e-mail Paul Lewis on paul@paullewis.co.uk
In April major changes begin in the way that state pensions and benefits are paid. The new rules will affect everyone who gets retirement pension, widow’s benefit, minimum income guarantee, disability benefits or any other social security payment. The biggest change will be for people who currently collect their benefits in cash each week at the Post Office. At some point before the end of 2004 they will have to open a bank account or a Post Office account to get their money. The change will also affect people who already have their pension paid into a bank account. From April they can get it paid more frequently and in advance.
The change is in three parts.
From April everyone who claims a pension or benefit for the first time – including the new tax credits I wrote about in February – will have it paid direct into a bank account.
From April people who already get their benefit paid into a bank account will be able to have it paid weekly in advance if they choose.
Over the next two years everyone who gets a pension or any other state benefit paid in cash at the Post Office will get a letter from the Pension Service telling them that their money will in future be paid into a bank account.
Of course, many people like getting their pension in cash each week from the Post Office. That will still be possible after the change. However there are concerns that the system being installed in Post offices will be difficult for many people to use.
Post Office
There are three ways you can continue to get your pension in
cash at a Post Office.
If you already have a bank or building society account, you can have the pension paid straight into that. Seven banks have done a deal with the Post Office so that customers can draw money out of their bank account at the Post Office. There is no charge; you just need your debit card or a cheque book and a cheque guarantee card. The banks that have done the deal are Alliance and Leicester, Barclays, Cahoot, Co-operative Bank, Lloyds TSB and Smile – and First Direct in Scotland. Other banks may join later.
If you are concerned about going overdrawn or paying charges you could open what is called a ‘basic bank account’. All the High Street banks now offer a basic bank account to anyone, even someone with a bad credit record or none at all. These basic bank accounts do not allow you to go overdrawn and there are normally no charges. You can still use cash machines and pay your bills through a direct debit or a standing order. From April 1 you should be able to withdraw cash at a Post Office from any basic bank account – except one with Bank of Scotland, Halifax, or Woolwich.
To open one you will need proof of who you are and where you live such as a passport, driving licence, gas or electricity bill or council tax statement. Make sure the bank knows that you want a basic bank account. Banks often steer people to open ordinary current accounts instead.
If you really do not want a bank account at all then you can open a Post Office Card Account. Your pension will be paid into this account and you can draw it out in cash at any Post Office. All Post Office counters now have a small keyboard near the glass screen. It is called a ‘PIN pad’ and you use it to enter your Personal Identification Number or PIN. You will also have a plastic card. Give that to the post office clerk, say how much money you want and tap in your PIN to authorise it. The PIN is a four digit number – such as 1234 – and you can change it to one that you can easily remember. If you forget it, then you can telephone to be reminded. With a Post Office Card Account you cannot use cash machines or have direct debits or standing orders.
Unfortunately opening a Post Office Card Account has been made complex and difficult. First you have to wait to get your letter from the Pension Service saying that your pension is going to be paid into a bank account. On that letter there is a telephone number to call if you want to open a Post Office Card Account. Call the number making it clear that you want a Post Office Card Account. You will be sent a ‘Personal Invitation Document’. Take that to your local Post Office where you will be given an application form for the account. Fill in that form and hand it in at the Post Office who will check it is correctly completed. About two weeks later in two separate envelopes you should get your PIN and, separately, a letter authorising you to collect your card from the post office. Collect the card and your account is activated. Soon after your pension will be paid direct into the account.
There are concerns that even people with the minor disabilities which come with age, such as poor vision or arthritis, will find it hard to enter the number on the PIN pad. The Royal National Institute for the Blind says the new system will be "impossible" for people with sight problems. Its head of Policy Steven Winyard said "Any new system of payment is bound to create difficulties but this system will make the changeover very difficult for tens of thousands of people. The PIN pad design is not accessible to blind, partially sighted, older or disabled people."
Bank account advantage
Not all campaigners are against the change. Mervyn Kohler,
Head of Policy at Help the Aged told Saga Magazine "It has to be a
positive exercise, moving state benefits into the modern world. Of course there
will be teething problems but there are also advantages in having a bank account
– you can draw your money out as you need it and pay your bills automatically.
It is a normal way of doing business. PINs will apply to credit cards as well in
a year or two."
Opening a bank account can give you extra money in two ways. First, you may pay less for your gas, electricity, telephone, or water bills if you agree to pay by direct debit. Payments will normally be deducted each month rather than each quarter which can make budgeting easier. The banks all subscribe to the Direct Debit Guarantee which means the bank will reimburse you if any money is wrongly taken out of your account. A direct debit can be cancelled at any time.
Second, some current accounts – but not basic bank accounts – will pay you interest on your balance. Avoid the big four High Street banks – Barclays, HSBC, Lloyds TSB, and Natwest (including Royal Bank of Scotland) which all pay almost zero interest, and open an account with one of the others such as Halifax or Bank of Scotland which offers 3% interest on your current account balance. If you have access to the internet, cahoot offers more than 3% and access to your money through the Post Office.
There is another advantage of opening a bank account or a Post Office Card Account. At the moment people who draw their pension weekly in cash have to use the same Post Office each week and take all their pension out at once. But if the pension is paid into an account, then you can take out what you need when you need it – and you can draw it out of any Post Office, not just your local one. If someone else regularly collects your money for you, then they can have a separate Post Office Card Account card and PIN. That is more difficult to arrange if you have a bank account. And it will not be possible to ask someone just to get your pension for you on an odd occasion – if you are ill for example.
If you are really determined not to change then you should simply ignore the letter that the Pension Service sends you, do not open a bank account or if you have one do not tell them the details. Eventually the Pension Service will contact you to discuss your concerns and there will be what is called an ‘Exceptions Service’ for people who cannot or will not move to a bank account. The details of how this service will work are still not clear.
Money more often
If you already have your pension paid into a bank account
then it is currently paid every four (or 13) weeks in arrears. That puts you at
a disadvantage over people who get their money in cash each week who are paid in
advance. Since 2001 Bernard Bentley of Chester has been waging a one man
campaign to end this discrimination against people who use their bank account.
"I think the government has been immoral. I don’t see why they should get four
weeks interest on our money. For an individual it may not be that much, but
taken as a whole the government has been saving a lot of money."
Indeed. About £40 million a year. But the new direct payments that start in April will normally be made weekly. And from April anyone who already has their pension paid into a bank account in arrears can change to have it paid weekly in advance. The Government is not telling anyone about this change. When Saga Magazine broke the good news to Mr Bentley he was delighted. "Thank you for telling me. As soon as April comes I shall be dropping off a little line to them saying I believe I can now do this and why didn’t they tell me?"
In theory, making the change is easy. Early in April everyone who gets a retirement or widow’s pension will get a letter setting out the new amount of their pension which will be paid from April 7. Call the helpline number on that letter and say you want to change the frequency of your payments from four weekly to weekly. You may have to insist.
More information
Direct payment helpline 0800 107 2000
Or try the
Pensions Service website
April 2003
e-mail Paul Lewis on paul@paullewis.co.uk