The pot that keeps growing

If you work and are under pension age then you will know that National Insurance contributions are a big part of the money deducted from your pay. These contributions pay mainly for the retirement pension and the second biggest chunk goes towards the cost of the National Health Service. The rest goes on state benefits mainly for widows and people who are too ill to work and another chunk is given back to people in company, personal and stakeholder pensions. Finally there is the cost of running the whole system – nearly £1.5 billion in 2005/06.

Since the late 1990s the money raised to pay for the state pension and other benefits is more – far more – than is needed. As a result year by year the fund gets bigger. This year the Inland Revenue will collect £3.4 billion more than it spends on benefits and the total surplus is expected to be £34.6 billion by 31 March 2006. The Fund needs some surplus, just as our current account needs to have a credit balance even the day before pay day. But the Government Actuary estimates that balance should currently be around £11 billion – leavings more than £23.5 billion to spare.

That amount of money could be used to pay for an extra one-off payment to every person over 60 of more than £2000. The annual surplus would be enough to pay for a rise in the state pension of about £5 a week every year over and above inflation. The Government will not do this because the surplus in the fund is used to reduce Government borrowing and contribute towards the overall balance of the national accounts. But at some point, a future Government will have to explain to the public why every year it is taking more in National Insurance tax than it is spending on pensions. Over the next four years, this ‘spare’ money will double to around £47 billion. And if nothing is done, the Government Actuary predicts that the total surplus could reach more than £1 trillion by 2050.

Confusion over changes
There has been great confusion about the Chancellor’s announcement in the March Budget that he was going to "pay to every pensioner household – 65 and over – paying council tax, a refund not of £50 but a council tax refund of £200."

Like many things Gordon Brown says this was true – but confusing. In the Pre-Budget Report last December he promised "that next year…for those over 70 we will add to the Winter Fuel Payment with an additional £50 payment."

So after two contradictory announcements, who will get what? The table below combines the Winter Fuel Payment with the special ‘one-off’ payment of either £50 or £200 to help with council tax.

Apart from your date of birth, the key thing that affects the payment is whether you get Pension Credit ‘guarantee credit’.

And if you think that is complicated, the rules that apply to people in care homes are even more confusing. There will be more about their position in a future Saga Magazine.

The council tax payment will be made to people whether or not they are responsible for paying the council tax. So people over 65 or 70 living with their children or other relatives will still get it. It will also be paid to people who get council tax benefit – as long as they are not getting the guarantee part of Pension Credit.

If you are entitled to one or more of these payments they will be paid around late November or early December. If you think you are entitled and have had nothing – or the wrong amount – by the middle of December then call the Winter Fuel Payments helpline on 08459 15 15 15.

The hidden charges
People spend a lot of time making sure their holiday is what they want and is good value. But most of us give little thought to the cost of our spending money. Once we leave the UK the banks impose extra charges on us whenever we use our plastic to buy things or use a cash machine. First, there is what is called a ‘foreign currency loading’. This charge is usually 2.75% of the cost of what we buy. So if we spend £100, it costs us £102.75. This charge applies to debit and credit card purchases. Two banks also charge a fixed fee for buying items abroad with a debit card – NatWest and RBS charge 75p and Halifax £1.50. This extra charge, but not the foreign currency loading, is avoided by using a credit card to buy things. And whether we use a debit or credit card, there is normally another charge for getting foreign currency out of a cash machine. Usually another £1.50 with a debit card or £2 with a credit card – and interest normally starts to be charged at once even if you rush home and pay the bill in full on time.

The answer is to use one of the very few cards which does not make these charges. The Nationwide debit card is the cheapest for the world traveller with no loading and no cash withdrawal fees anywhere. But you will pay to withdraw cash on its credit card and interest is charged at once. Lombard Direct is also free of foreign currency loading worldwide. The credit cards from Saga and Liverpool Victoria are both free of it in Europe. Both have a cash withdrawal fee of £1.50 (1.5% if you take out more than £100) though there is no interest charged if the bill is paid in full.

Stately tax
If you have paid to visit a large house or a beautiful garden recently you have probably been asked to ‘gift aid’ your entrance fee. As long as the property is registered as a charity that enables the owner to boost the entrance fee by 28 per cent by reclaiming the basic rate tax you have already paid on that money. Gift Aid costs the Treasury more than £500 million a year. But it is intended for donations to charity not standard entrance fees to see things. So the rules are going to be changed. In future you will only be able to ‘Gift Aid’ the entrance fee if it allows you free access to the property for a year or is at least ten per cent more than the standard entrance fee. If you are lucky enough to be a higher rate taxpayer, make sure you get a receipt. You can then reclaim 23 per cent of the fee you have paid when you fill in your self-assessment form. Editor's note: This change was delayed by the election and is now expected to start later this year.

Cash in on design
If you have anything in your house dating from 1880 to 1914 its value may be rising strongly. A major new exhibition at London’s Victoria and Albert Museum on the Arts & Crafts Movement will rekindle interest in a neglected period of design history. Arts & Crafts reacted against growing mechanisation, celebrated hand-made items and promoted a return to a simpler way of life. Its supporters rejected the notion that ‘art’ was only for the wealthy and wanted good design in the everyday objects that people of ordinary means could buy.

Of course, the 300 objects on display at the V&A are not generally ordinary nor would most of them be cheap to buy if you saw them in a shop. But it is more than possible that there are fine objects of this era unrecognised in homes around the country.

The exhibition continues until 24 July. Tickets are £10, or £8 for over 60s, and you can book on 0870 906 3883. Find out more and explore featured objects from the splendid V&A website www.vam.ac.uk

Christie’s is joining in the fun with an Arts & Crafts sale on June 30^th with more than 250 lots and another 200 in a sale of vintage items designed for Liberty & Co. With price estimates starting at £200, but going up to £20,000, Christie’s says they are ‘affordable’ sales. But they are certainly a great chance to see a lot of wonderful items free on viewing days from 25 June. Christie’s will also give you a free appraisal and valuation of any objects you take in.

May 2005

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