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. Tape Transcript by MAREE SHILLINGFORD MONEY BOX Presenter: PAUL LEWIS TRANSMISSION 10th JULY 2004 12.00 – 12.30 RADIO 4 LEWIS: Hello. In today’s programme, fears about another pension scheme raises questions about government plans to help people when pension promises are not met. Are building societies short- changing their customers when it comes to information and voting on how they’re run? Footballers ex-wives, the divorce drama reaches the Court of Appeal but will the ruling on the rich help other divorced women? We discover the credit card which charges interest on a cash withdrawal even when you think you’ve paid it off, and further delays for thousands of people waiting for compensation after financial deals go wrong. But first, fears have been raised this week about the pensions paid or promised to 40,000 people who worked for Turner & Newall, the engineering company. T&N has been in administration for nearly three years after asbestos claims drove its American owner, Federal Mogul to the brink of collapse. The UK pension fund has assets of around £1.2 billion. But Money Box has learned that it may be £250 million short if it had to meet all its pension promises. Norman Prime worked for the company for 50 years and was a trustee of the pension fund for 17 years. Since his retirement he’s kept in touch with colleagues who are still involved. PRIME: Well the concerns from the reports I’ve been getting is that we are £250 million underfunded and there hasn’t been any money put in, we’ve had a pension holiday for, I think it’s about, 18 years and that’s obviously caused some problems and the other people that are still working there, are ringing up and they’re rather worried, they’re putting more money in and getting less out of it. LEWIS: The company is also now paying into the fund after that contribution holiday and Federal Mogul told Money Box:- LADY: Federal Mogul has an ongoing dialogue with the administrators and the independent trustee of the T&N pension scheme. The T&N pension scheme is funded to meet regulatory requirements under the minimum funding requirement and Federal Mogul’s UK companies continue to contribute to the scheme. LEWIS: But that may be small comfort to the 20,000 people who have not yet retired. Ros Altmann is an independent pensions consultant who’s been at the heart of the debate about schemes where their company goes bust. Was she encouraged that the scheme met the government’s funding requirement? ALTMANN: It doesn’t really give me any comfort. First of all, because it doesn’t say that it’s 100% funded on the MFR. The minimum funding standard that the government’s put in is not that schemes have to be 100% funded on the minimum funding requirement, they have to be 90% funded and, even at that 100% level, if the scheme were to wind up, which seems to me the most likely scenario that you can imagine, the people who haven’t yet retired would be unlikely to get more than half their pension. And if it’s only 90% funded, they would be unlikely to get more than 40% of their pension and most likely would get a lot less than that. LEWIS: Now Federal Mogul says, it’s confident it will emerge from its problems. But if it doesn’t, and that happens soon, the government has announced, hasn’t it, that it will help people where their company goes bust. It’s provided £400 million for companies that go out of business before next April. Would that pick up the pieces? ALTMANN: If the company fails and the scheme is officially part of an insolvent company, then it would seem to me that people who are close to retirement, who have been in this scheme for a long time but have not yet retired, would be very likely candidates for assistance under the £400 million assistance scheme. LEWIS: Now if the worst does come to the worst, there are 20,000 retired members, 20,000 non-retired members. They’d be on top of the 65,000 people the government says may have to be helped by its scheme? ALTMANN: Exactly. I mean the £400 million was definitely not enough to meet the pension promises of the people who had been affected before it was announced. With another few tens of thousands of people potentially in line for more help, it’s even less sufficient. The £400 million will have to be increased if we want to help these people properly, and if we want to restore confidence in pensions, we have to help them. LEWIS: And if the government doesn’t put more money in, would the scheme collapse? ALTMANN: Well the scheme can’t topple. All that can happen is that you cut the amount that you pay out or you cut the number of people you pay out to. The money is supposed to be there, although we don’t know when, we don’t when it’s coming and we just can’t have confidence that these people will be helped. LEWIS: So other people, those who worked for ASW, for example, that we’ve looked at on Money Box before, people who may be counting on this scheme, they may get less? ALTMANN: Well there’ll be less money for everybody per person the more people there are, and therefore if you thought maybe you’ll be luckily enough to get 50 or 60% of your pension, and suddenly thousands more people are going to come along and also need help, you won’t get as much as that because the £400 million doesn’t stretch. So the government’s got to top it up. LEWIS: Ros Altmann, and I should stress that Federal Mogul has told us it is making significant progress towards emerging from its difficulties as a stronger company, better able to service its customers and meet its ongoing obligations. The pensions regulator has told Money Box today, that although there is a potential problem and it is keeping in touch with the situation, it was reasonably comfortable that things were being looked at. Building Societies and mutual life insurers like Standard Life and Royal London are under pressure to be more open about who runs them, what they do and what they’re paid. Mutual organisations like building societies are owned by their members, basically their customers, but many societies don’t give those members the information that shareholders of companies have come to expect and they’re not allowed to vote on crucial issues like directors’ pay. Michael is a customer of a building society in the Midlands and he’s just one Money Box listener to say they should do more. MICHAEL: We were asked recently to vote on the directors for the building society but we weren’t told how those four candidates were selected, and in fact there were only four candidates. We’re told what their salaries are, but we’re not given the opportunity to vote on whether we think those levels of remuneration are appropriate for the job that they’re doing. LEWIS: Did you feel they were appropriate, or did you feel the rates of pay were excessive? MICHAEL: There was really not enough information to tell. I mean they published the amounts between £20,000 and £40,000 a year but nowhere do they actually say, how many hours per week are involved in doing the work. So it’s impossible to tell whether this really is a meaningful employment and whether my money is being usefully spent on employing these directors, or really whether it is just a case of jobs for the boys. LEWIS: Well these issues have been raised a lot in the last few months. One society has even faced questions at its AGM about the pay of its chief executive. And now the treasury has asked Paul Myners, the leading City figure and currently acting chairman of Marks & Spencer, to report on how mutual companies are run. It’s done so as part of its response to Lord Penrose’s report on the near collapse of Equitable Life and the part its directors played in that. As Paul Myners explains to Money Box’s Chris A’Court. MYNERS: The core of Lord Penrose’s report about Equitable were questions about whether the problems of the Equitable were not brought upon the members by weaknesses in governance. And in particular whether the Board of Equitable was a self-perpetuating oligarchy, not immediately or effectively accountable to the members of the society and that is the issue which I will be looking at in the context, not only of life assurers but other financial mutuals, including building societies. A’COURT: So in short, you will be looking at those who are on the Boards of mutual life insurers and building societies and how they operate those organisations? MYNERS: I’ll be looking at the way they get there and how they account to the members of the society. A’COURT: Some of the problems that have been highlighted, particularly about building societies, is that sometimes they don’t disclose information to their members and very often they don’t let them have votes on important issues such as remuneration, the pay of those who are running the society. MYNERS: Well it’s generally accepted now as best practice in the corporate world that directors should be accountable in those spheres to the shareholders and it seems to me a sensible starting proposition to say that the same regime, or something very similar, should apply in the case of a life assurer or a building society. But this is a consultation. We’re issuing a document, we’re welcoming contributions to that consultation process and I’m ready and willing and enthusiastic about hearing the views from members of life assurers and building societies on this subject. LEWIS: Paul Myners talking to Chris A’Court. Well with me now is Adrian Coles, who’s director-general of the Building Societies Association which represents all the UK’s 63 societies. Adrian, why are building societies not as open as public companies with their members? COLES: Well let’s put this in context. This year building societies, accounting for over 90% of all the members of all building societies in the UK, have had a vote of directors’ pay. Building societies, accounting for more than 95% of all the members of building societies in the UK, have distributed information. So it’s a fairly minor problem in the overall scene. LEWIS: Well it’s minor in terms of members, if you like, but it is most building societies that are affected, isn’t it? That’s a small number of societies, they just happen to be the biggest. I think there are, only 17, let people vote on directors’ pay, 46 don’t. COLES: That is absolutely right, but the trend is moving in the right direction. Only 5 did it last year and I can reassure your listener from Nottingham, the Nottingham Building Society will be having a vote next year. LEWIS: This is obviously due to the pressure that’s being put on you. Well, you look sceptical. What changes can we see then over the next couple of years? Will members in every society get votes on these crucial matters? COLES: That is the objective we have at the BSA. The BSA’s view is absolutely clear. We think building societies should distribute information to their members on directors’ pay and we think members should have a vote and will be encouraging building societies to do precisely that over the next 12 months. LEWIS: Can do you do more? You’ve encouraged them, why can’t you make them do it? COLES: We are not the regulator, we don’t have statutory powers, we’re not the Financial Services Authority, but we’re going to have a very good go at persuading societies to implement these measures. LEWIS: The problem though is that buildings societies are seen as trustworthy organisations, we like to think you’re different from some of the big commercials we deal with. We trust you, but you don’t seem to trust your members in these matters? COLES: As I say, I think that is changing. I think it will be interesting, for example, if the chief executives of the large banks had to face a vote very three years as to whether they deserve to rejoin the Board of their organisations. You’ve got much more power as a building society customer than you have as a mere depositor in a bank. LEWIS: You think members should exercise this power more? COLES: I think members should get involved. The distinctive feature of mutuals is they’re open and transparent and we’re encouraging building societies to move even more in that direction. LEWIS: Adrian Coles thanks, and you can see what Paul Myners is going to be reporting on and how to contact him with your views by following the link on our website and there’s details with the audience line, those details later. Now should a divorced wife have a share of her ex-husband’s future income? The Court of Appeal this week said she should. Well, in some circumstances. Karen Parlour, who’s no longer married to Arsenal footballer, Ray Parlour, had her maintenance increased from £212,000 a year to £444,000 a year. Just over a third of Ray’s future income. And in the same judgment the court also awarded Julia McFarlane, divorced from an accountant at Deloitte, a quarter of a million pounds a year for five years, a third of her ex-husband, Ken’s, future earnings. Previously she’d been awarded just £180,000 a year. Maggie Rae of solicitors Clintons, represented Mrs Parlour and explained why she thought her client’s award of £440,000 a year was fair. RAE: It’s already been established recently that the contribution a wife makes as a mother and home maker should not be devalued as against the contribution a husband, say, because it’s usually that way round, makes as the breadwinner. And the arguments that the court bought into was that against that background this surplus money will mean that in the not too distant future she will have accumulated enough capital for him to be able to say, right I don’t need to pay you any more maintenance. LEWIS: But to many commentators these cases seem to overturn the legal principle of a clean break allowing the parties to move on. Rather, they seem to give an ex-wife a long-term share of their previous partner’s income. Some newspapers have called it a ground breaking revolution or is it really only of interest to the very rich or at least accountants and footballers. Claire Meltzer is from Levinson Meltzer & Pigott, lawyers specialising in divorce. I asked her why the judges had decided to give these ex-wives a share in their ex-husband’s future income? MELTZER: Because they’re young women, both of them, comparatively young women, and the amount of money that would be needed to capitalise their claims would have been a very very large sum indeed. LEWIS: What do you mean by that? MELTZER: This normally happens with wives who are older. If the husband is going to give the wife, shall we say, £50,000 a year, and if he has the cash to give her a lump sum that will provide her with that sort of figure for the rest of her natural life, that is the sort of thing we’ve been accustomed to seeing. What we have got here is a principle established that we can have a clean break but it is going to be a deferred clean break. It is not what we’ve been accustomed to seeing. LEWIS: It brings back income, doesn’t it, because for the last few years we’ve expected it all to be done by capital, that split 50:50, now we have this share of well over a third, in one case, of the man’s future income, albeit for a short period, but it could go on longer. MELTZER: It could indeed, but you see you must realise that in most divorce cases, wives get maintenance for life. Unless the wife marries again, then she is going to get maintenance or a share of her husband’s income whether it goes up, down or sideways. LEWIS: But that’s to deal with her reasonable expenses. These awards were both in excess of that, weren’t they? MELTZER: Yes they were. For example, the footballer’s wife is getting the best part of £300,000 in excess of her reasonable requirements, but the whole point of that and the whole point of putting a time limit on it and saying come back to court at the end of four years, is to say, you should have had time to build up capital reserves. LEWIS: So she has to save that money rather than spend it above her reasonable needs? MELTZER: I think she’d be very foolish if she didn’t save a lot of it. LEWIS: In the case of people who have this kind of income, can they protect themselves with a pre-nuptial agreement? MELTZER: The pre-nuptial agreement, as you know, is taken as a statement of intent but it doesn’t have validity apart from that. The court, when it comes to a divorce, will look at the situation as it is at the time of the divorce and it will, if necessary, override that. LEWIS: So will this have an impact on much more modest, ordinary couples, if you like, who are heading for a divorce at the moment? MELTZER: No, I don’t think it will. In most ordinary cases what happens is that there is a capital payment to the wife, if that’s a possibility, usually to provide her with a home and there’s maintenance for herself and the children and the maintenance of course is dependent upon the lives of the parties, whether the earnings go up, or the needs go up. But I don’t see that these cases are going to have any impact on that sort of thing. These are only for very rich people who have got a great deal of money left over, over and above their reasonable needs. LEWIS: Clare Meltzer. Now do you ever draw cash out on your credit card? It can be a very expensive way to get money. You pay around 2% as a fee, you’re charged interest from the moment the notes emerge, and that’s usually charged at a higher rate than you pay when you buy things and it’s worked out daily. Now Money Box has discovered one credit card company that may carry on charging you interest on that cash indefinitely, even if you pay off your bill in full every month. The problem was spotted by Graham, from Somerset, who told us that he took out £50 cash on his Capital One circle rebate card in January and he was still being charged interest on it last month, even though he’d always paid his bill in full. GRAHAM: I consider it almost a mortal sin not to pay a balance for a credit card in full because of the interest rates. But it seems that there’s a system that they have here of extracting some more money from you. LEWIS: So why was the saintly Graham, who does pay his bill in full, being charged interest as a sinner who doesn’t? Six months ago Capital One changed the rules about what it does with the payments you send them. Suppose you spent £450 on your card and also took out £50 in cash. Your statement would show a total to pay of £500 so you send them £500 by the due date. Now Capital One pays off the £450 of goods, fair enough, that leaves £50 to pay off the cash you might think but no, Capital One uses it to pay off anything you’ve bought more recently with the card after the statement was issued, maybe as recently as yesterday. Only if there’s anything left after that, does Capital One pay off the cash. The result is if you keep using the card regularly the cash could never be paid off and you’ll pay interest on it at 20½% a year. Six months after taking out the £50, Graham’s been told he still owes £30 but he hasn’t been told that on his statement, the figure isn’t there. The only indication is a small and puzzling item labelled cash interest. GRAHAM: I actually didn’t notice it in the first couple of months. It was only when I spoke to Capital One that they told me that there is an outstanding cash amount that their agents, actually when you call their call centre apparently on their system can see, but I can’t see on my printed statement, nor on the statement that I can look at on their internet site. LEWIS: Well capital One wouldn’t do an interview, but a spokesman did tell us the only way to pay off the cash was to ring the call centre and ask for what it called a “settlement amount” and then pay it off at once, though even that won’t work if you use the card before you get your next statement. Our advice, put the card in a drawer and pay off at least two months bills in full before you use it again. Well Martin Lewis from moneysavingexpert.com is with me. Martin, have you ever heard anything like this? M. LEWIS: I didn’t believe it when you first told me. I sat there and went “no, it’s something else, you’ve misunderstood, this is probably what’s called residual interest, another horrible credit card trick which Capital One also use”, and I was wrong. Quite simply, this is perhaps the most abominable new development in the credit card market we have ever seen. What it means is if you’ve got a direct debit to pay off your bill in full and you withdraw cash, you will not pay off your bill in full, hugely dangerous, hugely damaging. Capital One seem to be the first, I can’t find anybody else doing it. I hope they’ll be the last. LEWIS: It’s not just the circle rebate card either, it’s all their cards and of course they’re promoting their cards quite heavily. M. LEWIS: It’s all the cards now. Let’s think about this for a second. Their no hassle Platinum card, it offers 5.9% if you spend on it, 5.9% if you move other balances. What it doesn’t tell you is withdraw cash on it, it’ll be 20% interest, over three times as much, plus if you pay off in full and you haven’t got this problem, when you withdraw cash on that card like many other companies, you don’t have an interest free period, it means pay off in full and you’re charged interest and with Capital One pay off in full, you’re charged interest, spend on it again and you’re charged interest the month after and possibly the month after, and possibly the month after. It is an absolutely disgusting, abominable practice that should be made illegal. LEWIS: You don’t like it then? M. LEWIS: No. LEWIS: There are of course problems of finding out about this aren’t there? Our listener revealed that he looked at his statement and he couldn’t even see where the cash was. M. LEWIS: Oh Paul, I spent half an hour with the head technical nerd at Capital One talking through this and it took that long to really understand what’s going on here. Forget trying to understand it. Remember this rule, it’s very simple. Never, ever, ever, ever, withdraw cash on your credit card and if it’s a Capital One add an extra never. Don’t do it, don’t touch it, don’t go near it, they’ll charge you more interest and you won’t be able to pay it off unless you’re very very careful. LEWIS: Very briefly Martin, Capital One’s circle rebate cards were widely recommended because of the cash back, that’s the 1% discount you get. M. LEWIS: Your reward on spending, yes. LEWIS: Your reward on spending, that’s being withdrawn? M. LEWIS: That’s going down to ½%. Best players out there at the moment, Amex Platinum if you earn over £20,000 and you spend a lot, if not, Amex Blue. Amex isn’t that universally useable, so the alternative options are the Accucard at 0.8% or the Bank of Ireland have a clever little card, my website’s got full details if you want to read that, he says getting a plug in. LEWIS: Thanks very much Martin Lewis from moneysavingexpert.com. Now some people who have been mis-sold endowments, and so-called precipice bonds, are going to have to wait longer than expected for compensation. They’re people who bought from firms that have now gone bust and therefore have to rely on the financial services compensation scheme to make things good. This week those who run the scheme said it needs an extra £20 million from the Financial Services Industry and that’s on top of £33 million it’s already been given this year. Ron Devlin is the intermin chief executive of the FSCS and he told Money Box that until the shortfall in the fund is made up, it will mean delays for people waiting for their claims but hopefully he says, no one will end up in hardship. DEVLIN: We normally intend to turn claims around within about 6 months. There will now be a slightly more extended period, perhaps up to 9 months, maybe a little more than that for a period, while we bring the extra resources in. Firstly most of the mortgage endowment policies have not yet matured, so there isn’t immediate risk of loss to customers on that account, and in any event they should be taking serious steps to make sure they can repay their mortgage from some other way. The second point I’d make is, that if there are cases where consumers are being harmed, where there are particular hardship circumstances, then we would certainly, in every occasion, seek to accelerate those claims and give them priority. LEWIS: But what’s prompted the FSCS to go cap-in-hand to the industry for more money? DEVLIN: We are seeing greater numbers of claims than we originally budgeted for and therefore we are seeking more funds to enable us to process those claims and then to meet the compensation rights of the consumers. So it’s not a question of running out of money, it’s a question of getting more money available to us a bit later in the year to enable us to continue to do our very important job. LEWIS: The FSCS has already had substantial amounts of money from the financial services industry, £33 million earlier this year, so is there a danger the industry could now turn round and say, no to the £20 million top up? DEVLIN: We can’t assume a bottomless pocket, but there are limits that have been set for the levies that can be made on the industry for compensation. The industry is bound by the rules and regulations and by the Financial Services and Markets Act and the industry does recognise that providing a compensation scheme of last resort, as we are for customers, in part and parcel of being in the financial services business and does provide a lot of confidence for customers to continue to use that industry. LEWIS: Ron Devlin of the Financial Services Compensation Scheme. And also this week in case you missed it, the Bank of England announced on Thursday, it wouldn’t be putting up interest rates, not this month anyway. So a respite for people with mortgages, though of course not such good news for savers. The Bank will meet in August to consider whether it should raise rates again. And there are reports this weekend that three companies which organise face- to-face fund raising on the streets, the so-called chuggers, have gone out of business. They’re said to owe around £800,000 to some charities including Scope, Barnardo’s and the Children Society. And finally the government has put through the new law to give people over 70 an extra £100 with their winter fuel payments. That was announced in the budget. It’s supposed to help with council tax bills and the money should come through in December. That is all we have time for today. There’s more information with the BBC Action Line 0800 044 044 and of course on our website bbc.co.uk/moneybox where you can contact the programme. Some of you already are. And remember if you don’t have the internet at home, you can log on at your local library, usually free and at some colleges and community centres. There are personal finance stories on working lunch, that’s BBC 2 weekday lunch times. I’m back on Monday with our phone-in Money Box Live. This week looking at benefits, especially for older or disabled people and their carers. I’m back next weekend with Money Box as usual. Today the producers were Chris A’Court and Penny Haslam and I’m Paul Lewis.