Money

LIVING IN THE MONEY
When elderly householders borrow money against the value of their home what do they use the cash for? Two pieces of research have found similar answers. Age UK and Saga have both questioned people about how they have used the money raised this way – called ‘equity release’.

Both surveys found that the main use of the money is house maintenance or repairs – 46% of Age UK respondents and 52% in the Saga survey used at least some of the money for that. Another big group – just over a third in both surveys – use it for a holiday. And a similar proportion use it to clear debt. That is sensible only if the debt that is cleared is at a much higher rate of interest than the money that is borrowed.

The final use that was covered by both surveys was giving the money away to family and friends. About a quarter of those in the Age UK survey and one in five of those in the Saga survey do that.  It is an expensive way to be generous.

More: ageuk.org.uk/latest-press/equity-release-debt-hard-times/?paging=false

CPI SPREADS
Some company pensions will rise more slowly in future as the Government presses ahead with its plan to change the way inflation is measured. The Coalition announced in July that it will replace the traditional Retail Prices Index (RPI) with the newer European measure of inflation, the Consumer Prices Index (CPI), when it sets the legal minimum for the annual rise in company pensions.

The announcement came just weeks after the June Emergency Budget made the same change for increasing the rise in the pensions paid to civil servants and other public sector workers.

The CPI nearly always shows a lower rate of inflation than the RPI so pensions will rise more slowly in the future. This September RPI is expected to be 4.2% while the CPI is expected to be much lower at 2.8%. A pension of £10,000 a year that was fully indexed to inflation would rise to £10,420 under RPI but only to £10,280 under CPI – a loss to the pensioner of £140.

But the change may not be so easy – or so dramatic. The 4000 company pension schemes which pay guaranteed pensions are all governed by their own Trust Deed which is the contract between the scheme and its members. If that specifies indexation using the retail prices index then the law cannot change that.

DATELESS
Is the 20p in your pocket worth £5000? No it is not. But that is the price some are trying to charge for 20p coins which have no date on either side.

The problem started in November 2008 when the Royal Mint made a mistake as it changed the 20p coin from the old design, which has the year 2008 on the ‘tails’ side, to the new which has 2008 on the ‘heads’ side. A few 20p pieces were minted combining the dateless back and the dateless front so these coins have no date on either side.

Coin collectors call such mismatches ‘mules’ and the Royal Mint says fewer than 250,000 were made out of 136 million 20p pieces minted in 2008/09. These mules represent about one in ten thousand of all the 20p coins in circulation.

But that does not mean they are worth a lot of money. Many reputable coin dealers are having nothing to do with the dateless 20p. One widely-quoted estimate of £50 was part of a marketing exercise by a company which calls itself the London Mint Office but which is actually a commercial coin marketing company and nothing to do with the Royal Mint which makes our coinage.

You would be lucky to get a fraction of that sum even for one in top condition. There are however many offers to sell you a ‘dateless’ 20p. Some are selling coins ‘undated on one side’ at a premium. They are of course worth 20p as all coins have the date on one side only! Others try to sell what appear to be genuine dateless 20p coins for thousands of pounds or, in one case, £10,000,000. You should never buy one at any price. And if you do find one in your change, the safest thing is keep it for your grandchildren. Tell them it is a curiosity. It is certainly not a fortune.

More: royalmint.com/Corporate/facts/Undated20pcoin.aspx

ANNUITY PLANS
The Government is to stop forcing people aged 75 to take an income from their pension savings at the age of 75. The change will start in April 2011 and will apply to those already over 75 who are drawing money from their fund.

The rules which currently apply to those aged under 75 will in future apply at all ages. In other words people with a pension pot will be able to leave it invested in a regulated drawdown scheme and take income from it without buying an annuity. The level of income can range from nothing – if they are still working or have other means – to a cap of about 120% of a typical annuity. At the moment those rules end at 75. But from April they will extend to any age.

Someone who has a very large fund will be able to take more than the capped amount of income as long as they leave enough in the fund to provide an adequate income – called a minimum income requirement – without claiming more from the state.

The changes will not help the majority of people whose problem is that they have too little money in retirement not too much. But it has been welcomed by the financial services industry and is good news for the wealthy minority who find they have saved more than they need for their retirement.

The details are set out in a consultation paper which will consider the cap on the drawdown amount, the tax on the balance left at death, and the level of the minimum income requirement. Details at hm-treasury.gov.uk/consult_age_75_annuity.htm Comments by 10 September.

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