Wednesday, 26 September 2012

Automatic enrolment - why it's a good idea.

On Monday automatic enrolment will start to be phased in. In case you've missed the adverts or you're not employed by a large company (the phase in will start with the biggest companies first), it will mean that millions of employees will be automatically enrolled into their workplace pension, without them doing anything. But no-one will be forced to stay in if they don't want to - you're free to opt out if you want to. You'll have to pay in 4% of your salary, your employer will pay 3% and the government will provide 1% in the form of tax relief (contributions are also being phased in so you won't pay this much to start and you can pay more if you want to). Now, I don't think automatic enrolment is the perfect solution and I think the pensions industry has some real improvements to make in terms of what it offers, how it talks to its customers and how much it charges (particularly on old-style pensions, which people may have taken out years ago). However, there's no getting away from the fact that the state pension simply isn't enough for most people to live on. It's currently £107.45 a week for the full basic state pension (less than £20 a day). You can retire on more if you earn a higher state pension through SERPS and/or the State Second Pension (S2P), but many people, especially women, don't. There's a lot of research to back up the fact that while some people genuinely can't afford to save into a pension, many don't do it because they don't get round to it. Morrisons, one of the biggest supermarkets, says that 90% of its workers aren't in its pension scheme. And that figure is not uncommon. Another major high street retailer found a massive difference in the percentage of (mainly female) workers signing up to its pension scheme, depending on the store they worked in. In some, over 80% of employees were in the pension scheme, in others, the figure was as low as 20%. There was no difference in the salaries earned, and not much difference in the age and income of the workforce in the various stores. What it came down to was how enthusiastic the local manager was for the pension scheme. If he or she joined it and said it was a good idea, others would and vice versa. Automatic enrolment isn't the answer to the pensions crisis. We need the government to make sure it's always worth saving and not to shift the goalposts, and we need a pensions industry that always puts its customers first. But automatic enrolment is a step in the right direction. And it's quite a big step.

Wednesday, 29 February 2012

Ten tips on surviving the cash ISA season.

With just over a month until the end of the tax year, it's that special time when banks and building societies remember that they sell cash ISAs, and hike the rates so they can secure that much valued top spot in the best buy tables. Sigh.

I know from the emails I receive that many people are reasonably cynical about the way a lot of the banks operate (and who can blame them?). But there's no point in having money sitting in your cash ISA earning next to nothing, or picking an account that's paying a paltry rate of interest. So, are my ten tips on getting a good deal:

1. Know your limits. This tax year (to April 5th) you can pay up to £5,340 into a cash ISA, which worked out at £445 a month. From April 6th you'll be able to pay in £5,640 into a cash ISA (or £470 a month).

2. Look at how much existing ISAs are earning. Many cash ISAs will accept transfers in, which means you can move some or all of the money you've saved in cash ISAs in previous tax years. If you have a cash ISA that you're currently paying into, you have to move all of it (or none at all).

3. Watch out for the bonus rates. Banks love bonus rates because they can pay an eye-catching rate during the ISA season and whisk it away after a year or so. Set up an alert to remind you to shop around when the bonus rate runs out.

4. Compare the comparison sites. Don't look at one comparison site alone because they often assess best buys in different ways: some don't give the top slot to ISAs that tie you to another account, others don't include bonuses that last for less than a year and some have exclusive deals that you have to take out via the site.

5. Look at fixed rate cash ISAs. If you're saving your ISA money for something longer term (i.e. you won't need your money within a year at least), find out how much more you could earn if you take out a fixed rate ISA. Some cash ISAs will let you get at your money before the fixed rate term is up as long as you give a couple of months' notice, but not all will.

6. Find out if you can top up your fixed rate cash ISA. Most fixed rate cash ISAs can't be topped up after a certain period (often 30 or 60 days), but some ISA providers will let you take out a second cash ISA to use up the rest of your allowance if you haven't already done so. If you think you'll have money to spare, check with the ISA provider first. Some will let you take out a fixed rate ISA, others a variable rate.

7. Split your ISA money. It doesn't necessarily have to be a choice between a fixed or a variable rate. Some ISA providers will let you split your money between two or more products they offer.

8. Think ethical. March is move your money month, a big campaign to encourage people to move away from mainstream high street banks to smaller building societies or ethical providers. There isn't much choice if you want an ethical current account but there are a number of ethical cash ISA providers (and as I write this, you'd earn £35 a year less in interest if you went with the best buy ethical cash ISA compared to the best buy non ethical ISA and invested the full allowance of £5,340).

9. Look at taxed accounts. If you're a basic rate taxpayer, look at whether you'd be better off putting your money into a taxable (i.e. ordinary savings) account rather than a cash ISA. Some banks pay better rates on taxable accounts (probably because they know that cash ISAs are so popular).

10. Understand the transfer rules. If you're transferring an ISA, the switch must be done directly from one ISA provider to another (you can normally download a 'transfer' form) - you mustn't close the account and pay the money into an ordinary bank account. You can transfer money you've saved in a cash ISA into a stocks and shares ISA and it won't affect your ISA allowance, but you can't do the transfer the other way round.

Friday, 14 October 2011

Energy companies profiting at our expense

I was listening to the radio this morning when the interviewee was asked about 'confusion marketing' by energy companies, namely, the idea that they come up with a large number of tariffs and deals so that consumers are confused. With over 400 tariffs on the market, it would seem that it's definitely something they're involved in.

So it's good news that Ofgem is finally putting some pressure on the companies to simplify their tariffs and to give customers a better deal, but it's been a very long time coming. And with estimated profit figures of £125 per customer per's sorely needed.

I'm not an energy expert but I have done my fair share of reporting on energy stories over the years (starting off, ironically, with a programme in the late 90s devoted to the idea that consumers would be baffled by 'confusion marketing' when the energy market was first deregulated). It's been over 12 years since the energy market was opened up to competition and many consumers still aren't getting a good deal.

We've had mis-selling on the doorstep (which has only just been tackled in the last few months), people on pre-payment meters being forced to pay far too much for their energy, energy companies altering people's direct debits without an explanation of why and - in many cases - when their accounts were in credit and, only yesterday, Which? finding that in a third of its mystery phone calls, the energy suppliers' own staff didn't know which deal was the cheapest.

Oh, and I haven't even mentioned the Warm Homes Discount fiasco, where energy companies (British Gas excepted) won't promise that everyone who qualifies for a discount off their energy bill will get it.

If we were talking about a 'luxury purchase' this wouldn't be so serious. But it's not. It's gas and electricity. It's what we need to heat and light our homes.

Ofgem says that we could see simplified tariffs by the winter of 2012 'providing the industry get fully behind our reforms'. I've contacted the energy suppliers' trade body and am awaiting their response. They know that if they decide to fight these reforms, the Competition Commission may have to get involved and, if that happens, any change could take years to come in.

In my view, energy suppliers' customers deserve rather better than that.

Monday, 26 September 2011

Insurers make it (a bit) easier to shop around at retirement.

For most normal mortals, what happens to their pension at retirement is a complete mystery. Many people who have a personal, stakeholder or stock market-linked pension through work (as opposed to a final salary scheme) are blissfully unaware that, if they want to turn it into a guaranteed income for life they have to buy an annuity (a product that is designed to produce a monthly income from a lump sum).

Many more don't realise that they have the right to buy an annuity from any pension company they choose, not just the one they've built up their pension with. When I started in financial journalism (quite a long time ago!), pension companies made it pretty hard for people to shop around for their annuity.

They loaded the process with jargon (it's called the 'open market option' - not exactly an everyday phrase) and buried the important information in the small print. Over the last decade or so, mainly as a result of prodding by the regulator, the FSA, insurers are more upfront about the fact that you may be able to get a better deal by going elsewhere; but it's still not foolproof. Fewer than half of those who buy an annuity do so from a different company.

Today the ABI, which represents insurers, said that pension companies wouldn't be able to include an application form with the documents they send out as someone approaches retirement. It means you wouldn't be able to fill in the application form and buy your annuity with your existing pension provider because it was the easiest option. It's another step in the right direction, although there's still more to do.

The point is that if the insurance industry had spent more money and time in the past explaining why it's so important to shop around, more people would be confident of getting the most from their pension fund. Consumers 'get' shopping around. Many now do so, but awareness around pensions - and the decisions you have to make at retirement - is woefully low.

While pensions companies can't be expected to take all the blame, the industry has missed plenty of opportunities to educate its customers and to make sure they really were getting the best deal at retirement.

Tuesday, 21 June 2011

What I'd have said in the Pensions Bill debate.

I listened to several hours of the Pensions Bill debate yesterday with a sinking heart and a growing sense of dismay. Not surprisingly, most of the debate was around the issue of speeding up the rise in the state pension age to 66. It would be naive to expect a political debate not to include point scoring but I was surprised at how much of the debate was about the politics and not the substantive issues around raisng the state pension age:

1. This is not about equality. I don't expect to receive my state pension before men and it's right that the state pension age is being equalised to 65. I can also see the case for bringing forward the rise in state pension age to 66 from its current timetable of 2024-2026. However, the plans for raising it to 66 by 2020 would penalise around half a million women in their mid 50s who will experience one increase in their state pension age on top of another.

2. Women in their 50s have not had equal access to state pensions. The previous government's figures showed that only 45% of women reaching state pension age in the tax year 2009-2010 qualified for a full basic state pension. The reforms introduced in April 2010 mean that figure is increasing to 75%. However, this compares with well over 90% of men who receive the full basic state pension - currently worth around £102 a week.

3. Women have missed out for a variety of reasons. This could be because they've had a family (and the crediting system for state pensions for women looking after children, called 'Home Responsibilities Protection' only credited women for entire tax years that they were looking after their children until April 2010). It could be because they've acted as carers - and until April 2010 you had to be eligible for Carer's Allowance to receive credits for the state pension. You could only claim Carer's Allowance if you cared for someone for 35 hours a week or more and they received Attendance Allowance or Disability Living Allowance at the highest rates). Women also missed out if they earned less than the National Insurance limit (currently around £102 a week), perhaps from part-time work. Even if someone has several part time jobs paying less than £102 a week they won't receive any credit towards their state pension.

4. Figures from last year show that only 50% of women aged 50+ are in full time work. That's not because women in their 50s are idling and don't want to work full time, many are taking on caring roles (either of elderly parents or childcare of grandchildren), many haven't been able to get back into full time work since having children because the jobs aren't available and - due to the public sector cutbacks - many thousands have been made redundant.

5. Women in their 50s have not had equal access to work based pensions. Several women in their 50s have got in touch to say that their company pension wouldn't let them join until they reached their mid 20s. Some told me that as soon as they were eligible to join the pension scheme they had to leave because they wanted to have a family.

6. Part time workers (mainly women) had no automatic entitlement to join their company pension scheme until 1990. In 1990 it was ruled that it was illegal to refuse to let a part time worker join their employer's pension scheme. Women were then able to backdate their membership of the scheme - but that assumed they could afford to pay pension contributions for all the missing years.

7. Until December 2000 pensions couldn't be split in divorce. That doesn't mean they were ignored (although frequently they were because solicitors didn't understand their importance), but it means their value couldn't be divided at the time of divorce.

These are just some of the reasons why women who are currently nearing retirement or in their 50s rely more on their state pension than men do. Government figures show that two thirds of pensioners in poverty are female with 1.7 million women claiming Pensions Credit, compared to 1.1 million men. Official figures also show that women receive half the amount from their works pension that men do (£78 a week compared to £143) and that the average 56 year old man has saved £52,100 into his pension whereas the average 56 year old woman has saved £9,100.

That's why the plans to raise the state pension age to 66 by April 2020 are unfair. We don't need 'transitional measures'. We need a complete rethink.

Saturday, 14 May 2011

There will still be losers in the PPI debacle.

The banks' decision not to fight the court ruling on the way they handle payment protection insurance (PPI) complaints is good news for the hundreds of thousands of people who were mis-sold PPI. It's up to the banks to show they can get on and deal with their complaints speedily and fairly.

However, there is one group of people who won't be helped by the court decision - those who've already complained to their bank about a payment protection insurance policy, who had their complaint rejected but who didn't then take their complaint to the free Financial Ombudsman Service.

Under the rules, you have six months from when your bank (or other financial firm) rejects your complaint to take it to the Financial Ombudsman Service. But we know that before the Financial Services Authority told banks to buck up their ideas about how they dealt with complaints about PPI (which happened last August) banks were rejecting PPI complaints that were valid.

Across the financial industry 60% of complaints about PPI have been rejected. But the Financial Ombudsman Service has been finding in favour of consumers in 75% of PPI cases over the last three years. We also know that two thirds of those who had their complaint about PPI rejected by their bank didn't take it any further.

The rules say that you have six months from when your complaint was rejected by your bank to get in touch with the Financial Ombudsman Service. Once that deadline passes you can't complain to ombudsman (except in limited circumstances, such as you weren't told about your rights to go to the ombudsman or you were seriously ill).

Of course, it's ultimately the consumer's responsibility to take their complaint to the Financial Ombudsman Service, but I know that many people didn't do so because they believed their bank. If their bank rejected their complaint, why would someone else say anything different?

That means that thousands - possibly tens of thousands - of people who were mis-sold payment protection insurance and whose complaint was wrongly turned down by their bank can't go back and put in their complaint again.

The banks are being forced by the Financial Services Authority to contact hundrds of thousands of people who were sold PPI but who've not yet complained and to find out if they were wrongly sold a PPI policy. But there's no obligation on them to go back contact people whose complaints they rejected to see whether there was a justified complaint. Of course, there's nothing to stop them from doing that. The question is, will they?

Friday, 18 February 2011

Why the government is wrong to penalise women over state pensions

We know that these are tough times. We know we have to reduce the deficit - and fast. But I believe that speeding up the raising of the state pension age to 66 by 2020 is wrong.

It's wrong for several reasons. Firstly, because it will penalise women who make up the largest proportion of pensioners living in poverty (the government's own figures show that two thirds of pensioners living in poverty are women), secondly because it doesn't give those women affected enough time to make alternative plans to plug the gap and thirdly because it would break a coalition agreement promise made last May.

The Pensions Minister, Steve Webb MP, said last year (only half joking) that the state pensions system had been designed at a time when the expectation was that a man had a state pension and a woman had a husband.

Until last April - when the rules were relaxed so you could qualify for a full basic state pension with only 30 years worth of National Insurance payments as opposed to 39 if you were a woman (and 44 if you were a man) - fewer than 50% of women retired on a full basic state pension, compared to well over 90% of men. Now that figure is around 75% and rising.

The government's own figures show that the average 56 year old woman has £9,100 in pensions savings compared to £52,800 for men. And for far more women than men, the state pension is the cornerstone of their retirement income. Around half a million more women than men claim Pension Credit, a benefit paid to pensioners on the lowest income.

The state pension age for women is currently being increased from 60 to 65, which is only fair. It was due to take place over a ten year period and - although it's true that some women didn't know about it - the government decision was made years ago and there was enough time for them to prepare.

By raising the state pension age to 66 - a process that will start to affect women who reach pension age from 2016, it means some of those worst affected have less than 10 years to find £10,000 (two years worth of state pension) unless they're going to continue working until they're 66.

Now, some women may be happy working to 66, but the government's own figures show that just 50% of women aged 50+ are currently in full time employment. I'm sure that if you were to look at women aged 60+ the figure will be much lower. You can't work unless the jobs are there in the first place and as the public sector is a major employer of women, the outlook for jobs is only going to get worse over the next few years.

The Pensions Minister has said that those who can't work and who don't have savings will be provided for by out of work benefits such as Jobseeker's Allowance (currently £65.45 a week). I think that's not good enough, to put it mildly.

As a financial journalist, I've lost count of how many times I've encouraged women to start planning for their retirement in good time - how it shouldn't be left to the last minute etc. But this plan to speed up the raising of the state pension age to 66 seems to show that the government is happy to give hundreds of thousands of women just a few years to save enough to bridge the gap left by missing out on the state pension, or work until they're 66.

I think we all understand that the government has to make tough decisions, but tough decisions should also be fair. The plan to bring forward raising of the state pension age to 66 is not.