Monday, 12 April 2021

TARGET 179 - BOOST YOUR NEW STATE PENSION

UPDATED for the 2021/22 tax year. All rates are those paid from 12 April 2021.


More than a million people who reach state pension age in the years from 6 April 2016 will not get the full amount of the new ‘flat-rate’ state pension - currently £179.60 from 12 April 2021.

But many of them could boost their pension towards or up to the full flat rate amount.

This guide is for men born 6 April 1952 or later and women born 6 July 1953 or later who paid into a good pension at work or, in some cases, into a personal pension.

There are other groups who have paid less than 35 years of National Insurance contributions can boost their state pension by paying extra contributions now. This piece does not cover that issue. Try the links at the end.

NEW STATE PENSION
The new state pension was supposed to be simple. A flat-rate amount for everyone who had at least 35 years of National Insurance contributions. This year 2021/22 that amount is £179.60 week (£9339.20 a year) and is taxable. However, there are around one and a half million people who will reach pension age in the years before 2027 who will get less than that even if they have 35 years or more National Insurance contributions.

That is because an amount is deducted from the pension for every year they paid into a good pension at work. I call it a contracted out deduction because they were ‘contracted out’ of part of the state pension called SERPS or State Second Pension (S2P). They paid lower National Insurance contributions and instead of that additional state pension they get a pension from their job which was supposed to replace it. The Government prefers to call it 'Contracted Out Pension Equivalent' or COPE. It is that COPE amount that is deducted from your new state pension.

This group includes most people who worked in the public sector, such as

  • nurses, doctors, and others in the NHS
  • teachers in schools and universities
  • police officers and fire brigade staff
  • civil servants
  • local government workers
  • armed forces
  • Post Office workers
It also includes many people who worked for one of the privatised industries such as British Airways, British Rail, British Steel, and Royal Mail.

Another large group affected are people who worked for a private sector employer who paid into a good scheme at work that promised them a pension related to their salary. They used to be called ‘final salary’ schemes and nowadays are called Defined Benefit or DB schemes. In the past many large firms ran such schemes. There are still nearly 6000 of them and if you paid into one at any time from 1978 your new state pension will be reduced.

Also included are some people who paid into a personal pension and who were persuaded to contract out of part of the state scheme – at the time it was normally called ‘contracting out of SERPS’.

For all these people their new state pension will be reduced for the years they paid into a contracted out pension scheme. That deduction applies even if they have paid the 35 years which is needed to get a full pension – the deduction is made after the full pension is worked out. It can also apply even if they were contracted out for a short period and paid in 35 years or more when they were not contracted out. These deductions can be very large but normally can never leave you with less than £137.60 a week of the old or 'basic' state pension.

Please do not ask me why that is fair! It may not be fair, but it is the law. The good news is that you can reduce that deduction and, depending on your age and the amount deducted, you may be able to boost your pension up to the full flat-rate £179.60.

THE DEDUCTION
If your new state pension has an amount deducted from it because you spent some time paying into a good pension scheme at work then you can reduce that deduction or even wipe it out. This guide is of most use to people who are currently aged at least 58. It will help even if you already have 35 years National Insurance contributions or more.

If your new state pension is reduced because you paid into a good pension scheme at work then every year of National Insurance contributions you pay from 2016/17 to the year before the tax year you reach state pension age will mean that deduction is less.

If you work and earn more than £120 a week you will get contributions credited or paid to your account (you start actually paying for them when you earn above £184 a week; under that they are credited). If you get child benefit for a child who is less than 12 then you will also get a credit for each week. If you get jobseeker’s allowance, employment and support allowance, or working tax credit then you will get a credit for each week you get that benefit. You can also get credits if you are a carer in some circumstances. Check here for more details of who can get credits. Some are given automatically, others have to be claimed.

Men can get credits for years between women’s state pension age and 65. They get a credit for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and any subsequent tax year before the tax year they reach 65. So these man credits are only available to men born before 6 October 1953. See footnote.

If you are self-employed then you must pay what are called Class 2 National Insurance contributions if your profits are £6515 or more. They are called Class 2 and are £3.05 a week (£158.60 a year). Self-employed people can also pay these contributions voluntarily even if their profits are below £6515 - but only for years in which the were genuinely self-employed. Plans to phase out Class 2 contributions have been cancelled for now. 

If you will not pay National Insurance contributions at work or as self-employed or get credits for them then you can pay voluntary contributions, called ‘Class 3’. They will cost you £15.40 a week (£800.80 for a year). For each extra year of contributions your pension will be boosted by £5.13 a week (£266.83 a year) so the payback is rapid – three years for non-taxpayers; less than four if you pay basic rate tax; five for higher rate taxpayers, and less than six for top rate 45% taxpayers. Contributions for earlier years are less: 2020/21 - £795.60, 2019/20 - £780.00 making them even better value for money. If you pay in this year 2021/22 you can only pay the lower rate for two previous tax years. Contributions for 2018/19 and earlier will be at today's rate of £800.80. [For reference earlier rates were 2018/19 - £772, 2017/18 - £740, and 2016/17 - £733.20 but you can no longer pay at these rates.]

The new state pension up to £179.60 a week comes under the ‘triple lock’ promise and will rise each April by prices, earnings, or 2.5% whichever is the highest, at least until April 2022. Recent economic conditions may see the end of that triple lock from April 2023. 

If you have paid some contributions at work or as self-employed during the tax year but you are short of a full year you can pay individual weeks through Class 3 (or Class 2) to make your record up to a full year.

You can only pay Class 3 contributions for the years before the tax year in which you reach state pension age. That limits the number of years you can pay to boost your pension. The table show which years you can pay Class 3 contributions to set against the contracted out deduction and the maximum boost that should give to your pension. Your pension cannot be boosted to more than £179.60 a week and it will not ever be less than £137.60 so the maximum boost is £42.00.

BOOSTING A NEW STATE PENSION THAT IS SUBJECT TO A CONTRACTED OUT PENSION EQUIVALENT (COPE) DEDUCTION
Reach State Pension Age in
Men born
Women born
Years you can pay
Maximum pension boost (2021/22 rates)
2016/17
6 April 1951
5 April 1952
6 April 1953
5 July 1953
0
£0.00
2017/18
6 April 1952
5 April 1953
6 July 1953
5 Oct 1953
1
£5.13
2018/19
6 April 1953
5 Jan 1954
6 Oct 1953
5 Jan 1954
2
£10.26

Men and women born


2019/20
from 6 January 1954
to 5 July 1954
3
£15.39
2020/21
from 6 July 1954
to 5 April 1955
4
£20.53
2021/22
from 6 April 1955
to 5 April 1956
5
£25.66
2022/23
from 6 April 1956
to 5 April 1957
6
     £30.79
2023/24
from 6 April 1957
to 5 April 1958
7
     £35.92
2024/25
from 6 April 1958
to 5 April 1959
8
     £41.05
2025/26
and later
from 6 April 1959
to 5 April 1960
and later
9
     £42.00
 (max)


NEXT STEPS
There is no great hurry to do anything. You can pay voluntary Class 3 contributions in the tax year they are due or up to six years after that. So you can still pay for the 2016/17 tax year and will be able to do so until the end of the 2022/23 tax year. You cannot pay them in advance. However, the price may rise as time passes so it will be cheaper to pay them as soon as you can.

If you will reach state pension age in 2021/22 you may want to act soon to see if you can boost your pension by paying National Insurance contributions for the five years 2016/17, 2017/18, 2018/19, 2019/20, 2020/21. That could give you an extra £25.66 a week on your pension.

You can phone the DWP’s Future Pension Centre on 0800 731 0175 and ask for help - it is still taking calls despite the pandemic. Have your National Insurance number with you. Ask what your ‘starting amount’ is and ask if there is a deduction for being contracted out. If your starting amount is less than £179.60 and there is a contracted out deduction then you may be able to boost it using the information in this guide. 'Starting amount' is explained in the notes below. If you have a deduction for a pension which you cannot trace use the Government's free Pension Tracing Service.

In the past, many people have contacted the DWP and been told they cannot boost their pension because they have 35 years of contributions. That is incorrect. Some officials seem to be confusing this scheme with one to fill gaps in your contribution record. Others have been told that they need more than 35 years to get a full pension. That can be true in the circumstances in this blogpost, but it is a confusing way to put it. 

You may get more sense from the free and excellent Pensions AdvisoryService or call on 0800 011 3797. Beware of similar sounding commercial organisations.

You can check your starting amount at this Government website. You will have to go through security procedures which can be a pain. Make sure it includes your 2015/16 contributions. This website may let you see how you can boost your pension by paying extra National Insurance contributions. It may be operational now or that may still be pending. 

NOTES
1. All the rates in this guide are correct in 2021/22. 

2. If your income is low then you may get extra money from pension credit or help with your council tax or rent (rent or rates in Northern Ireland). If you buy Class 3 contributions to boost your pension those benefits will be reduced but it will almost always still be worthwhile.

3. Your ‘starting amount’ is the calculation of how much state pension you have built up at 6 April 2016 under the old and the new rules. Your starting amount is the one that is bigger. It will take account of National Insurance contributions paid up to 2015/16 and will also make a deduction for years you have been ‘contracted out’ of part of the state pension system called SERPS. If it shows you have fewer than 35 years of National Insurance contributions then you may be able to pay more to boost that number towards 35. See ‘other groups’ guides link below.

4. SERPS, the State Earnings Related Pension Scheme, was an earnings-related supplement to the basic state pension. People paid into it as part of their National Insurance contributions from April 1978 to April 2016. From April 2002 it was changed and renamed State Second Pension (S2P). It was SERPS and S2P – sometimes called ‘additional pension’ – which people ‘contracted out’ of if they paid into a good pension at work or in some cases into a personal pension which they chose to ‘contract out’. They paid lower National Insurance contributions. The pension they paid into was supposed to replace the SERPS or S2P but it does not always do so in full.

5. Tax years run from 6 April one year to 5 April the next. So 2021/22 runs from 6 April 2021 to 5 April 2022.

6. If you have an old company or personal pension you cannot trace, use the Government's free Pension Tracing Service.

7. Contacted Out Pension Equivalent is the amount deducted from your new state pension to take account of the time you were contracted out of SERPS/S2P. In theory the amount deducted should be paid to you by the pension scheme you paid into as part of being contracted out. But that will not always happen especially if you were contracted out into a personal pension. This government guide to contracting out sort of explains it.

8. Man credits. These man credits - called auto-credits - are only awarded for whole tax years, not individual weeks. Men born 6 April 1952 to 5 April 1953 can get a year of contributions credited for 2016/17. They may also get earlier years credit but they do not help with reducing their contracted out deduction. Men born 6 April 1953 to 5 October 1953 can get a year credited for 2017/18.

Men born from 6 October 1953 cannot get them.

BOOST YOUR PENSION GUIDES FOR OTHER GROUPS
Men born 6 April 1951 or later and women born 6 April 1953 or later.
·         Filling gaps in your National Insurance record – new state pension 

Men born before 6 April 1951 and women born before 6 April 1953
·        Filling gaps in your National Insurance record – old state pension 
·        
There is also a comprehensive guide to what you can do to top up your state pension available as a download from the mutual insurance company Royal London written by former Pensions Minister Steve Webb. It is well worth a couple of hours study.

Version: 4.50
14 April 2021
Previously: Target 155, Target 164, Target 169, Target 175
89944
70359

Tuesday, 6 April 2021

Banks must act to control fraud epidemic

Banks must act to control fraud epidemic

Don’t think you are too clever to be conned

An epidemic is sweeping the UK. Laying low the old and vulnerable, damaging healthy adults for life and undermining our belief in the systems that are supposed to protect us. It is caused not by a few strands of RNA, but by an intelligent life form. Clever, resourceful and agile, it worms its way into our brains, distorts our perception of reality and makes us pleased to give our money to thieves. 

In 2020, nearly 150,000 individuals had £479m taken from them by this plague. And that is just a small subgroup of the most common form of crime in Britain — fraud. It may be costing us billions of pounds a year. No one knows because much of it is never reported. What could be more embarrassing than admitting you were fooled by thieves into giving them the keys to your safe? Fraud is the crime we are the most likely to experience. It is out of control. And no one seems able to stop it. 

This type of scam begins with a frightening cold call. BT says your router is insecure and you need to pay to secure it. HMRC calls to warn that you are about to be prosecuted for tax evasion if you do not pay a sum into court now. Your bank reveals that your account has been compromised and the money must be moved somewhere safe. They panic you, threaten you, and if you are still sceptical they ask you to check caller ID. When you do it will show the correct number for BT inquiries, HMRC or even the fraud reporting line for your bank. 

These genuine numbers are sent by a technique called number spoofing, which allows the thieves to send any number they choose to the Caller ID system. One top law enforcement officer told me on Money Box recently “do not trust what you see on caller ID”. But people do and then agree to transfer money to the thieves or even give them the keys to do so themselves. Some steps have been taken to bar some numbers from being spoofed but the gov.uk website is a rich source of official numbers for thieves to harvest. Ofcom says there is no general solution to the problem of callers sending a false number. 

Until one is found the thieves will wrap this cloak of credibility around them. It would matter less to customers if they were compensated for being victims of this professional psychological warfare. A recent code was supposed to ensure that blameless victims would have their money reimbursed by the banks. But the latest figures from UK Finance show that for the 139,104 thefts that fell under the code in 2020, only 45 per cent of the £312m stolen was given back to customers — just £141m. That is a lot better than the 19 per cent reimbursed before the code began in May 2019. But evidence from dozens of people who still come to me after losing life changing sums indicates that banks are using the code itself to justify not paying. 

One popular disclaimer is that under paragraph R2(1)(a)(iii) the customer did not heed an “effective warning” about the transaction before they made it. That raises the question — can a warning be effective if it is not heeded? Another is paragraph R2(1)(c)(iii), under which the customer did not have a reasonable basis for believing the person they were paying was legitimate. But would anyone hand over thousands of pounds to someone they did not believe was legitimate? The code was not intended to be a playlist of excuses not to pay. 

Some banks are worse than others. The Payment Systems Regulator revealed last year that two out of eight banks in the code paid customers nothing in 96 per cent of cases. Even the best only reimbursed 59 per cent in full (the average was one in six). The regulator refuses to identify which banks are the worst, keeping that vital information secret from the people who need it: their customers. 

 Contrast this with TSB, the one major high street bank that is not a member of the code. It has its own “fraud refund guarantee” and says it repays in full 99 per cent of customers whose money has been stolen in this way. The regulator is now consulting on similar mandatory rules that would reimburse all customers who were not implicated in the crime. That would concentrate the minds of the banks. They already meet all losses from unauthorised thefts, such as card fraud or remote banking fraud, and these are being controlled, falling by 7 per cent in 2020 according to UK Finance. But losses to authorised payment frauds, where less than half are reimbursed, increased by 5 per cent with total incidents up 22 per cent. If the banks had to repay everyone it might make them more interested in stopping these thefts. 

The uncomfortable truth for the banks is that they are at the heart of these crimes. They allow thieves to open and operate current accounts and then use the faster payment system to receive the money and move it rapidly between accounts until it vanishes. In 2020, 96 per cent of the money stolen this way went through the faster payment system, a total of £398m, up 19 per cent on 2019. 

 I put my hand up here. In my early days on Money Box I championed faster payments. Why does it take three days to move money in the 21st century, we asked. And where is our money for those three days? Answer: earning interest for the banks. By 2008 the banks were shamed into setting up a new infrastructure that moved money at once and, crucially for the crooks, beyond recall. 

Perhaps now is the time to introduce a pause in the system so that when we transfer money to a new payee there is a delay of, say, 24 hours before the payment is made. One of the characteristics of the people whose money is taken is that within at most a few hours the psychological drug that made them credulous enough to co-operate with the crime wears off and they think: “****! I’ve been robbed.” But even after a few seconds it is too late to undo the transfer. 

 Preventing number spoofing, making the banks liable and introducing a pause for new payees would go a very long way towards ending most of these crimes. Meanwhile, there is one impenetrable barrier to them. End the call. No one ever lost money by doing that. And do not think that you are too clever to be caught. No one is. Once you engage, you are hooked. Their silver tongues will wrap around your brain while their digits enter your bank account and fish out all your money. So end the call.

This piece originally appeared in the FT early in April.

Paul Lewis
Version 1.00

Sunday, 14 February 2021

ANYTHING BUT FINE

 

Every day the Government sells the addresses of 23,000 drivers to private parking companies so they can send them a £100 bill for breaking their rules. And it is a bill, not a fine, because these companies have no right to fine anyone for parking their vehicle. Only local authorities or the police can do that. What these firms send is an invoice. Called parking charge notices, they are designed to look like the legal penalty notices issued when you break street parking rules. But they are not. They are simply an invoice for payment.

The parking firms say that when you enter their car parks you agree to a contract under which you pay a fee, park between the lines, and leave within a certain time. If you break these rules, they send you a bill for breaching that contract.

Sometimes the parking charge notice is put under the windscreen wipers. But in many cases the first you know about it is when it arrives in the post.  Many car parks have no barriers or attendants. Cameras at the entrance and exit register your number plate and compare it with the one you give when you buy your ticket. If you are deemed to have broken the rules then the firm pays £2.50 to the Driver and Vehicle Licensing Agency and sends the notice to the address it gives them.

Most people pay up at once because you are bribed to do so. A fee of £100 is reduced to £60 if you pay within 14 days. But that is not a sensible approach.

Of course, it is reasonable for a private landowner to charge people for the convenience of parking on their property. The Supreme Court decided more than five years ago that they may also impose a reasonable penalty if you break the rules laid down. However, if you get a parking penalty on private land do not pay it without reading it very carefully.

Check the Notice

Were you – or your vehicle – there at the times stated? Are the rules set out clearly, not just at the entrance but around the car park where you can see and read them? It is useful to have photographs if you are claiming they are not clear.

Most car parking firms belong to the British Parking Association (BPA) which has a Code of Practice. Has the notice broken any of those rules? For example, you must be given time to read the rules before parking and a grace period of up to 10 minutes after your time runs out before a penalty is charged. Other firms belong to the International Parking Community (IPC) whose Code of Practice also has a grace period in some cases.

If the penalty notice seems correct are there mitigating circumstances? Was the car park very busy so it took a long time to buy your ticket? Did you leave without parking? Did you have a good reason to overstay such as an urgent phone call about a sick relative? Did just half a tyre stray outside the marked parking bay? Did you make a minor error entering your car number? Had your car broken down? Send supporting evidence – with photographs if you can.

On the back of the notice there will be details of how to appeal – normally within 21 or 28 days. However, once 14 days has passed you will lose the discount on your charge. If your appeal is rejected you can go to a further appeal. The BPA uses an independent service called the Parking on Private Land Appeals (POPLA).  Around half of those who appeal to it are successful. IPC uses the Independent Appeals Service (IAS). A firm that does not belong to either of the trade bodies cannot get your address from the DVLA and will find it much harder to enforce the charge.

Take control

A more militant way to challenge a parking notice is to ignore it. In England and Wales the person registered as the vehicle’s ‘keeper’ (usually the owner) is liable for the penalty if the driver does not pay. So, the firm will pay for the keeper’s address from the DVLA and send them the notice. That must be set out in a very precise way and firms often get that wrong which invalidates it. In Scotland and Northern Ireland the keeper does not have to pay. That makes enforcement much harder.

If you do not pay the only way to make you is a civil action in court. That is expensive and time consuming for the firm and it may not bother - though some parking operators are getting militant about going to court themselves! Even if it does take you to court you may win, especially if it has behaved unreasonably. If you lose you will have to pay the full charge and possibly some costs as well, but as long as you pay when the court orders you to do so your credit rating will not be affected. 

Government steps in

Private parking firms may soon have to obey new rules designed to end the “poor practice and behaviour of some parking operators”. The Government has announced its plans for a legally enforceable Code of Practice and a new appeals service to apply in England, Scotland, and Wales. That should happen over the next twelve mnoths or so.

Real fines

If you get a parking fine from a local authority, Transport for London, or the police the rules are different. Fines are easier to enforce but if you feel the ticket is unfair challenge it and then appeal to the independent adjudicator. More than half who do win.

Further information

MoneySavingExpert.com or CitizensAdvice.org.uk search ‘parking tickets’.

parkingcowboys.co.uk has useful information about possible defences.

britishparking.co.uk – the British Parking Association website

theipc.info – the International Parking Community website

popla.co.uk – for appeals against firms that are British Parking Association members.

theias.org – for appeals against firms that are International Parking Community members.



This blogpost is an amended and updated from an article I wrote for Saga Magazine in November 2020.


Paul Lewis

23 March 2021

vs. 1.2

 

Tuesday, 5 January 2021

FLIGHT DELAY COMPENSATION NOW A UK RIGHT

If your flight is delayed by three hours or more or is cancelled you now have a right to compensation of up to £520 per passenger under UK law. The rights to compensation were given to air passengers in 2004 by a European Directive. Now that we have left the EU those rules have been brought into UK law with some amendments. 

The new rules apply to passengers in three circumstances.

1. They are on any flight which departs from a UK airport.

2. They are on a flight which departs from an airport outside the UK if it

    a. lands in the UK and the carrier is based in the UK or the EU.

OR

    b. lands at an airport in the EU and the carrier is based in the UK.

The compensation applies if a flight arrives at least three hours late. The amounts of compensation are

•        £220 per passenger for flights of 1500 kilometres or less

•        £350 per passenger for flights between 1500km and 3500km

•        £520 per passenger for flights over 3500km.

Similar rules apply to cancellations at the airport or within seven days before the flight was due to leave. If you are given a replacement flight you will normally still be entitled to compensation if that arrives more than two hours later than the original flight - or departs more than one hour earlier than the original flight.

The rules are a bit more complicated than that largely because airlines have tried to find ways to avoid paying and lawyers have taken cases to court to establish what the law really means. 

One key escape airlines like to use is if the delay or cancellation was due to 'extraordinary circumstances'.   

separate blog looks at some of those complexities. Where decisions of the European Courts are referred to these still apply as they were all retained in UK law from 1 January 2021. The primary UK law is the European Directive EC 261/2004 as retained in UK law but it has been amended by the The Air Passenger Rights and Air Travel Organisers’ Licensing(Amendment) (EU Exit) Regulations 2019 SI 2019/278.


Get help
An online claiming tool is provided by Resolver. It makes no charge for its service. Never use a claim management company. It will take 40% of your compensation and may or may not be good at the job.

The consumer organisation Which? also has a useful guide to claiming compensation yourself.

You can get some advice free from the Civil Aviation Authority. If an airline has refused your claim the CAA offers an arbitration service. Its decision is not binding on the airline - though they usually follow it - and there have been long delays in the past as the CAA had inadequate staff numbers to handle the volume of cases. 

If you feel you need professional help you can use the lawyer Bott & Co which specialises in compensation for flight delays. It has an online checker to see if you have a claim or not. If it takes a case then it charges 25% plus VAT (so 30%) of any compensation obtained plus a £25 administration fee (including VAT) per passenger. Altogether that will be more than a third of your compensation. There is no charge if you lose.

Brexit

Now that the UK has left the EU and the transition period has ended you should apply under the UK law if you can. However, the EU regulations still give all passengers rights to compensation where flights leave from or arrive at EU airports and you can apply under those rules if your flight is outside the terms of the UK regulations. 

Now that the UK has left the EU a UK government will be able to change these compensaation rules. There is no sign of that happening.  


18 January 2021

vs. 1.1

 


 

Thursday, 19 November 2020

Capital gains tax should be fairer and simpler

 

Charging CGT at income tax rates is not that controversial — it’s been done before

“Taxes should be simpler and fairer” is the common mantra of better off people and tax commentators.

Even accountants who make their living wrestling into submission some of the more arcane rules of HM Revenue & Customs tell us the UK tax code is the longest in the world and should be simplified. This is usually when opposing yet another attempt to close a loophole they sell to their clients.

So I was shocked to read the numerous objections to the latest report by the Office for Tax Simplification which proposed making capital gains tax (CGT) simpler and fairer. It proposes:

  • Chucking out the separate rates of tax for gains and income.
  • Slashing the annual £12,300 gains allowance to as low as £2,000.
  • Scrapping highly complex reliefs intended to encourage entrepreneurs, but which do not do that.
  • Taxing equally the products of our labour whether we are paid in wages, dividends, or share options (adding the word “options” allows tax to be avoided). 

What could be fairer? Or simpler?

No, no, no, said one credulity-stretching comment to the OTS. “Without a lower rate of tax on its eventual sale [I] would not have worked nearly so hard to expand the business.” Really? You work to pay less tax on money you have not even made yet?

Perhaps the key to all the objections is this sentence in the review: “If gains were taxed at income tax rates some taxpayers could face a substantial increase in their overall tax liability,” the OTS said, citing HMRC estimates that aligning rates of CGT and income tax could raise £14bn. Objectors seem to think that simplicity and fairness is fine as long as it doesn’t mean more tax is paid by the well off.

And the people who pay CGT are well off. If you inherit a home and keep it for a few years and then sell it the CGT will be modest, only being calculated on the difference between its value at inheritance and price at sale (CGT death uplift prevents it being valued when the deceased acquired it, though the OTS also recommends scrapping this uplift). But you are better off than most because you have a second home and when it is sold you have the value of it.

In fact, charging CGT at income tax rates is not that controversial. At the end of its report, the OTS notes that for the 20 years to 2007-08, that is how it was charged. Nigel Lawson, the Conservative chancellor, believed there was “little economic difference between income and capital gains” so they should be treated along similar lines.

He echoed the principle of Labour’s James Callaghan, who introduced CGT in 1965 and told Parliament: “Gains confer much the same kind of benefit on the recipient as taxed earnings . . . the present immunity from tax of capital gains has given a powerful incentive to the skilful manipulator.”

The OTS report has many examples of the way skilful manipulators have got to work to minimise the effect of CGT on share and business owners. Two examples in the report (cases 8 and 9) show the advantage for self-employed people to set up a company, pay themselves largely in dividends, store excess money in the business, and then liquidate the company and claim business asset disposal relief to slash the tax on the gain to 10 per cent. Thus director Rose pays £108,817 less tax over five years than self-employed Geoff doing the same job for the same income. Rules that distort behaviour to pay less tax are found throughout the review. But the OTS loses its nerve when it comes to scrapping them.

Stupid Geoff, you might say. No. Stupid tax system that includes rules which the OTS says “distort behaviour, pushing taxpayers towards incorporation”. In the last tax year, this business asset disposal relief gave £58,700 each to 46,000 people at a cost of £2.7bn — even though OTS says it does not “stimulate investment and risk-taking by business owners”.

Rules that distort behaviour to pay less tax are found throughout the review. But the OTS loses its nerve when it comes to scrapping them. It tries to find fairness by tinkering with the dog’s breakfast rather than starting again with the basic tin of Chum, in the form of the principles of Callaghan and Lawson. It should ignore the special pleading of the better off that “it’s not fair”.

Fairness is being fair to all taxpayers, not just the few who pay CGT. A truly fair and simple system would tax a capital gain like income in the year it is received. Just as a bonus at work or a pension withdrawal is added to income and taxed that year, so should a capital gain.

The right level for the annual exemption is not a de minimis £2,500 but zero. Scrap relief for enterprise investment schemes, social investment relief, venture capital trusts shares, investor relief, rollover relief, death uplift, holdover relief and losses relief. Get rid of anything that gives scope for well-paid advisers to help wealthy people game the system.

Tax the 265,000 people lucky enough to have taxable capital gains (which would rise to 1m after the changes) at the same rates as the 32m who pay income tax, with no choice and before they even see it. And prevent the manipulators by applying the change from Budget Day afternoon.

Simpler and fairer. Who could possibly object?

This piece first appeared in the Financial Times 19 November 2020.

Friday, 25 September 2020

GET THAT REFUND


All over the country thousands of people are due refunds for holidays, flights, trips, concerts, or events that they have paid for but have not happened. The law is clear – if you pay for a service and it is not provided then you are entitled to your money back. These rights are given under various legal provisions, but they all say money must be refunded. If you bought something through an agent - a ferry ticket for example - it is the supplier of the goods or service who remains liable not the agent.

Despite these clear rights, enforcing them can be difficult against a firm that says it will not – or cannot – pay you. It may have offered a voucher for a future replacement trip. Ot it might claim that the event has just been postponed and your ticket will be valid at some future date. 

None of those alternatives take away your right to a full refund.

Enforce your rights
Knowing your rights is one thing, enforcing them can be quite another. So here is my guide to the big stick you can use to make a company obey the law. 

Of course, you have written, emailed, phoned, hung on for ours and tried all the things the firm suggests and you still have not got your money back, as the law says you must. 

Time for the nuclear option. 

Step 1: The court
If a firm owes you money you can go to court to recover it. We used to call it the ‘small claims court’ but in England and Wales it is now done centrally through the Courts & Tribunals Service website at moneyclaim.gov.uk. In Scotland it is called the Simple Procedure at Scottish Courts and Tribunals. In Northern Ireland go to justice-ni.gov.uk and search ‘small claims’ or use this direct link

Don't worry, you are almost certainly not going to go to court. Begin the court action online. Fill in the claim form with your details, and the details of the firm and the amount claimed. Claim the full amount including non-returnable deposits. Put your reasons. Do not proceed with the claim but take a screenshot of the page.

If you are having difficulty finding details of the firm see 'tracke them down' below.

Step 2: The boss
Forget about customer service, go straight to the person who can make something happen. Email the Chief Executive of the company that owes you the money. You can find that address from www.ceoemail.com. Write a brief, polite but firm email summarising in a few lines what you are claiming and why, reminding them that you are entitlted to your money back and warn them that you expect a refund within seven days or you will go to court. 

Now attach the screenshot of your court claim to the email. That is the masterstroke. It proves that you are not just threatening to 'go to court' but that you know how to do it and are already halfway through the process. 

Emails to the boss will usually be read by a minion. But that does not matter. Every firm has a section to give cases special treatment. You have just reached it.

Shortly after you should get your money. One happy reader who had spent weeks going through the usual channels used this technique and emailed me: “It worked! Easyjet wrote back today and I’ve received the reimbursement to my credit card”.

Turn the screw
If after 14 days this method does not result in a full refund including non-returnable deposits and without deduction of any administrative fees, then go back to your online claim and start the court action. These proceedings are very simple and straighforward and any small fee charged at this stage will be refunded when you win. 

In fact your case will almost certainly never get to court. The last thing any firm wants is a judgement that it has to refund customers. It will be settled out of court and you will be given your refund - in full without fees or charges deducted - and reimbursed for your costs. You may even get a few pounds added on.

The regulator
Don't just take my word for it. The Competition & Markets Authority (CMA) is a government agency whose job it is to promote fair competition between companies and make sure they do not trample on consumer rights.

 At the end of April 2020 it warned firms that 

Where a contract is not performed as agreed, the CMA considers that consumer protection law will generally allow consumers to obtain a refund. In particular, for most consumer contracts the CMA would expect a consumer to be offered a full refund where:

a business has cancelled a contract without providing any of the promised goods or services;
  • no service is provided by a business, for example because this is prevented by Government public health measures;
  • a consumer cancels, or is prevented from receiving any services, because Government public health measures mean they are not allowed to use the services.

The CMA said that weddings, holiday accommodation, and nurseries and childcare particularly concerned it. A couple of months later it forced Hoseasons and Cottages.com to offer refunds to customers instead of trying to fob them off with vouchers. It has now had similar successes with holiday firm TUI and with wedding organisers. It did not mention flights as they are regulated by the Civil Aviation Authority but these rights to a refund apply equally to flights under the European Regulation EC 261/2004.

Track them down
One problem people find with global companies is that it is very hard to track down a UK address for them. You need that for your court claim - you can only sue a UK entity for money. First, search the website very carefully as it may be there. Second, have a good rummage round that ceoemail.com website - it will probably be there. If not try Companies House. It is almost certain the firm has a UK branch. Try searching on company names but always check you have the right one by looking at the 'people' or 'filing' tabs to see what the company does and who are its directors. The search is free - never google 'companies house' you will get firms that want to charge you for free information. But Google can be helpul to find who owns whom by googling the firm's name and clicking news to see who may own it now. 

Thanks
I am grateful to Helen Dewdney of thecomplainingcow.co.uk for this idea. She has many more in her excellent books How to Complain and 101 Habits of an Effective Complainer.

Paul Lewis 
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Monday, 21 September 2020

NOT SO PREMIUM BONDS

Premium Bonds give a poorer return from the December 2020 draw. So are they still a good place for your savings?


Premium bonds are good if you fulfil three conditions
  • You can buy the maximum £50,000 or close to it. 
  • You pay higher or additional rate income tax. 
  • You have used up your personal savings allowance with interest on other savings outside ISAs.
The further you are from those conditions the worse they are.

How do they work?
Each month the 95 billion £1 bonds earn interest which is 1% from the December 2020 draw. Each month the interest - which from December NS&I says will be £82 million - is put into a prize fund. That total is then shared at random among the bondholders as prizes. From December each bond has a 1 in 34,500 chance of winning a prize in each monthly draw. Prizes are paid tax-free so the return is better for higher rate (40%) or additional rate (45%) taxpayers.

The fund is divided so that 98% of the prizes are for £25 which uses up 85% of the money. From December about 2.8 million £25 prizes will be paid. Just over 25,000 prizes each of £50 and £100 will also be paid. Those three prizes use 90% of the prize money and accounted for 99.8% of the prizes. 

Go for the max
Although the stated interest rate is 1%, when considering the actual interest earned in any realistic timeframe it is only the £25 prizes that should be counted. That means the effective interest rate - the money used for the prizes you might win - is 0.85% from December. 

With the maximum £50,000 bonds you will now expect a £25 prize every month at least - 17 over a year. Of course chance will not produce an even return. But over time that should be the average. That is equivalent to earning 1.06% taxable interest for a basic rate taxpayer, 1.42% for a higher rate taxpayer and 1.55% for a taxpayer with an income over £150,000 who pays 45% income tax. 

Those are not bad rates for an instant access account. Money in Premium Bonds can be taken out without notice at any time, though it may take a few days to get your money back.

You would expect a £50 or £100 prize very 6 and a bit years, a £500 prize every 33 years and £1000 ever 100 years. Above that prizes range from £5000 to £1 million. Although winning a million is a nice thought, forget it. You won’t ever win that prize. Even with the maximum £50,000 bonds you would have only an even chance of winning a million after 82,000 years. That was when when humans were still having sex with Neanderthals and 40,000 years before we started painting in caves. The odds of winning the second prizes of £100,000 are just half those for the million pound prizes. If you bought £50,000 of premium bonds to celebrate your first cave painting you might by now have won one prize of £100,000. 

Even the smaller large prizes are very sparse. If you had bought £50,000 premium bonds to celebrate the death of the Roman Emperor Caligula in 37 AD you would have expected just one £5000 prize by now. You will wait another 1975 years for the next.

Fewer bonds 
With smaller amounts of bonds, prizes of course are much rarer. £100 gives you an even chance of winning a £25 prize every 29 years. The new minimum of £25 would mean a wait of 115 years to have an even chance of one prize and 200,000 years to win a £1000 prize. 

With one bond bought when when Stonehenge was built you might have expected one prize of £25 by now at the current rates, and only have a few hundred years to wait for the second. Earth has barely been around long enough to have an even chance of getting the £1,000,000 prize which happens ever 4 billion years with one bond. 

Good for the much better off
The interest on all savings is tax free up to £1000 for basic rate taxpayers and £500 for higher rate taxpayers. So the tax-free prizes are of most value to those who have other savings which have used up those savings allowances. For higher rate taxpayers that probably means £50,000 in top savings products as well as any cash in ISAs. For basic rate taxpayers it means at least £100,000 in best buy svings accounts. Additional rate taxpayers do not get the personal savings allowance. So premium bonds are very good for them. More than half the bonds are held by people who have at least 30,000 of them and 650,000 individuals own the maximum £50,000.

Randomness
ERNIE (Electronic Random Number Indicator Equipment) who draws the winning bonds each month is not a computer. However hard they try computers cannot produce genuine truly random numbers. So ERNIE uses a process which was invented by a Bletchley Park codebreaker - called transistor thermal noise - to create truly random events which are then counted and combined in turn into bond numbers. Every month the Government Actuary checks the prize list for randomness before the prizes are paid.

Because every bond really does have an equal chance of of winning there is no point in cashing in 'unlucky' bonds and buying new ones. Doing that also means there is a month between selling and buying when the bonds are not in the draw. So it worsens the odds of winning.

Buying
You can buy Premium Bonds online at www.nsandi.com where you can also check for prizes and trace lost bonds. You can also buy them by phone or post. You must be at least 16 years old. Parents, realtives, and friends can buy them for children under 16.

From March 2021 all prizes must be paid direct into a bank account. At the moment about a quarter are paid in the post with a warrant - effectively a cheque on the Government. NS&I says there will be provision made for people without a bank account to receive the money or a mobile phone or email to be informed they have won. Details are awaited.Meanwhile those with bank accounts can register the details at nsandi.com/prize-options
 

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