MONEY DOWN THE DRAIN
New official figures show that the Government policy of making more and more
older people claim means tested benefits is failing.
There are two main means-tested benefits for older people. The first is extra weekly income – now called pension credit but in the past called minimum income guarantee or income support. The second is money off council tax, called Council Tax Benefit.
When the present Government came to power it decided on a policy of what it called ‘targeting’ extra money on older people in need rather than concentrating the available resources on raising the basic state pension. New figures issued a few weeks ago complete a five year period over which the policy can be assessed. They show that three key numbers got worse over that time – the numbers of older people who do not claim, the total amount unclaimed, and the average amount lost by each household.
Take income support. In 1997/98 730,000 people over 60 did not claim the extra help they needed, losing an average £18.80 week each. In 2001/02 that had grown by a fifth to 870,000 and they lost £25.10 a week each, leaving £1.26 billion unclaimed. Although the numbers claiming did not rise every year, the trend, shown by the green line on the graph, is upwards.
Figures for council tax benefit are even worse. There the number not claiming the help available with this much resented tax rose by more than half, from just over a million to more than one and three quarter million. And the amount they lost rose from £306 a year to £426, leaving £770 million of help not claimed. Between the two benefits there is £2 billion which the Government had set aside to help older people languishing in the Treasury coffers.
Recently, minimum income guarantee and income support have been replaced by the more comprehensive and in some ways more generous pension credit. No comparable figures are yet available – they are usually published nearly two years late (which of course enables Ministers to say they are only of ‘historic’ interest). But the most recent figures for take-up of pension credit do not give much hope that this new benefit will do any better. Nearly six months after it began in October 2003, only around half the five million over 60s who could get had in fact claimed. Plus ça change…
INSURANCE COST
Borrowing money has never been so cheap. One reason is that lenders sell us
other things at the same time – and that is where the profit is. One of these
add-ons is payment protection insurance. It is supposed to give us ‘peace of
mind’ in case we find that illness or unemployment mean we cannot meet the
repayments on a loan or credit card. It is now big business. A recent survey
found that whenever a loan is offered, so is payment protection insurance – even
though it is not suitable for many people, including those who have retired,
whose income is not affected by illness, and the self-employed who may not find
it easy to make a successful claim.
Nevertheless profit margins estimated at 70 per cent mean that it is heavily sold – and inevitably sometimes mis-sold. That can cost us dear. Insuring our payments more than doubles the cost of borrowing. For example, on a typical £5000 loan over three years Barclays Bank charges interest at 9.9% APR. The cost of that over three years will be £775.48. But the cost of payment protection insurance is £848.52. If the total cost was expressed as an APR you would be paying more than 20% APR to borrow the money.
Most High Street banks charge similar amounts. But some of the internet banks that claim to offer the cheapest loans in fact have the highest costs of insurance. For example, Intelligent Finance offers £5000 over three years at 7.9 per cent, a cost for the credit over three years of £613.48. But it charges more for insurance than many other providers, a total of £949.68 over the three years which is more than one and a half times the cost of borrowing the money! That pushes the APR for the total cost above 20 per cent.
Despite these costs, up to 70 per cent of people taking out a loan with one major High Street bank also go for the insurance. Anyone tempted to buy it should first make sure that it really will pay out in any circumstances that are likely to be met. Then, consider the cost of insurance as part of the cost of the loan. One of the cheapest is Nationwide. Not only is its interest rate one of the lowest at 6.7 per cent, its payment protection costs slightly less than the credit and the total cost works out at just over 13 per cent. The total cost of credit and insurance on borrowing £5000 over three years with Nationwide is just £1014. Compare that to the total cost at HSBC of £2092 – a clear £1000 more.
Politicians in the pound seats
Love it or hate it, the political system in the USA is a lot more open than
it is here. And a research institute has used that information to study how the
100 members of the US Senate invest their money. The answer is ‘very well’.
Alan Ziobrowski of Robinson College of Business at Georgia State University analysed how US Senators had invested their money over five years to 1998. Over that time they beat the average of all companies on the New York stock market by 12 per cent a year. Even company directors did not do so well – just 5 per cent above the market. And ordinary Joes sitting at home struggling to decide where to put their money did much worse, underperforming compared to the market by 1.4 per cent a year.
Ziobrowski notes that the key is timing. Senators invested in stocks that had moved very little but which shot up after the Senator made his or her investment. The suggestion, made lightly in the Christian Science Monitor where the story first appeared, is that Senators have inside information to enable them to achieve a performance many professional fund managers would envy. US laws allow Senators to hold shares even in companies they may be involved in regulating.
A similar study could not easily be done in the UK. Members of Parliament – and their wives and dependent children – only have to disclose shareholdings worth £55,000 or more or where they own more than 15 per cent of a company. And members of the House of Lords get away even more lightly. They only have to declare shareholdings which represent ‘a controlling interest’ in a company – usually more than half the shares.
That's rich
Alice Regina Pike was just another Friday shopper in the Wal-Mart store in
the small suburb of Covington, about 30 miles southeast of Atlanta, Georgia in
the USA. It was March 5th and she filled her hypermarket trolley with
goods worth $1671.55 (£960). But when she produced a million dollar note, the
cashier called the manager, Marshall Hunt. Alice asked him if had change for the
note. Reluctant to part with $998,328 in genuine dollar notes, Mr Hunt called
the police.
They found that Mrs Pike had two more of the notes in her bag and she was arrested for forgery, which she denies. She claimed they had been given to her by her estranged husband, a coin collector.
The note, green with a picture of the Statue of Liberty on it, is a novelty item on sale for a few cents. The US Treasury makes no notes above $100. But on September 6 last year in Roanoke Rapids North Carolina, a man did successfully use a $200 bill in a Food Lion store, and got $50 change. The note bore a picture of George W Bush and the joke serial number DUBYA4U2001.
In the UK the highest value note is currently £50. But £1000 notes were produced by the Bank of England between 1915 and 1938.
COINING IT
The price of English coins is rising. Is now the time to invest?
Coins are the very stuff of human commerce. Made in their millions out of metal most are very common. But after being used in shopping, rubbed in pockets, clinked together and dropped on the floor those that survive without a mark for even 100 years are rare indeed. So condition is everything in coin collecting – especially if you want to invest.
Putting money into coins is coming back into fashion. But it is by no means risk-free. They may grow in value, but they may hit the doldrums. A boom in coin investment which peaked in 1980 caused prices to plummet. Britain’s biggest coin dealer and auction house Spink says coins are only now getting back to the prices achieved in the mid seventies. Many investors then lost a lot of money. But now with prices rising again, investors are coming back in.
Operations Director Paul Barthaud says that Spink would "guide people away from seeing coins as an investment and encourage them to buy them for the pleasure of collecting. Certainly there has been some strong growth. But you can prove anything by looking at particular price rises."
Bob Illsley of Dolphin Coins in Leighton Buzzard is more bullish. "This year rare English coins have risen by 25%. It is across the board – Anglo-saxon, Stuart, modern. The key is to go to an established coin dealer in your area with retail premises, not mail order. Take their advice and buy coins that are rare and in top condition, EF or better."
EF - ‘Extremely Fine’ - is one grade below Uncirculated. These coins have almost no marks on them and all the details on the lettering and design are sharp and clear.
Not all coins in good condition are valuable. Modern coins sold packaged in sets and not intended for use will never be worth the price paid. There are of course exceptions. A two pence piece dated 1983 on the front but with ‘NEW PENCE’ on the reverse rather than ‘TWO PENCE’ is extremely rare and valuable. It was never circulated and is only found in a set of coins for the year.
If you do decide to invest in coins keep them in proper acid-free storage envelopes and invest in some plain cotton gloves to handle them with. You can find out about auctions at Spink. And click here for pictures and current values for most English coins.
May 2004
e-mail Paul Lewis on paul@paullewis.co.uk