Money News January 2013

National insurance - just another tax

More and more of us work past 60. And more and more want to know when they can stop paying National Insurance contributions (NICS). After all, the argument goes, you only need 30 years of contributions now to get a full state pension so why do you have to carry on paying National Insurance contributions long after you have paid enough?

Unfortunately that argument does not work. NICS are simply a tax. If you are under state pension age with a job and earn more than £146 a week a year you have to pay the contributions which are 12% of earnings between £146 and £817 and 2% of earning above that amount. The tax stops in the week you reach state pension age. That is the week of your 65th birthday if you are a man. But for women – whose pension age is rising – it is determined by a table. It is currently 61 years 4 months and will be 61 years 10 months by the end of the year.

The rules are similar but slightly different for those who are self-employed. Find out more here www.hmrc.gov.uk/working/intro/selfemployed.htm

Because it is a tax, National insurance is due even if you have paid the 30 years you need to get a full state pension. In future some people could pay national insurance for 20 years after they have earned a full pension.

No more commission

The way that investments and pensions are sold changes this month. Financial advisers can no longer earn commission for selling them. Instead they will charge you a fee. But as with everything in financial services life is not quite as simple as it seems.

First, the commission ban only extends to investments and pensions. It does not include insurance or mortgages, for example. A financial adviser who charges a fee for advice on pensions may still earn commission from selling life or critical illness insurance at the same time.

Second, the fee that is charged can still be taken out of your investment and spread over months or even years. The good news is you do not have to find a few hundred or even thousand pounds for fees up front. But the bad news is that the fee for advice will reduce the amount that goes into a pension or investment.

The cost of advice now has to be set out clearly and agreed at the start. Don't be surprised at charges of £150 an hour or more. The rules will also apply to employees of banks or insurers - the cost of their time and overheads will have to be clearly set out and they will not be allowed to receive any incentive or bonus for sales of pensions or investment products.

If you bought a pension or investment before 2013 your adviser will probably get what is called ‘trail commission’ from it. That is usually about 0.5% of the amount invested and it will normally last for the whole time you hold the investment or pension fund. Any trail commission paid on sales made before the end of 2012 can continue into the future and you may not even be aware of it. However, if you ask your financial adviser they have to tell you what it is. If you are not happy about it ask your adviser if he or she will give you the trail commission – it’s called ‘rebating’ – and add it to your investment.

Card protection firm fined.

A firm that sold insurance which was supposed to protect you against ID theft and the consequence of credit or debit card fraud has been fined £10.5 million by the Financial Services Authority (FSA) and ordered to pay compensation which will cost more than £14.5 million.

In its judgement, the FSA set out numerous reasons why CPP mis-sold these products from 2005 until 2011. CPP claimed they paid out if your card was used fraudulently or your identity was stolen. But in fact the banks are liable for any loss on a credit or debit card unless you have been guilty of gross negligence. In those circumstances the insurance would not pay out either. The FSA identified numerous other statements used to sell the product that were “not true” “inappropriate” or “unfair”.

CPP now has to find hundreds of thousands of people who it approached directly and compensate them. Normally that will mean the return of all their premiums plus interest. If you have CPP insurance you should contact the firm directly by calling 0808 156 0199.

Most people took out CPP insurance after they called an 'activation' number on their new credit or debit card but found they were talking to a CPP salesperson. The FSA is currently in talks with the banks and card providers who did this and further action will be taken against them and more compensation will be due.

If you still have a CPP product you should consider if it is value for money. The FSA revealed that the card protection insurance which CPP sold for £35 a year in fact cost it just 60p a year to buy.

Pension credit blow

Fewer couples will qualify for pension credit under changes due to start later in 2013 or early in 2014. The current rules allow someone to claim pension credit if either they or their partner have reached the state pension age for women - currently around 61 ½. So a man aged 62 with a wife or partner aged 57 could currently claim pension credit if their income and savings as a couple were low enough for them to be entitled to the extra help. But new rules set to start some time in the next twelve months will insist that both partners are over women's state pension age.

A woman aged 57 today will not reach pension age until she is 66 in 2021, adding nine years to the date that she and her husband can claim pension credit. As far as we know, couples already getting pension credit when the new rule begins will not be reassessed. So any couple where one is under pension age who thinks they may have a pension credit claim should make it sooner rather than later to protect their position.

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