This piece first appeared in Saga Magazine in August 1999
The text here may not be identical to the published text

Pensions, tax, nursing home fees, and National Insurance contributions - the Saga postbag often gives me a strong sense of déjà vu! It is not possible to answer your queries individually. But this month I will answer with some of the more common enquiries here. But do keep writing - especially with complaints and injustices.

SERPS

Few subjects have aroused such passion recently as my piece (Saga Magazine June 1999) on the cuts to the State Earnings Related Pension (SERPS - also called additional pension) which will be paid to women who become widows from April 6 2000. Under the plans, which the present Government inherited from previous conservative administrations, a widow will inherit only half her late husband's SERPS instead of all of it. The change was agreed by Parliament as long ago as 1986. But the Government has admitted that people who enquired were not given the correct information until ten years later - 1996.

Well, Saga readers can top that. Frank from Devon wrote

"A couple of months prior to my retirement in April 1997 I contacted the Benefits Agency requesting information on the pension my wife could expect should I die before her" And here is what the Benefits Agency replied on 28 January 1997 '…she would also be entitled to all your additional pension…'"

Wrong. Although she would be entitled to all Frank's SERPS if he died before April 6 2000, if he dies after that, she will only get half.

The concern is that many people have believed what the Benefits Agency told them and did not make any alternative private arrangements to make sure their widow had an adequate income. Campaigners for a fair deal for those who were given this incomplete advice on SERPS are taking heart from a decision by the Parliamentary Ombudsman. He recently awarded more than £51,000 to a former policeman, Mr C. He was given incomplete information by the Department of Social Security in 1988 and that stopped him making a claim for sickness benefit. As a result he lost £35,000 in benefits and nearly £4000 in lost medical cover. The Department of Social Security also had to pay £10,000 in interest. So it is always worth seeking compensation if the Benefits Agency gives you partial or misleading advice.

The Government is still considering what to do about people who were misled about how much SERPS their widow would get.

TAX

Mark writes from the Midlands

"I have today heard with amazement and disbelief that the 10% tax band will only apply to pensioners who have a pension or earnings which are large enough to take up their personal allowance. Those with smaller pensions who depend on income from savings to boost their incomes will start paying tax at 20%."

Several other readers echo this complaint. Sadly, it is true that the lower rate of tax - cut from 20% to 10% in the March Budget - does not apply to the interest on savings. That is taxed at 20%. The lower rate applies to the first £1500 of other income above the personal tax allowance. There is more about tax and pensions in my leaflet Pay Less Tax 1999/2000. For a free copy send a self-addressed C5 sized envelope with 19p of stamps to Saga Signpost SEries, Metromail, Peterlee X, Co. Duham SR8 2HU. Allow 28 days for delivery.

A complicated enquiry comes from Mrs M in the north of England. She has a gross annual income of more than £18,500, about two thirds of it from her savings. She is in her late 70s and expected to be eligible for the higher personal tax allowance given to people over 65. But this age allowance is withdrawn from people who have higher incomes. Mrs M knew this but thought the Chancellor said her income was low enough so that she would get it.

"When the Chancellor gave his Budget speech he mentioned an income level of £19,010. As my income was less and I had already paid £2445 deducted from my interest I thought I was clear for this year. But I was told I owed £401!"

Mrs M was not the only reader who suffered from Chancellor's Speech Syndrome - hearing one thing but finding out the truth was rather different! The age allowance is allowed in full if your total income is less than £16,800 (in 1999/2000). And you lose any entitlement to it if your income is £19,010 or more. But the Chancellor was talking about his plans for 1999/2000 - Mrs M's tax was due in 1998/99 and entitlement to any age allowance stopped in that year at a much lower income than £19,010. So Mrs M only gets the basic tax allowance of £4195 and that means there is some tax to pay on her £6500 pension. I am sorry to say that according to my calculations the tax office has got it right.

Ron from Surrey is worried about inheritance tax. He has assets including his home of about £400,000 and is worried that when he and his wife die tax will be due. And so it will, Ron. The tax is 40pc on everything over £231,000. But you can reduce the tax due if you are careful. For example, split your assets between yourself and your wife. Then each of you should leave as much as you can to your children. So whoever dies first will have less to leave and less tax to pay. You can also split the value of your home. The full details are in a new leaflet Inheritance Tax and Capital Gains Tax 1999/2000. For a free copy send a self-addressed C5 sized envelope with 19p of stamps to Saga Signpost SEries, Metromail, Peterlee X, Co. Duham SR8 2HU. Allow 28 days for delivery.

NURSING HOME FEES

Mrs E from Watford asks a very familiar question.

"Could you tell us something about the pros and cons of transferring ones property to ones children. Especially if you are widowed there is a constant worry of having to sell your house should you need to go into residential care."

Giving your home to your children may protect it if you have to go into a residential care or nursing home. It depends how much time elapses between the gift and your need for care. Six months or less is definitely too short. The council can make the recipients of the gift give it back. Five years or longer should mean your home is almost certainly safe. And it may be safe if you give it away two years before you need to go into a care home. But if there is not enough time to do that, remember that the local council cannot make you sell your home. It has to find you the care you need. And although it can send you bills it cannot make you pay. What it will do is put what is called a charge on your home, so that when you die the bill will be paid from the proceeds of selling it. But that may not be a bad thing. The bill builds up interest free. And your younger relatives may find it worthwhile to let the property while you are in the home and save the rent up to pay your fees later. And remember, if a spouse or an elderly or disabled relative lives in your home, its value is ignored completely. Finally, I have to add - and don't all write to me to complain! - it is your house, your asset and there is a school of thought which says it is quite reasonable for you to use it to pay for the care you need rather than leave it to your children or other relatives.

STATE PENSION

Mr D writes from Newcastle. "Could you please verify that pensions from the Government will rise in line with earnings." Sadly I cannot. The Government has said that it hopes to raise the means-tested income support paid to poorer people over 60, in line with earnings. But Ministers have made it very clear that the state retirement pension will only rise in line with prices, as it has for more than 20 years.

Mr GM asks if he can stop paying National Insurance Contributions. He is 63 and still works.

"I understand that in order to qualify for a full state pension when one retires at 65 one has to contribute to the National Insurance scheme for 44 years. In that case I qualified in 1995/96. So why do I still have to pay them?"

Excellent question. The contributions have to be paid by anyone under pension age who is in work and earning £66 a week or more. So even if you have already paid enough to get a full state pension you still have to pay National Insurance Contributions. The only advantage is if you are paying into SERPS then any contributions paid will help boost the amount of SERPS you get.

And Edgar from Suffolk thinks he has paid enough contributions for two retirement pensions!

"I was a fulltime teacher for forty years but I also owned four hairdressing salons. As I was self-employed I was liable for extra National Insurance Contributions. Am I entitled to an enhanced old age pension in view of paying two lots of contributions?"

No. You can only pay enough for one pension. And neither teachers - who get a good superannuation pension - nor the self-employed are eligible for the State Earnings Related Pension. However, you may have paid too much in National Insurance over those years. There is a rule which says that you cannot be asked to pay more altogether from your job and your self-employment than the maximum that a person on high earnings would have to pay. 'High earnings' are not that high - £500 a week this year - so you may be able to claim back some of the extra National Insurance Contributions you paid as self-employed. However, you will not be able claim back any overpayment made more than seven tax years ago.

And Graham writes from Dyfed with a familiar complaint.

"My 65th birthday fell on a Thursday. I had claimed my pension in good time, but it did not start until the following Monday! I was told the pension was paid in advance but could only start on a Monday. So on my reckoning I have been cheated out of around £40."

So you have Graham, and it is perfectly legal! The pension is paid from the first pay day on or after your birthday. Pay day for retirement pension is currently Monday (it used to be Thursday and for some widows it is Tuesday). So people who reach 65 on a different day lose money. With more than 650,000 new claims for retirement pension each year and an average payment of more than £70 a week, this particular trick saves the Government around £25 million a year.

August 1999

e-mail Paul Lewis on paul@paullewis.co.uk