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 PRINTED HERE. Tape Transcript by JANE TEMPLE MONEY BOX Presenter: Paul Lewis TRANSMISSION 28th FEB 2004 1200-1230 BBC RADIO 4 _________________________________________________________ ANNOUNCER: Now it’s four minutes past twelve and time for MONEY BOX with Paul Lewis: LEWIS: Hello. In today’s programme 6 billion pounds worth of help with living costs and council tax lies unclaimed in government coffers. We ask why? Financial advisors will soon have to tell you what they earn from what they sell you. Insurers are accused of misleading customers about a crucial deadline for compensation on mortgage endowments: MAN: One could argue that the life industry really want to get this issue over and done with this year. LEWIS: And the banks tell Money Box they can transfer our money more quickly but we may have to pay for it. Millions of people are failing to claim nearly 6 billion pounds in social security benefits. New figures out this week show that nearly 2 million older people are not claiming council tax benefit which could save them £420 a year. They’re also doing without £17 a week to cover their living expenses. Although published this week the new figures record events two years’ ago – a point stressed by pensions minister Malcolm Wicks when I asked him if he was disappointed by the figures? WICKS: They’re lower than they should be, I’m pleased that the poorest pensioners who were eligible in those days for minimum income guarantee, rather more of them were claiming it – was 5% up. You know there’s a sense of history about this now. I mean the last full year for which these figures tell us anything about is 2001 and we’ve moved on and we’ve got the new pension credit scheme which is a whole new approach to getting money to Britain’s poorest and most hard pressed pensioners. LEWIS: Well indeed, but I’ve been doing interviews about these figures as they come out each year for years Malcolm and I’ve talked to your predecessors and they always tell me these are history, we’re doing a lot, and things get worse. These figures although a few more people are claiming, far more people are not claiming than they were a year ago? WICKS: These figures take us up to what April 2002 and I repeat the point that the poorest group there, there was an increased take up of 5%, but surely the important thing is that we recognise there’ve been problem about the old minimum income guarantee. LEWIS: I was told there were problems with income support and that’s why you introduced minimum income guarantee. The report clearly says take up of minimum income guarantee was worse than its predecessor so why should we believe take up of the new benefit pension credit will be any better? WICKS: One of the problems about the past is that people didn’t always like the application process. For pension credit we’ve made the form easier, it’s written in plain English, it’s shorter than ever before but the thing I’d really like to emphasise is that those of us who don’t like filling in official forms, for pension credit we don’t have to. People can telephone our freephone number and in 20 minutes, not the pensioner but one of our advisors fills in the form for her. She then just simply has to verify it. LEWIS: But if you look at the figures that were produced this week one in three pensioners do not claim the help with council tax – it’s £420 off council tax which is not being claimed by 1.7 million pensioners? WICKS: There’s been a real problem about the claiming of council tax benefit. We’ve got to do something about that and we’re determined to and you’ll see some news next week Paul on our determination to improve the take up of council tax benefit. LEWIS: When will you have 100% take up? WICKS: Well that’s my target to get 100% take up. Now you know there will always be some I guess who will slip through the net but that’s my personal target to move towards 100%. LEWIS: Malcolm Wicks. Well listening to that is Prof. Ruth Hancock from Leicester University who’s done much research work on why older people don’t take up the money that’s there for them and is presenting it to Malcolm Wicks later this year. Ruth Hancock were you surprised at these figures? HANCOCK: Not really. I think take up particularly among pensioners is a stubborn problem. I mean if you look at the trends over the longer term they really show no signs of going away. And although I mean I agree that this is history and that we have now got the new pension credit, but it really is going to be extremely important for the government’s policy on relying on means tested benefits for pensioners that these take up rates do get higher. LEWIS: I mean from the outside it seems very strange: we hear about the problems of older people paying council tax –there’s the money to help them – why is it they don’t claim it? HANCOCK: Well I mean we know from the government’s own figures and from our own research that people tend to claim amounts if they are quite high – it’s those people who aren’t entitled to so much who tend not to claim them. Nevertheless there still seem to be some pockets of people who don’t claim quite large amounts and the government’s own figures show this. LEWIS: Yes I mean the average is more than £420. You say it’s a stubborn problem and Malcolm Wicks stressed that pension credit was different. It’s not what he called old fashioned means testing. Are there any serious differences about it that will improve take up? HANCOCK: Well, it’s hard to see – I mean I suppose the fact that the assessment period is not going to be so frequent may help. One of the problems is going to be though that you’re going to get quite a lot of people brought into the system who are only entitled to small amounts and who therefore may feel that the hassle of claiming outweighs the benefit. But I think an important point that I would make from the research that we have done for the Economic and Social Research Council is that one of the things that surprised us is we found that of all the pensioners who were not claiming their entitlements to the minimum income guarantee, about two thirds were actually receiving either housing benefit or council tax benefit so they were already in the system, they’d already provided much if not all of the information needed to calculate their entitlement to the minimum income guarantee but weren’t getting it. LEWIS: So we need joined up government do we? HANCOCK: I think that’s the message – people to provide information once and once only and be assessed for all the means tested benefits to which they might be entitled. LEWIS: Prof. Ruth Hancock, thanks for talking to us and meanwhile of course if you think you could claim your share of this 6 billion pounds check with the pensions service, your job centre plus or your local council. And there are more details of that on our website. In future everyone who goes for financial advice will be given clear information about the fees and commission the advisor will earn. When the new system begins later this year, every financial advisor will have to give customers a document setting out the services they offer, how they’ll be paid, how much their advice will cost, and how those costs compare with the average. The man behind these new rules is David Severn head of retail projects at the Financial Services Authority. I asked him if the new system was designed to drive down charges? SEVERN: We’re not trying to get across the message here that cheapest is necessarily best. And that’s why there’s this important section in the document where the firm can explain its services because you’ve got to look at the two. Do I think I’m getting value for money for what this firm is offering me? But I think it’s also encumbent on firms themselves to sell their services and if they can’t make a good sales pitch you know it seems to me rather a sad look out for them. We’re hoping that this particular document, we would start to bring it in round about September or October of this year and fully across the market by early next year. LEWIS: So anyone who goes for financial advice say a year from now will have a clear document setting out the charges, the commission and comparing certainly the commission to the average in the market? SEVERN: I very much hope it’ll be fully implemented a year from now and I think it’ll be extremely useful new information for consumers LEWIS: David Severn. Well with me is Paul Smee who’s director general of the Association of Independent Financial Advisors. Paul this seems a big advance in information for customers? SMEE: I think it will really help customers sort out what value they’re getting for the advice that is being offered to them. LEWIS: And is there a danger it’ll drive down prices or perhaps an advantage from the customer’s point of view? SMEE: This isn’t just about cost. This is about giving information so that the consumer can decide what the value of the services are. LEWIS: But in every other business, financial services business – car insurance, house insurance, once you get real competition and price transparency, prices do come down and even to levels that are uneconomic? SMEE: Well I would suggest that a consumer would be foolish just to judge on the basis of cost. They must look at what they’re getting for that cost, for the quality, for the additional services – cheapest may not always be best when it comes to financial advice. LEWIS: And for many people of course, this document will shine a bit of light on what’s been a slightly murky area – what is commission? How much is it? what do your members earn? And of course does commission drive their sales recommendations? SMEE: A lot of that was behind the original proposals from the FSA. What I think we have done is try to set the cost within the context of the potential value. LEWIS: And just explain what that service might be? I mean what is it that I can expect from my IFA apart from simply saying buy this, buy that, - thank you very much? SMEE: Well most IFAs will offer a full review service looking at the way in which your financial affairs join up and not just individual products but they will also be doing a lot of research to get you the best advice. They will also be making sure it’s compliant advice and they’ll be doing a lot of administration on your behalf which will save you time. LEWIS: And I suppose people might say to you why did you need these rules – if it’s all so good why didn’t you tell people all this off your own back five years ago? SMEE: A lot of firms already do. And indeed the proposal for the menu arose from the industry rather than from the Financial Services Authority. LEWIS: Paul Smee, director general of the Association of IFAs, thanks very much for talking to us. Now, speaking of IFAs, a new on-line financial advice service has been launched this weekend. Up to now financial advice meant a face to face meeting with a registered financial advisor, but the new system makes it possible to get full authorised advice without setting foot outside your home or having anyone visit you. It’s done using the Internet and the phone. Louise Greenwood’s with me. Louise, what does this mean? GREENWOOD: Well you’ve been able to go on-line and buy all manner of financial products for years but always on the basis that you take the responsibility when doing so. Using a financial advisor means there’s someone to help you make decisions or to blame and seek compensation from if the advice turns out to be faulty. LEWIS: So how does this service work? GREENWOOD: Well, Advisor300 is a website linked to a chain of UK regulated financial advisors working under the banner Group300. What happens is that you click on a web page and hold a telephone conversation at the same time with one of their financial advisors. They’re even doing risk assessment on-line. It’s taken two years to get the system approved. Group300’s chief executive Chris Batton says it’s thorough and secure: BATTON: Things like rating risk and making sure that all the bases are covered, a lot of that can be done with an advisor at the other end to actually just make sure that it’s navigated correctly. The entire transaction, the entire conversation, every single screen shot and key press is actually recorded by our technology and then burned on to CD which is then delivered to the client as their uneditable record of the entire transaction so that in years to come there can be no misunderstanding on what’s been done and why it’s been done. LEWIS: And Louise, is this method of getting advice, using the Internet, talking over the phone, is that acceptable to regulators? GREENWOOD: Yes, the Financial Services Authority which licenses IFAs confirmed its approval but also stressed it will be monitoring how this works very closely. Getting advice this way does of course cut out that important eye to eye contact and Nick Bamford who’s chair of the Society of Financial Advisors says it won’t be for everyone: BAMFORD: Very often when face to face advice is taking place it’s a great opportunity both for the consumer to ask lots of questions but also for the advisor to get a real, good feel for what the consumer is looking for. But I think it’s still a positive development and particularly if the focus is on advice and not selling products. GREENWOOD: Nick Bamford. The financial regulator told us that its firm view is that there’ll never be a substitute for good face to face advice, but you might soon be able to get that from the system too using web cams. Here’s Chris Batton again: BATTON: We already have that capability. I think as the video conferencing technology becomes more and more efficient and becomes more available because of price that that may well become quite common place. We personally believe that it’s more likely to be done through digital or cable TV stations with TV set boxes in cameras which is something we’re currently working on. LEWIS: Chris Batton. And if you’d like to investigate more about that new service there’s a link from our website bbc.co.uk/moneybox, but you will have to register and your details will be added to Advisor300’s database. Now five million people who may have been mis-sold a mortgage linked to an endowment policy may have to complain in the next few months or miss the chance of compensation. Insurance companies are now sending out the third wave of letters warning people about their endowments. One of the first is Friends Provident which is sending out letters to more than half a million customers. A significant number of them will be told the endowment investment will probably not be enough to pay off their mortgage but they will not be warned that the letter will start a clock ticking. In many cases six month’s later it will be too late to complain if you think your endowment was mis-sold. Independent financial advisor Mark Meldon says that’s a serious omission: MELDON: Because it’s called an annual statement it’s not quite the same as the previous so called traffic light letters and I think people will be confused and certainly not aware that they’ve only got six months left in which to complain. I think the letters from other insurance companies will practically identical to those issued by Friends Provident. I understand from Friends Provident that these are FSA approved wordings and maybe one could argue that the Financial Services Authority and the life industry really want to get this issue over and done with this year by September/October time there’ll be no more people able to complain about endowment mis-sales. LEWIS: Mark Meldon. Well Friends Provident wouldn’t come on the programme to discuss the wording of the letter. It says it was approved by the Financial Services Authority but when we spoke to the Financial Services Authority it told us that although the structure and the format of the letters was set down by them the actual wording was not. Well with me is Louise Hanson who’s head of campaigns at the Consumers’ Association. Louise, do you think these letters are misleading? HANSON: Well I do think that there’s a problem with them because by calling it a yearly statement it doesn’t bring a sense of urgency or really accurately reflect that if it’s a red letter that there’s a high risk the policy will not pay out. That actually that’s a trigger and that it starts this very important clock ticking on making a complaint. LEWIS: Now you mentioned red letters. We’ve never actually had physically red, amber and green letters have we? It’s this phrase – what’s the phrase people should look for? HANSON: If you’ve received letters in the past or you’re receiving them now that it says there’s a high risk the plan will not pay out and crucially if you look at the reprojection rates at the 8% rate if your plan will not pay out between 4, 6 and 8, you do need to have a look at that because it could be a red letter. But it is always worth phoning the company as well to check exactly what the nature of the letter is. LEWIS: And check. But if you see high risk it’s probably warning. And how does that start the clock? What are the rules about complaining if you think it’s been mis-sold which is not of course the same as not having enough money. What is the actual rule on the timing? HANSON: Well the FSA has clarified that you have three years from the time you received your first red letter which is the high risk or six months from the second red letter whichever is the longest. Now this is quite confusing for people because one, people have never actually had colour coded letters so that terminology is difficult and secondly companies are doing different things. Some people are sending reprojections each year, some people are sending them with wider gaps. So in many respects first, second, third round reprojections – it’s all become a bit muddled. Difficult for consumers. LEWIS: So it is possible that if you get a letter in this round it will start a six month clock ticking but only if that’s going to be more than three years from when you got the first letter? HANSON: That’s it. LEWIS: I think I’ve got it. Anyway with me too is Alan Leaman who’s head of public affairs for the Association of British Insurers. Alan, your members are accused of misleading people – do you accept that? LEAMAN: No I don’t frankly Paul and I think we are barking up a pretty non existent tree if I could say so. I mean these letters – the wordings of them were poured over in great detail with the FSA and they’re accompanied by an FSA leaflet which every consumer gets headed Your Endowment Mortgage – Have You Acted Yet? I don’t think there’s much room for doubt there with a very clear description of if you want to complain how to go about it and the fact that there are time limits in place. LEWIS: But the point is this isn’t in the letter – it’s not on page one of the letter. The letters are three pages long – the first page is the one most people will look at. They see a high risk – they might think gosh I’m a bit worried. But they don’t realise a clock starts ticking – action has to be taken if they think the product’s been mis- sold. Referring them to a leaflet in the back is not really the answer is it? LEAMAN: Well you can argue this all sorts of ways and I don’t think we come into this with closed minds frankly. But we took a lot of advice – I think the FSA took a lot of advice about what balance of information to have between the letter and the leaflet. The leaflet just says let me read it out to you: time maybe running out. If you want to complain do it now and I think that’s a good message. LEWIS: Yes, but if it’s not in the letter – if it’s a warning letter it should say there’s a high risk it won’t pay it off – do something now. And it doesn’t say that does it? LEAMAN: Well the evidence we’ve got and let’s try and base this on some evidence is from a survey which the FSA did quite a while ago now which said that of those people asked about 90% said they understood fully and knew how to complain and they knew that there were time limits as well. LEWIS: And what about the point made by Mark Meldon that the industry would really be very pleased if a line could be drawn under all this and you know by next October most people may not be able to complain. You’d be pleased about that. And it would sort things out wouldn’t it? LEAMAN: Well, let me clarify – the time limits that apply to complaints are not an invention of the industry. They’re there in statute and they’re an invention of the Financial Services Authority so they’re something we’re working to as well. I think what we’d be pleased about is if people took the appropriate action if they were facing a shortfall and that’s really the key point. LEWIS: And Louise Hanson briefly, what should be done? What do you think should be done about this? HANSON: I think we would like the letters to have some kind of colour coding and they should say red, green and amber. They should have information on what mis-selling was and how to make a complaint in the body of the letter. And that’s something that the Treasury Select Committee is also questioning the industry on. LEWIS: Alan Leaman, will you do that in a word? LEAMAN: Certainly not closed to that but I think you have to just bear in mind that we all need to move together on this. If the CA has good ideas –let’s hear them. LEWIS: I think you’ve heard them plenty of times on this programme –from both of you. Thank you very much Alan Leaman and Louise Hanson and there’s useful links about endowments on our website. Those details later. Now banks were told this week that they shouldn’t make money from the time it takes them to transfer funds to one customer’s account to another. The problem’s become particularly noticeable with Internet or telephone banking. The money leaves your account as soon as you give the instruction but your bank and the bank it’s moving to hang on to it for several days before it finally arrives in the recipient’s account. During that time both banks can make money by investing those funds on what’s called the overnight money market. This week the Office of Fair Trading has said that must stop, Chris Rawlins is a director at the Office of Fair Trading: RAWLINS: We’ve looked at the standing orders, Internet and telephone payments area and what we’ve found is that if for instance you want to send me £100 by telephone your account will be debited on Monday – the money will sit in a suspense account at the bank for a couple of days before I receive the money on a Wednesday. And what we’re calling for is for the banks to give you the benefit of the interest as if that was sitting on your account for the two days before the money arrives in my account. LEWIS: I can almost hear our listeners Chris say two days – you must be joking it’s longer than that – will this apply to the whole time that I’m without the money – even if it turns out to five or six or seven days? RAWLINS: If banks are taking longer over that we’re asking them to also credit consumers for the extra days they maybe taking. LEWIS: Chris Rawlins. Well the new rules should begin next year but is this missing the point? We wouldn’t need to be paid interest if the money was transferred the same day. The woman in charge of the money transfer system BACS is Marian King. I asked her why moving money still takes three days? KING: The money within BACS actually moves within hours – for example money can come into us up to nine o’clock at night and it’s out again by four o’clock in the morning. It takes three days because the processing before and after to reconcile the two accounts – it’s not the actual transaction itself. LEWIS: So you’re saying it’s not your responsibility. It’s the banks’ responsibility? KING: That’s exactly what I’m saying. LEWIS: But even here in the UK there’s another system called CHAPS where that doesn’t happen – it happens certainly the same day, certainly overnight. Why can’t that same system be used for everyday payment? KING: At BACS now we’re building a new infrastructure such that same day payments can be delivered and that’ll be ready by the end of 2005. We could in theory provide overnight payments now but as I’ve said because of the processing that happens within the banks it’s three days currently. LEWIS: Now last year we went to Sweden and they do all payments now on the same day or overnight if you make the transfer later in the day. What would it take to get that system here? KING: As I’ve said the system is being built at BACS now with new BACS – that system’s half way through being built but what needs to happen now is the banks need to embrace that and they need to be able to provide choice to the customer. So the decision doesn’t lie with me. The system is being built. It can deliver faster payments. That’s my aim. But it does mean of course processing changes within the system. These are quite complex transactions that happen securely and there is a lot of change that would need to be engineered to make sure they happen. LEWIS: So you’re saying that by sometime next year you will have a system in place, new BACS, that could do same day or overnight payments routinely for all the four billion payments that go through your system every day? KING: Yes it could. LEWIS: Do you think we’ll get same day payments for ordinary bank account transfers? KING: In time yes I think we will because as you pointed out, it happens now in Sweden, it happens in other countries across Europe and it’s terribly important that we’re competitive in a European context and we need to offer that service to our customers. LEWIS: Are you saying the banks are going to charge customers for same day but not charge them for the old fashioned three day transfers? KING: Obviously I can’t speak on behalf of the banks and each individual bank will make their own decision as to how they package and how they charge their customers. But the three day payments now there’s no charge. You’ve spoken about the CHAPS payment for which customers do make a charge. It seems to me there’s an opportunity between those two extremes to create services that are appealing to customers and it’s based upon customers’ demand and what they’re prepared to pay. LEWIS: Marian King. Well we asked the British Bankers’ Association to react to her claim that the delays were the banks’ fault. In a statement a spokesman told us: STATEMENT: The banks own BACS and will spend 100 million pounds to create by early 2005 a platform to move money including Internet transfers on the same day. Banks will then be challenged to change their own systems to match this. UK banking is free to in credit customers and we believe the model works well for consumers who dislike paying charges for routine services. LEWIS: So it could be a year from now money will move more quickly but at a price. And you can have your say on that topic on our website. Would you pay for quicker money transfers or should they be free? And Louise, mixed news this week if you have an Egg card? GREENWOOD: Yes the Internet bank is offering customers a 0% balance transfer from other credit cards on the anniversary of the date they opened their Egg account. Egg says it’s a way of rewarding loyalty but in the same week it’s cutting the cash back offered on the card from 0.5% to just 0.1%. The card guarantees it will offer cash back but it’s questionable whether the guarantee is worth having at such a low rate. LEWIS: And another deadline – this time for winter fuel payments? GREENWOOD: Yes, applications for the £200 annual allowance must be received by the 30th March. Most people over 60 will already have received the payment automatically but anyone who’s over 60 and has not had the money should claim soon or they’ll lose it. LEWIS: Thanks Louise and details of how to claim those winter fuel payments and about all the other times on today’s programme are on our website: www.bbc.co.uk/moneybox where you can also listen to the programme or parts of it at anytime. And don’t forget to have your say on how long you think banks should take to move your money and indeed whether they should charge you. All that information is with the BBC Action Line which is on 0800 044 044 – 0800 044 044 Vincent Duggleby’s back here on Monday with our phone-in MONEY BOX LIVE looking at ISAs – tax free savings and investments. Working Lunch has personal finance stories each weekday – that’s 12.30 – BBC-2. I’m back here next weekend with MONEY BOX as usual. Today the producer was Louise Greenwood and I’m Paul Lewis.