30 Billion reasons for savers to fight back

Interest rates have been at rock bottom for savers since March 2009. They started to fall shortly after the Lehman Brothers crash in September 2008. Six months later the Base Rate had been brought down in stages to 0.5%. Savings rates had followed it down to a level on a par with the ones shown below for July 2010.

At the end of July 2010 there was £1.082 trillion of cash savings deposited in the UK. A trillion is a difficult number to grasp, so to put it another way that is £1,082,222 million (yes, a million million) of cash deposits.

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Will progressive policies be fair to savers?

This coalition Government puts much store in talk about fairness and progressive policies. But how fair have they been to savers? Fairness isn’t about taking from those that have and giving it to the poor; things are a little more complex since Robin Hood was faced with a tyrannical Sheriff of Nottingham.  Fairness should be about ensuring that those who try to help themselves and provide for their own future are encouraged and rewarded or, at the very least, not being penalised for doing so.

The Government is responsible for taxation rules, it borrows, it regulates and it sets targets for inflation. It has all the tools at its disposal to make a fair and level playing field for savers. Whilst it is prepared to pay lip service to the need for people to save and has proposed to make it compulsory for everyone to contribute to a pension it has not committed to doing anything that will ensure that the people who have saved will be better off for doing so and won’t end up being penalised for it. … Continue Reading

How to have your inflationary cake and eat it

Inflation is proving to be the Chancellor’s best friend. In it he has an ally that is systematically reducing the real value of the UK’s debt and, at the same time, by changing the measure of inflation used to index link certain expenditure he is able to reduce Government spending. The fact that it is also eroding the value of the Nation’s savings seems to be of no concern to him at all, though.

Savers hold a total of £1.085 trillion in cash deposits that reduce in value by an enormous £10.85bn for every percentage point of inflation that they can’t make up for in interest which with today’s low returns, is most of them.

The Government, however, is more interested in its effect on the National debt, which is in the region of £900bn. Each percent of inflation reduces the value of the debt by a similarly massive £9bn a year.

Whilst on the one hand, however, Government favours high inflation, it is also in its interest for any index linked spending to be tied to low inflation. In accomplishing this neat trick, the Government is busy switching its use of the Retail Price Index (RPI) to the lower measure of Consumer Price Index (CPI) as the default for index linking payments. In so doing so it is able to save huge sums – a predicted £6 billion a year in benefit payments alone. … Continue Reading

Thinking of moving abroad when you retire?

There are many reasons why you might want to move abroad when you retire. It might be to join your children who have emigrated or you may have come to the UK and spent much of your working life here and want to move back home. Or you just might feel after all these years of working you deserve a change.

You have some savings and of course there is the state pension that you are entitled to, since you have worked and paid the required National Insurance contributions. And here is where it can all start to go wrong.

As long as you move to the EU or one of sixteen other designated countries then all will be fine. However move to anywhere else in the world and you will find that your basic state pension will remain frozen at the same rate as when you leave the country.

So whilst other pensioners in the UK, the EU and the other sixteen countries all receive the maximum of the increase in earnings, inflation as measured by the Consumer Price Index or 2.5 per cent; in ten, twenty or thirty years time you will be receiving  exactly the same amount as you received when you first moved abroad.

There are 1.1Million UK pensioners living abroad and 540,000 of these live in the 156 countries where they are not entitled to receive any increase in their basic state pension. They are represented by an organisation called the International Consortium of British Pensioners (ICBP). Who have gone to great lengths to get this absurd and unfair situation put right.

They also point out that this rule discourages and prevents people from moving abroad and that by rectifying the situation the Government may well actually save money through the reduction in health care and other benefit costs. This is an area they are currently working on and if you are a pensioner you can help them by completing their questionnaire by following this link. www.surveymonkey.com/s/frozenpensions

EU Proposals on savings and investment compensation

It is good news that the European Commission is proposing to increase bank deposit protection to €100,000 by the end of this year, but this will still be inadequate for many.

Although €100,000 (around £83,000 as at today‘s date) is significantly higher than the current £50,000 maximum compensation payable by the UK’s Financial Services Compensation Scheme (FSCS) , it is of little comfort to those who choose to keep large amounts in cash.   This could be the elderly who wish to preserve their hard-earned capital or anyone involved in buying or selling a property, who may have a very large sum of money on deposit for a short period of time. For others, it may be the fear of volatile stock markets that has driven them to park the bulk of their assets in cash.

But one improvement in the EC’s package of proposals is that deposit compensation will have to be made within seven days of a bank’s failure.   When some of the Icelandic banks collapsed, there were delays in paying depositors compensation because of cross border complications.   So any scheme which resolves these issues is also to be welcomed. The EU is proposing that  the depositor compensation scheme in the depositor’s home country takes initial responsibility for compensation payments, with the deposit compensation scheme in the failed bank’s jurisdiction reimbursing it thereafter.

The EC is also proposing maximum compensation scheme for investments of  €50,000 (£41,700)  per investor. But this is less than the UK’s current £50,000 maximum investment compensation for claims made to the FSCS against firms declared in default  since January 1, 2010.   For claims against firms declared in default before January 1, 2010,  FSCS investment compensation is 100 per cent of the first £30,000 and 90 per cent of the next £20,000, up to £48,000 per person per firm.   The Commission says investors should receive compensation within nine months of a  firm’s failure. But remember that investment compensation is only payable by the FSCS where an institution is declared in default and the firm was authorised by the FSA. It does not pay out for a fall in your investments due to stock market conditions.

Office of Fair Trading response to cash ISA super-complaint by Consumer Focus

The ISA market is a shambles and Consumer Focus deserves a big thank you from the 17 million or so ISA holders for bringing some of the issues to the attention of the Office of Fair Trading.

The response was extremely disappointing for savers. The fact that banks create ISA accounts with worthwhile rates that are then subsequently reduced to next to nothing after a year in the knowledge most savers won’t move their money is apparently OK.  The fact that when savers do move their money the manual, bureaucratic systems used to mange ISA transfers by the banks results in savers losing interest is apparently also acceptable.

It was extraordinary to learn that ISA providers still use cheques to transfer money between ISA accounts when banks have been pushing electronic money transfers for years and even more extraordinary that some providers use second class post to send these off.

Consumer Focus did however manage to gain an improvement on what was the most important issue that they brought up and that was the length of time it takes to transfer ISA money between different providers. The new agreement is that the transfer will take a maximum of fifteen days (down from twenty three) and that the receiving provider will start paying interest a maximum of two days after receiving the funds from the old provider. That isn’t to saty that some ISA providers don’t do this or better now, but many don’t. There was also an agreement to print the current interest rates on ISA statements, a welcome step that will help bring to peoples attention if the interest rate on their account has been significantly reduced since they opened it.

Unfortunately several other issues brought up by Consumer Focus were not accepted as valid complaints. Below I have provided a brief outline of the main issues raised by Consumer Focus followed by a short summary of the OFT response;

1 Insufficient transparency of interest rates caused by the use of short lived bonus rates to attract new savers which were then substantially reduced.

Response: The OFT decided that since it is made clear that these bonus rates are only temporary that there is no problem with the use of bonus rates to attract new savers.

2 Confusion was caused by so many similar accounts with almost identical names. Providers frequently create new accounts which are the same as existing accounts in all aspects except interest rates and many have very similar names. … Continue Reading

A budget for a balanced economy that lacks support for savers

The Emergency Budget this week did what many expected it to; cut deep and cut rapidly. The extent of the financial problem facing our nation is starting to be fully realised by the population.  Without a credible plan to tackle the deficit our credit rating will be at risk, our debt will spiral and as markets lose confidence in our ability to marshal our economy prudently, interest rates will escalate. Greece and the wider Eurozone crisis stand as a stark warning of the perils that could lie ahead.

So action is necessary. This premise, at least, has moved beyond debate. But for a Budget that promised fairness and to raise a balanced economy where “we save, we invest, we export”, there was markedly little in it that was fair to the savers of this country.

After scrapping government contributions to the Child Trust Funds, Mr Osborne has now cancelled Labour’s Saving Gateway scheme designed to help those on low incomes build up a small savings pot and announced plans to introduce reforms to reduce tax relief on pensions for higher earners. The only concessions have been to index link the ISA limit and a commitment to raise the age at which you must buy an annuity with your pension. With such low returns for annuities this is welcome, but does not tackle the fundamental problem which is those low returns for annuities.

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It’s about time savers made their complaints heard

Savers can be a timorous bunch.

If you’re earning a miserable 0.1% in your high-street savings bank account – and I’ll wager hundreds of thousands are – who have you complained to?

Exactly.

Big bouquets, at least, go to those who express their disgust and up sticks with a move to a rival bank for a more generous rate.

Brutal brickbats for the rest who silently fume at the miserly rates on offer yet do nothing about it.

But what savers of all hues do share, however, is an aversion to taking their complaints at crummy rates to the very top – to the Financial Ombudsman Service (FOS).

Only a ‘handful’ of gripes about piffling savings account interest rates are posted to its door each year – and the majority of those relate in particular to a subsequent poor experience where money earmarked for secure savings ends up being funnelled into an inappropriate investment.

Yet instead of the FOS bearing the brunt of their ire, savers should be bawling out their banks after first having a pop at…themselves.

Savings are generally hard fought for, prised out of taxed salary after all other outgoings. … Continue Reading

Mr Gordon Cameron-Clegg

Gordon Cameron-Clegg is a regular guy. Married with two children both in full time employment and off his hands, Gordon has just retired. He has never been in debt but has spent what he earned.

He believed in following his Government’s lead and implied guidance. He has never bought a house; the curtailment of mortgage interest tax relief guided him here. He opted out of his employer’s pension scheme; the removal of c£5 billion a year ACT recovery from pension funds sent him a clear message. He had inherited some gold based shares but he sold these when his Government sold the national gold reserves thinking the timing must be right. He never fancied putting his hard earned taxed income into a stock market that could crash nor saw the point of cash investments, which were eroded without tax relief by Government planned inflation, yet were taxed on interest earned: often a negative net return.

Who will now pay for Gordon’s food and housing, his escalating medical care with expensive drugs and the long period nursing care resulting from his medically extended life? Although Gordon is debt free, his Government has borrowed extensively to fund current running expenses. They have borrowed for him. Who will repay the principal and interest on this debt? The simple answer to both questions is the same. The current and future generation of productive workers will pay for Gordon’s and their own upkeep plus repay Gordon’s debts, all from taxes from money they have yet to earn. The business equivalent is a company that contracts to pay its employees healthy pensions and plans to pay for them from profits it has yet to make.

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Savers put to the back of the class

Imagine, if you dare, a classroom crammed with typical 15-year old pupils. Hellfire on earth, I hear you mutter, and you’re probably right. But this gaggle of gauche teens aren’t snoozing through science or messing about in maths. They’re listening intently because their teacher is talking about money – their money.

“Back when you were nippers,” she says, ”your folks were given a pot of money – with £250 in it! All for you and nobody else… ” She starts to hand out a sheet that outlines how the Child Trust Fund burst into life in 2002.

”Now, here’s a list of vital questions that we’re going to to study and I want you to find out what you think has happened to your money – who has it exactly? What do you plan to do with it? What’s happened to it over the past years? Has it grown or shrunk? And – most importantly – why has it done so?”

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