This piece first appeared in Saga Magazine in May 2008
The text here may not be identical to the published text

 

How safe is my money?

Car tax, gift aid, winter fuel, pension at 100, tax losers

As the world’s economy – or at least our bit of it – goes through turmoil and uncertainty more and more people are putting their money into cash. Rates are good and it seems safe. But some are asking ‘what if?’ What if a major bank did go bust and was not rescued as Northern Rock was?

Under the current guarantee the first £35,000 saved in cash in a UK authorised bank is protected 100%. The rest is not protected at all. If the bank goes bust you will get back a maximum of £35,000 from the Financial Services Compensation Scheme, an independent body paid for by the financial services industry. So an ultra cautious approach is to keep all savings accounts below £35,000. Husbands and wives are of course two people. So they can have £35,000 each. And if they have a joint account it is guaranteed up to £70,000.

The guarantee covers the savings owned by individuals in each separately authorised financial institution. So there is no point opening five accounts in the same bank with £35,000 in each. Your compensation will still be £35,000 in total. Even opening an account in another bank is not necessarily going to protect more cash. An account with HSBC and another with its subsidiary First Direct would be treated as being in the same bank. However, accounts in NatWest and Royal Bank of Scotland – which owns it – are treated separately because the banks are separately authorised. So if you had £35,000 in each then both accounts would be fully protected. It is not easy or even possible to find out from the Financial Services Authority website which banks are separate. So always ask each bank if you are intending to separate your savings.

Some banks based in the European Economic Area are not separately authorised in the UK. Although you are normally entitled to the full £35,000 you may have to get the first part from the local scheme – which could be as little as €20,000 (£16,000) and the balance from the FSCS. That could take time. Again, ask the bank.

More at www.moneysavingexpert.com/savings/safe-savings

Centenary of the state pension
 

One hundred years ago this month the plans for the UK’s first state pension were unveiled by the Liberal Prime Minister Herbert Asquith in his Budget speech on 7 May. Three weeks later on 29 May the Old-Age Pensions Bill was published.

The pension of 5 shillings (25p) a week was worth about £21.45 in today’s money – less than a quarter of the current £90.70 retirement pension. But it was a lifesaver for many people when the first payments were made on 1 January 1909. Until then people who were too old or infirm to work had to rely on their families or on poor relief provided by the parish. Often they died from cold and hunger. Getting old was a desperate time indeed for many people.

To qualify you had to be aged at least 70, a British subject and resident in the UK for the last twenty years. It was also means-tested – people with an income over £21 a year (£1800 at today’s prices) got the full amount and it was paid on a sliding scale down to 1 shilling for those with incomes up to £31-10s a year (£2700 at present prices).

It is ironic that it was a Liberal Government which introduced this first means-test. Now the Liberal Democrats are passionately against means-testing and want a universal non-means-tested pension for everyone over pension age.

 

Winter Fuel Payments
The winter fuel payment will be bigger this winter. It will be £250 – an increase of £50 – for people aged at least 60 and £400 – which is £100 higher – for those aged 80 or more. The qualifying date to reach those ages is 21 September 2008. The payment is per household and based on the age of the oldest resident. It is tax-free and not means-tested. Many men aged 60 to 64 do not get it because the Department for Work and Pensions does not know about them. So if you will be 60 on or before 21 September get your claim in. The Winter Fuel Payment can be paid if you live in any other country in the European Union plus Iceland, Liechtenstein, Norway or Switzerland as long as you have received it at least once in the UK it. Although the higher payment is just for this year, an imminent General Election will make it hard to take away in Winter 2009.

www.thepensionservice.gov.uk/winterfuel/home.asp or call 08459 15 15 15

Gift aid spreads
The hospice and homecare charity Sue Ryder Care has pioneered an innovative way to reclaim tax on the value of the books, clothes, and bric-ΰ-brac people take into its 370 shops. Until now Gift Aid only applied to donations of cash. When a taxpayer gives money to a charity the Treasury refunds the income tax that has already been paid on it boosting the donation by 28p in the pound. Donations of goods were not covered by the scheme. But Sue Ryder has found a way to include them.

When someone goes into one of its shops with their goods they are asked to fill in a Gift Aid form. They are then assigned a unique six digit number. That is put on the price tag of every item they bring in. When that item is sold the amount charged is recorded at the till. In that way the cash realised from every gift can be traced back to the individual taxpayer who gave it. Each month donors are sent a statement setting out what their goods have raised and how much Gift Aid tax has been reclaimed. If the donor is a higher rate taxpayer they can then use that information to reclaim the higher rate tax when they fill in their self-assessment form.

Sue Ryder Care says it has raised an extra £1 million from Gift Aid in the first year of operation and reckons if all charities with shops adopted the scheme they could boost their annual income by £30 million in tax relief.

Car tax
Vehicle Excise Duty – to give the car tax its proper name – is being recast for 2009/10. And some people with family cars in the current bands D and E will see their annual payment rise by more than 20% -– even 50% in some cases. The tax will still vary by how much CO2 the car emits per kilometre driven. All vehicles registered from 1 March 2001 have a CO2 emission level fixed at manufacture. Currently tax varies by seven bands of emissions from A which is less than 100g per kilometre to G which is more than 226g. From April 2009 those bands will be split into 13. Some vehicles currently in D will move to H and pay £30 a year more – a 21% rise. Some in band E currently paying £170 will be put in J and pay £260 – a rise of £90 or 53%. On the other hand every car emitting 140g per km or less will see prices fall. Those in the bottom half of the current B band will see their tax drop from £35 a year to £20 – a 43% cut. The biggest rise will be big vehicles registered before 23 March 2006. They will lose their exemption from the highest band and if they end up in M they will pay £440 instead of £210.

The changes apply only to vehicles that were registered from 1 March 2001. That includes all new style numbers and those with the prefix ‘Y’. Older vehicle are in two bands. Engines of 1549cc or less which will pay £120 in 2009/10 and those with 1550cc or more which will pay £200 from next year – a rise of £15. In either band a vehicle may pay more or less than an identical model registered under the new system. Historic vehicles – made before 1 January 1973 – will continue to pay a zero rate of tax.

Altogether the higher tax will raise £465 million in 2009/10 and £735 million in 2010/11 when vehicles emitting more than 160g will be charged extra in the first year they are registered – £950 for the worst polluters.

Budget footnote
There was no reprieve in the Budget for the 5 million low income taxpayers who are now paying more tax in 2008/09 than they were last tax year. Anyone who pays no National Insurance contributions and who is under 65 will pay more tax if there income is between £5645 and £16,505 a year. The maximum loss on an income of £7,455 is £181 or £3.48 a week. By contrast those with a pension of £41,345 or above will gain by £788 a year. People in low paid work who pay National Insurance contributions will pay more tax and National Insurance if their income is between £5931 and £15,075 a year. Some will be able to claw some or all of this back by claiming tax credits. But most will not. By contrast, those earning over £41,435 will gain by £297. The over 65s are protected from the losses but will still enjoy gains of up to £788 a year. Again the better off will gain the most.

May 2008 


All material on these pages is © Paul Lewis 2008