Money

PENSION SWITCHING WARNING
Thousands of people who have not yet retired have been wrongly advised to move their pension from one provider to another or to combine several pensions into one plan. More than half a million people have been encouraged to switch their pension since April 2006. But an investigation by the Financial Services Authority has found widespread misspelling and already it is anticipating that £150 million will be paid in compensation to thousands of people. One firm, RSM Tenon Financial Services Ltd was fined £700,000 and ordered to review every case in its past pension switching business. The FSA found that the firm failed to keep adequate records or offer suitable advice despite the fact that each client who switched pensions earned RSM Tenon £3900 in commission. .

Although the FSA says that overall most pension switching sales are suitable to the client involved, its initial research questioned one sale in every six. Later work with firms it was concerned about found two out of three sales either unsuitable or questionable. It warns customers to think carefully and ask detailed questions before moving a pension. New pensions can be more expensive, offer poorer benefits, or carry more risk and the pension which is moved from may charge a penalty to leave. In many cases a stakeholder pension with low costs and simple structure is the most suitable product. But many advisers do not recommend them as commission rates are low.

Anyone who has switched pensions should consider whether the advice they were given was suitable and if in any doubt complain to the adviser and, if that produces no satisfactory result, take the case to the Financial Ombudsman Service.  More information at moneymadeclear.fsa.gov.uk put ‘pension transfer’ in the search box.

PROTECT INSURANCE PAYOUTS FROM TAX
Many people do not realise that the payout from a life insurance policy or pension fund can be subject to inheritance tax of 40%. And far fewer realise that there is a simple and cost free way to protect against this tax being levied when you die. Life insurance payouts form part of the estate of the deceased. And the same is normally true of a pension fund if the person paying into it dies before drawing the pension. If their estate is more than £325,000 then both can be taxed at the full IHT rate. Of course, an estate left entirely to a spouse (including civil partners) is not subject to IHT and when the second spouse dies the IHT limit is normally £650,000. But anyone with a valuable home to pass on who fears that a life policy or pension fund will take their estate above the limit and be taxed on their death can easily protect against that. The policy or pension fund repayment should be paid into a trust which will then pay the money out to the close relatives. It is usually called ‘being written in trust’ and the arrangement can be made at any time. Insurers and pension providers should not charge to do this though your financial adviser may. Even occupational pensions can be protected in this way. You simply name the trustees and the beneficiaries (who can all be relatives and may share both roles). If your life insurance payout or your pension fund passes to them that way then no inheritance tax will be due.

DON’T QUEUE HERE
From June 7 Nationwide customers with a cash card will no longer be able to withdraw less than £100 over the counter. Britain’s biggest building society says the change is needed to help the majority of its customers who object to long queues in the branches. But many customers who use the facility are unhappy. Many older people do not want to use cash machines either because they do not feel safe withdrawing money on the street or fear they may not remember their PIN. The other alternative is to change their account to one with a debit card or go back to the old fashioned pass book. The £100 limit is not being imposed on those customers. But not everyone can upgrade to a Flexaccount with a full debit card. 

Customers who do use the card to withdraw money in a cash machine will find another restriction in place if they travel outside the UK. Cash cards can no longer be used to withdraw cash at machines outside the UK. Again, this restriction does not apply to debit cards.

Despite wanting to cut the queues, Nationwide is telling another group of customers they will have to join them. In future they will not be able to use the FAST/Selfserve machines in branches to pay in cheques for more than £1000. The previous limit was £10,000. A spokesman said the changed was due to security as branch staff were more likely to spot a fraudulent cheque than the machines.

CHEQUEING OUT
There is just one year left for the cheque guarantee card. The system of guaranteeing a cheque up to £100 by writing a number on the back will end on 30 June 2011. But already some banks are sending out debit cards without the cheque guarantee hologram on the back. These cards cannot be used to guarantee a cheque even before next June. If you really value this system ask your bank if it can issue one with the guarantee symbol. Some banks, but not all, will do that for customers who ask. From the end of June next year even cards with the symbol will no longer act as a guarantee on a cheque. The national cheque guarantee scheme began in July 1969 and losses on guaranteed cheques cost the banks £48 million in 2008. The banks plan to phase out cheques themselves from October 2018.

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