools for believing it. The government said that what they’d published was something that you should just not particularly believe; it was only general guidance. How do we know that what the government is saying for the future is going to be true and is not just going to be another statement for general guidance that can be changed at the whim of some government in the future? A’COURT: Andrew Parr of the Pensions Action Group. And there’s lots more on pensions reform on the BBC online website. There’s a new way to make your money go further when you spend over the Internet. Special websites have been springing up, which refund a fraction of the price each time you buy from one of hundreds of different online retailers. Typically it’s 1% or 2% cash back on top of other savings you can make through online goods being generally cheaper than in the shops. The latest site is called Mrs Cashback, but before you start saving anything it costs £30 to join and there’s a further £3 fee to have your cash back total paid into your bank. So I asked Chris Percival, the site’s Commercial Director, if that wasn’t just a tad expensive. PERCIVAL: Most people will cover the cost of that in either the first or second transaction or purchase that they’ve actually made. But that basically is there to cover quite a lot of heavy maintenance that’s required for all those retailers to be set up - obviously looking after the money, making sure it’s going through to the right person and of course the need to better the deals that are actually featured there as well anyway. A’COURT: Well you’d have to spend quite a lot to get the cost of your subscription back quickly. I mean even if you got 2% cash back, you’d have to spend £1500 to get £30 back. PERCIVAL: Well across the whole range of different retailers that are featured, as an average figure it works out at 7%. But some of the more well known brands don’t necessarily give as much back, but you know you’re spending £2,000 perhaps on an average holiday. 2% or 3% back on that again actually covers these costs. A’COURT: You say the average is 7%, but if you look at the Tesco links, for example, I mean it’s far from 7%. On most things it’s about 2% … PERCIVAL: That’s right. A’COURT: … and then that’s across, it looks like, a limited range of goods. It doesn’t look like you get, for example, any cash back if you were buying groceries from Tesco via your site. PERCIVAL: Well groceries is a strange sort of commodity as it were. When you actually sign up to their online shop, there’s only a £5 cash back that’s actually available to the member, but of course someone like Tesco’s has a huge range of products – DVDs, CDs, books, wines. It isn’t just obviously groceries that they actually deal with. A’COURT: What’s to prevent some retailers simply sticking up their prices on their sites that you link to before you get your cash back? PERCIVAL: They’re obviously driving people to the Internet. It’s been going on for a very long time, so it’s very unlikely that they’ll actually do that. A’COURT: There are already several other similar websites and, unlike Mrs Cashback, most don’t cost anything to join – they’re either free or pay you to join. For example there’s Greasypalm and Quidco and Rpoints, which claims to be the most visited reward site in the UK. Here’s its Managing Director Richard Yendell. YENDELL: Well Rpoints is free. The money only goes one way and that’s to the consumer, and we even give a £5 welcome bonus when you join. We pay quickly and we pay directly into your bank account. A’COURT: But at the first stage you get points. How much are the points worth? YENDELL: 100 points equals £1. You also have the alternative of exchanging your points for discount vouchers to use at places like Amazon and CD Wow, so there’s a range of other payment options. A’COURT: Mrs Cashback told us their average cash back was around 7%. What are you saying? YENDELL: We all get paid roughly the same by the retailers and the amount of cash back depends on really the margins that the retailers are operating in, so it can be as low as 2% to 3% on say electrical goods but for goods with a higher margin it could be 10%, 20%, even 30%. So it really varies by the type of product rather than the site that you use. A’COURT: You have 70,000 registered users. You say that’s the biggest in the UK. It’s still not an awful lot though, is it? YENDELL: It’s a tiny proportion of the total number of people who shop online, so effectively there are well millions of people who are throwing away free cash back by not using sites like Rpoints. It’s relatively new, people don’t know about it, and perhaps people are distrustful of a website that claims to give them free money, but in this case it’s absolutely genuine. A’COURT: Richard Yendell of Rpoints. And if you choose to use one of these sites, watch the delivery costs of course and remember you might be able to save another 1% or 2% by using a cash back credit card. More details of that on our website. Now did you know that there are more female millionaires between the ages of 18 and 44 than males ones and that by 2025 women will own more than 60% of personal wealth in the UK. With that in mind, this week saw the start of a series of events designed by women for women aimed at “demystifying the world of personal finance”. And among those there was comedienne Ruby Wax. Money Box reporter Heather Payton went to learn more. ROBERTS: Do you think that managing your money is more fun than sex, gardening or visiting the pyramids in Egypt? AUDIENCE: More fun or less fun? Shouldn’t it be the other way round? Shouldn’t it be less fun? PAYTON: Well that’s the Master of Ceremonies, Nigel Roberts, launching a session about the ABC of investing. The weather outside is truly horrible, so at least the 170 women and a brave sprinkling of men who’ve paid £200 for today are getting a day in the warmth. Maybe they’ve come to hear Ruby Wax; maybe, like me, they really need the advice. Here’s Anna Yallop, one of the organisers. YALLOP: Several of us about a year ago, we were at the stage where we really needed to start making our money work for us. One of the speakers this morning talked about the bag lady syndrome. One is faced with this terror of what it would be like to be old without money and the way of dealing with it is to simply put your head in the sand or stand there like a rabbit in the headlights. Now I think that describes most of the women we know. PAYTON: One of the speakers at the conference is Justin Urquhart Stewart of Seven Investment Management. Justin, this business about having something specially for women – it’s as though we’re a completely different breed or something. Why? URQUHART STEWART: You look at the way most financial decisions are made. They’re mostly made by men and yet we now know of course there are more women than men in the population, that there are now more women with more money than men, and the main purpose of today is to take women through some of the basic rules that they can apply themselves. It’s not actually very difficult, but there is a process, a structure and a discipline to try and get people away from punting on the latest fashion fad. PAYTON: The presence of Ruby Wax has got to be a big draw. Anna Yallop says the organisers chose her because she has a special relationship with money. WAX: I had a experience where I had to really quickly learn about what happens to money. Both my parents kind of went into outer space … PAYTON: Would you explain that? WAX: They kind of lost the plot and I’m the only child, so I was suddenly left with 2,000 bonds – some of them in dairy milk, Illinois farmers and carpet cleaners of Sheboygan – and I was left with no instructions. Nor did I know where the banks were, so I had to sort of go on this treasure hunt for 5 years to find out where it was. PAYTON: Did it work in the end? WAX: In the end I found it and then the next thing was what do you do with 2,000 bonds? And then the journey began and now I’m quite clever because I asked the right people. PAYTON: It can be a bit boring of course, all this investing, can’t it? WAX: It’s really, really boring. But when my dad lost his marbles, actually if I hadn’t learned to become the investor the situation in America is they would have liquidated all his funds and taken it and I would have been given $75,000 to deal with my dad for the next 5 years. So that was a real necessity. PAYTON: When you were growing up, did the women in the family look after money or was that something that you just didn’t do? WAX: My mother was a financial genius. Merrill Lynch used to call her and she’d be doing spreadsheets all night. That was her fix. When we’d go grocery shopping, she’d beat the cash register. And instead of saying, “Mummy, how do you do that?” I rebelled against her and decided I think I’ll just become an actress like an idiot and she’d say, “Come and let me explain what the Dow Jones is” and I rebelled and never listened to the woman. I got my punishment when it was too late. ACTUALITY – MAKING YOUR MONEY WORK PAYTON: Members of the audience have broken up into smaller groups to discuss investment strategies for Mrs Smith, a fictional 46 year old divorcee with around a million pounds to invest. What then have they learned? WOMAN 1: I’ve never invested in anything. I’m a cash fund baby and it was really driven home to me today that I shouldn’t always depend just on a cash fund. PAYTON: Do you think it’s made you more likely to invest money in the future? WOMAN 2: Well yes because I admit to being the ostrich. (Laughs) I have to face it. It doesn’t make me think I want to jump into it though. I’ve always considered it a gamble and I think it’s proved that nobody has the answers. A’COURT: Heather Payton and the inimitable Ruby Wax. That’s all today. You can get more information on all the items for free by calling the BBC Action Line – 0800 044 044. You can also look at our website, bbc.co.uk/moneybox, and listen to the programme or any part of it again. Paul Lewis is back with Money Box at the usual time next week and Vincent Duggleby will be here on Monday afternoon at 3 to take your calls on holiday finance. 17