Money News October 2012

TAKE CARE WHEN YOU CLAIM
If you are filling in a form to claim a state pension or benefit, take care. From this month you can be fined £50 if you make a mistake which leads to you getting more than you should. The new ‘civil penalty’ is not for people who try to defraud the system – there are also new and much harsher penalties for them. It is for any error which can be said to be negligent – and that includes NOT telling the Department for Work and Pensions when you have a change of circumstances. The Department expects to impose more than half a million fines every year and collect more than £80 million over the first three years. The money will be recovered by a deduction from the pension or benefit.

The Department stresses that the fine will not be imposed where people have “a reasonable excuse” for an error or omission. It expects that only four out of ten ‘mis-declarations’ will be punished this way.  Claimants will be able to appeal.

The cost of customer error has remained fairly constant over the last seven years at around 0.8% of benefit expenditure. In 2011/12 that cost £1.3 billion and the Department hopes the penalties will reduce that by “encouraging [claimants] to take proper care of their benefit claims.” Many of these errors by customers are due to the complexity of the benefits the department administers. And an identical amount of £1.3 billion was actually underpaid due to mistakes by customers and DWP staff. Strangely, the penalty will not be levied on officials even when they make an error “due to inaction, delay or a mistaken assessment”.

The new penalties apply to benefits run by local authorities too such as housing benefit. So take great care when applying for the help that is yours by right.

DRAWDOWN DOWN
I am getting a lot of letters like this one from Roger in Cornwall. “When I was sixty in 2007 I took my personal pension in the form of a drawdown. I took the maximum amount my fund would allow. This year, after five years, I had to have a review. I am told my drawdown income will reduce by 60%.”

Sadly Roger’s experience is becoming very common. Drawdown is an alternative to using your pension pot to buy an annuity. Instead you leave the fund invested and draw money from it. The amount you can draw is governed by strict rules laid down by the Treasury. As I explained in Saga in January two things have slashed the income you can get. First, annuity rates have fallen (see pp xx-xx this month). Second, in April the amount you could drawdown was cut by one sixth . For people like Roger whose investments had shrunk rather than grown his review led to a triple whammy. He had less money in his fund; the annuity rate per £1000 in the fund has fallen; and the proportion of that amount he could take out was cut by the Government. Hence the 60% fall in his income. With annuity rates at historically low levels there is no answer to this problem. Though if you have leath problems an annuity may give you more. Get specialist advice.

DON’T KEEP HANGING ON
If you have ever hung on for half an hour or more calling an expensive 0845 phone line to speak to someone – anyone! – at HM Revenue & Customs then read on. Instead of paying to listen to poorly recorded music, why not visit one of the Revenue’s network of nearly 300 Tax Enquiry Centres? They have free phones to call Revenue helplines and normally calls get through a lot quicker than they do when you call the standard 0845 numbers. You do not need an appointment to use the phones. The Enquiry Centres are normally close to town centres and you can find your nearest here www.hmrc.gov.uk/enq

FUEL SOARS
Petrol and diesel prices are on the way up after falling back slightly from their April record of more than £1.42 a litre. They rose over the summer as the price of a barrel of crude oil soared above $100 again. The AA says pump prices 2.5% in one month between mid-July and mid-August. So finding the best pump price is more important than ever. The free website www.petrolprices.com lists the cheapest filling stations within a few miles of your address. The difference can be 15p a litre. If you do not have internet access it may be worth trying your local supermarket – generally they have the lowest fuel costs.

The biggest share of what you pay at the pump goes to the Treasury. Duty is almost 58p and if the fuel costs 138p then VAT is another 23p. So a total of 81p goes to the taxman and just 57p pays for the fuel. Almost all of that is the cost of the oil itself. The rest goes to processing, transporting, and finally the small margin the garage charges. The tax is due to rise in January when 3p a litre is added to the duty. Another 2p rise is scheduled for 1 April. VAT is charged on the duty so both would add 6p onto the cost of litre of fuel – an extra £3 on a 50 litre fill. A campaign has been being launched by FairFuelUK to freeze fuel duty. It claims that would not cost the Treasury money as more fuel would be bought offsetting the lower take per litre.

The AA reports that the UK already has the most expensive diesel prices in Europe and the 8^th (out of 28) in Europe. Even if you do not drive, the rising cost of fuel affects you as everything you buy has travelled by road at some point. And of course it will feed through to the inflation rate which the Bank of England is failing to keep down to its 2% target.

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