Thursday, 25 November 2021





 Don’t resent selling your home to pay for care – you didn’t pay for most of it anyway.

To read the headlines you would think that the moment an elderly person goes into a care home they are forced to sell their own house or flat to pay the costs of up to £1000 a week or more. It is not true. No-one – I repeat no-one – can be forced to sell their home to pay for their care. Many of course are led to believe they must, and some choose to do so, but no-one has to.

It is sad that as the details of the Government plan to cap care costs is debated the phrase 'people have to sell their home to pay for care' is being used - ignorantly - on both sides. 

The Government made the true position clear when it launched its plan in September to cap the cost of care. It reminded us that “the existing service allowing people in need of residential care to defer payment of their care home fees…means that people have the flexibility to avoid selling their home within their lifetime”.

This deferred payment agreement is law only in England but in the other countries of the UK similar arrangements can be made. In England anyone with capital (apart from the value of their home) of £23,250 or less can apply for it. The care home bill ticks up while they are alive and is paid from their estate after they die. Interest is added and some local authorities add fees too. The people who eventually pay the bill are the heirs through a reduced inheritance.

A deferred payment arrangement may not be necessary. The value of the home is not counted at all for the care home means-test if a spouse or partner lives there. It is also ignored completely if a relative – on a broad definition – who is over 60 lives there. There is also discretion to ignore the value if a carer or a younger financially dependent relative lives there. As a result, the value of many homes is ignored and the council pays for the care.

It is also possible that the NHS will pay the whole cost without a means-test. It is called NHS Continuing Healthcare and applies if the person is discharged from hospital into residential care and their primary reason for needing that is medical. In Scotland it is different and called Hospital Based Complex Clinical Care. It is hard to make the NHS pay and may require legal help. But the law is there and it can be done.

Sell your home

But why not sell your home anyway and use its value to buy yourself the best care in the nicest place that you can afford? The value of your home is yours and any decent heirs would rather you used the money to make yourself as comfortable and happy as you can be in your final years. The average time in a care home for people over pension age is around two and a half years so there may still be plenty of money left for them.

People say to me ‘I worked hard for that house, paid the mortgage for over 40 years. Why should I lose it because I need care in my very old age?’

Legally of course it is your money. But if you had a mortgage 40 years or more ago then that was subsidised by other taxpayers. In the 1970s you could set mortgage interest off against your income tax up to any amount and at your highest tax rate. From 1983 it was called MIRAS and restricted to smaller loans and basic rate tax. That was abolished in 2000 saving other taxpayers £1.4 billion a year. If your mortgages have included years before 2000 then some of your mortgage interest was paid by other taxpayers.

As for working hard, most of the value of your home is a windfall caused by house prices rising faster than any other inflation measure. From 1981 to 2021 prices measured by the Consumer Prices Index have trebled and wages have risen almost twice as fast. But house prices have soared tenfold. The Nationwide house price index shows the average UK home was worth £265,700 in June 2021. Forty years ago it was worth less than a tenth as much – £26,381.

If house values had risen with consumer prices your home should be worth £80,500 and if they had gone up with pay it would be worth around £150,000. Either way you have a huge windfall gain – up to £185,000 compared with prices – for which you did no work at all. It was created by society failing to build enough homes, controlling interest rates, and subsidising mortgages.

So do not be resentful or afraid to use that tax-subsidised windfall gain to give yourself the best last few years you can. Your kids will survive without it.

This blogpost is adapted from an article which first appeared in The Daily Telegraph on 6 November 2021 and a few days before online.

Vs 1.00

25 November 2021

Monday, 11 October 2021


Business hates competition. And it makes products complex hoping we will make the wrong and more expensive choice. 

Banks make money because they are better at arithmetic than their customers. They know that if they fix monthly repayments on a credit card at 2 per cent of the outstanding amount with a minimum of £5 it will take 25 years to clear a £2,000 debt and they will have been paid £3,500 in interest.

They know that after 43 years of charging 1.5 per cent a year on a pension pot with 4 per cent growth they will have taken the equivalent of a third of the pot. Even for the section of the population that is not functionally innumerate those are difficult sums.

And where the arithmetic could be simple the banks devise ways to make them complex. A theme that has run through my working life is explaining complex things to people in a simple way. Over the years I have come to believe that this process of making things complicated — complexification, as I call it — is deliberate. And it is anti-competitive.

Imagine if you went to fill up your car. The local garage is Esso and the price is 136.9p a litre. But Sainsbury’s sells it for 132.9p a litre. So you drive the extra mile to Sainsbury and save yourself a couple of quid.

Suppose instead that your garage charges 129.9p a litre plus £5 to enter the forecourt. That would be dearer. But if you agree to make it your petrol station for the next 10 visits it waives the forecourt charge. Is that still cheaper than Sainsbury’s at 132.9p, which charges you £2 to visit and then gives you back £1 if you fill up for two consecutive times?

Such an approach would be retail madness. But it is often the way you are charged for personal finance products.

There are nearly 5,000 different residential mortgage products on the market. Far too many to choose from rationally. Fixed rates, discounted rates, variable trackers, extended tie-ins, cashback, discount on legal fees, high lending charge, and nearly always a fixed upfront fee of between £495 and £1,995. Which mortgage is best should be a simple question — who charges the least? But these complex deals are a mixture of bets on the future of interest rates — which even professionals get wrong — and simultaneous equations.

On a loan of £200,000, is 1.09 per cent for three years with a £999 fee better than 1.56 per cent over 5 years with a £1,995 fee? And what if grandma comes through and you only need borrow £185,000? Without knowing how to use a spreadsheet it is impossible to calculate.

But what the lender and the broker do know is that at the end of two, three or five years on a fixed rate you will be back to borrow it all over again. If you stay in your home for a typical 20 years you could take out anything from four to 10 different mortgages on it. Ker-ching!

Instead of businesses competing fairly on price — that can of beans is 55p, this one is 62p — they make the sums so difficult that no one can solve them, hoping that many customers will make the wrong choice and pay more than they need.

"complexification destroys competition 

by rendering rational choice impossible"

A population that is better educated in financial matters could become a challenge to the industry which is why I support the FT initiative to promote financial literacy at all ages. But unless the banks are forced to make things simple, progress will be very slow.

Business has always hated competition. Elizabeth I made the Crown's fortune by selling monopolies to individuals and organsiations. The City of London, home to our banking sector, was founded on the trade guilds which policed quality but whose hidden agenda was to fix prices.

Nowadays we tend to think competition is good. The Financial Conduct Authority has a vision of a world where “firms are competing vigorously in the interests of consumers”. We even have the Competition and Markets Authority to police it all, though if businesses liked competition we would not need one!

The CMA’s predecessor, the Office of Fair Trading, ruled in April 2006 that credit card providers could not penalise customers who missed a payment. Any fee they charged could not be more than the late payment actually cost them. But then the OFT added this fateful statement: “We do not propose at present to consider legal action where charges are set below £12.” Within days all card providers had cut their charge to — guess what — £12. I am not, of course, accusing the banks of illegal price fixing. It was just a happy coincidence. And an unhappy one for competition on late payment fees.

Firms look for ways to defeat competition rather than embrace it. The only way to force them to be fair and competitive is through rules

The Financial Conduct Authority has tried to impose general overarching principles to stop the banks misleading people. Under the current rules they must show that “fair treatment of customers is at the heart of their business model”. Despite the FCA’s £600m a year budget it is clearly not working because now it wants to introduce a Consumer, Duty where firms will put themselves in their customers’ shoes and ask “would I be happy to be treated in the way my firm treats its customers”. It is not clear from the consultation paper how that will be enforced or how its outcomes will be reported to the public.

My experience in 40 years of writing about personal finance is that firms look for ways to defeat competition rather than embrace it. The only way to force them to be fair and competitive is through rules. When you make a part payment off your credit card the bank must now take it off the balance on which it is charging the highest interest rate.

In the past, payments were taken first from the debt with the lowest interest rate — sometimes as little as 0 per cent — leaving the expensive debt ticking away at 29.9 per cent. That was not treating customers fairly but that principle did not stop the practice. It took a specific rule change in 2014 to do that.

Decomplexifying financial services means banning the factors that make things complex. Ban upfront mortgage fees so that interest rates are comparable. Ban small percentage minimum repayments off credit card balances. Root out all the clever ideas that complexify our finances. Because complexification destroys competition by rendering rational choice impossible.

This article first appears in the Financial Times 5 October 2021

Thursday, 5 August 2021


How do I find a good financial adviser? It's a question I am often asked. And there is no easy answer. Especially if you do not have a lot of money.  

My first question is do you need financial advice? Unless you have a big lump-sum (tens of thousands of pounds or more) or a lot of surplus income to invest (hundreds of pounds a month) you probably don't need financial advice and probably will not want to pay the fees good advisers charge. See free financial advice below for other services that can help you.  

But if you do want regulated financial advice then here is my guide. Many people first want or need advice when they think about exercising their new pension freedoms. Some with a fund worth than £30,000 or more which comes with a guarantee have to take regulated financial advice before they can transfer their money out either to another pension or, ultimately, to cash.

I have three filters to sort the best advisers from the others. 

Filter One - Independent
Only ever use an Independent Financial Adviser. This term is now regulated and policed under EU rules called MIFID II which began on 3 January 2018. Now that the transition period is over and the UK has left the ambit of the EU these rules have become part of UK law and the Financial Conduct Authority polices them.

Under these rules there are two main sorts of financial advisers.

The sort you want is called 'independent'. That can mean one of two things.

1. They give advice on all financial matters and looks across the whole of the market and give that advice on any financial topic where they might recommend a product.

2. They give advice on a specific type of product - such as annuities or pensions - and not on other types of product. But they must still look across the whole of the market relating to that product. This may be called 'focused independent' or may just be called 'independent'.

Any adviser who is not independent does not look at the whole of the market and may be tied to one or more firms and can only recommend products from those firms. In the UK these advisers are called 'restricted' though hardly any of them used that term. Never ever use an adviser who is restricted by products. If you ask 'do you offer independent financial advice' and the answer is anything but a clear 'yes' then reject them. Many work for a bank or insurance company and of course only recommend you buy their products. That is just sales masquerading as advice.

A lot of advisers will be rejected by Filter One. The only way through it is to become independent.

Filter Two - Planners
Only ever use an IFA who is a chartered or certified financial planner. The very best qualified financial advisers are chartered (or certified) financial planners. This brings you down to the best qualified 6000 or so of the 33,000 regulated financial advisers. They are beyond what is called QCF Level 6. So they have put a lot of effort into being the good guys and the chances of a bad guy (or gal) remaining in there is small. Some firms are chartered which means that at least some of their advisers are chartered themselves and the rest are probably working towards it.

Lots of good advisers will be rejected by Filter Two. Sorry. Get the qualifications.

Filter Three - Payment
My general position is only use a financial planner who you can pay in pounds. Do not choose one who wants to charge you a percentage of your money. You earned, made, or inherited it. Charging a percentage is like taxing your wealth. Even HMRC is not entitled to do that. 

Percentage fees are a hangover from the days of commission when advisers lived on a percentage of your money they were paid year after year. If you cannot afford the fee in pounds then you probably do not need or cannot afford financial advice. 

However, in some very limited circumstances a small percentage charge - say 0.5% or so - can be better value than paying in pounds. But always make sure that:
  • you know each year how much has been taken from you so you can see if it is value for money.
  • you review the service you get every year and if it is poor, find another adviser.
Ideally you should also pay upfront from your non-invested resources rather than out of your invested money. One drawback of that approach is that a fee taken out of your pension fund comes from money which has already had income tax relief. So ultimately that fee costs you less than if you paid it out of your taxed income. It is all part of the massive taxpayer subsidies for the financial services industry (relief from VAT for finance and insurance costs £11 billion a year). That was originally an EU law but is very unlikely to change once we have finally left the EU in 2021. If you must, then pay in tax-subsidised pounds from your pension fund. But ideally - and with all other investments - pay in pounds out of your non-invested resources. That way you see the money you are paying and can ask yourself – is it worth it? And unless it is good value and you know what it is and what you get for it never pay a wealth tax to the adviser from your fund. 

Contingent fees
One iniquitous method of charging grew up around pension transfers. If you have a good company pension that promises you a pension related to your salary - called Final Salary or sometimes Career Average schemes (they are branded Defined Benefit or DB schemes by the industry) you may be tempted to transfer it to a pension pot scheme - a money purchase or Defined Contribution (DC) scheme.

Transferring out of a DB scheme into a DC scheme can seem very tempting because you will get a massive amount of money to move away from the guaranteed DB pension. And then if you choose to do so you can cash some or all of that pension in. It is almost always a bad idea. In the past some financial advisers who would deal with this for you (you have to get advice if your pension is worth a transfer value of £30,000 or more) charged on a 'contingent' basis. That meant you only paid them if you took their advice and transfered your fund. Such fees created a conflict of interest between you and the adviser who was only paid if you transfered. The FCA finally saw sense and banned contingent fees from 1 October 2020. 

The difficulties of advising people about pension transfers and the cost of insurance mean that relatively few advisers will handle this business. Esepcially if you do not have a very valuable pension. 

Next steps
These three filters will take you a long way towards finding good, safe, but often expensive, financial advice. There may be adequate or even good, safe, and perhaps cheaper advisers which have been filtered out. They can get themselves through my three filters by becoming independent, getting financial planning qualifications, and changing the way they charge.

I must also add that there are a small number of well qualified independent financial advisers who have given dreadful advice (especially about pension transfers), have gone out of business, or have even turned out to be crooks. So these three filters are not a guarantee but they are a good start.

Website research
You can apply your three filters using online directories of financial advisers.

1. Adviser Book is the newest directory. Unlike the others no-one pays to be included. It has the complete list of more than 12,000 FCA regulated adviser firms on it but it does not yet list individual advisers separately. It clearly states who is verified as independent and you can filter by qualifications and specialisms. You can also filter by independent and how fees are charged.

2. Unbiased was the first real attempt at a comprehensive database. It says it lists more than 18,000 independent financial advisers. Restricted ones should not be on there. Advisers get a basic listing free but they must pay a subscription to be directly contactable through the website. You will see a list of the 'top 20' near your postcode which unbiased says is based on how near they are to you.

You can use the site to apply my filters. You can also make other choices such as specialisms or qualifications. You can even pick a male or a female adviser.

3. Vouched For uses its algorithms to provide a list of advisers for you. They are ordered to take account of how local they are to you, reviews by customers, and ratings. Advisers cannot pay for a better position in the list. The site checks qualifications by asking the senior manager who is responbile for them and checks that periodically. It demands images of certificate for qualifcations.

You can filter by speciality, by independent or not, and by qualification. And each entry shows clearly if the adviser is independent or restricted - always reject the latter of course. It will also show the minimum amount of money you need for them to take you on as a client. 

Vouched For lists about 8000 financial advisers who choose to pay the fees to be included and of those 3000 are full vouched for - you can only click through to the adviser website for those. 

Other listings are available but they are much less useful. The Personal Finance Society lists all the advisers who have its qualifications and are Chartered Financial Planners, or are on the way to becoming Chartered, or work for a firm which is Chartered. That is a useful check. But it does not indicate if they are independent.

Next steps
After using these sites and checking for independence, qualifications, and how they charge, you should then pick two or three you fancy.

I would only use an IFA who has a website where you can find out more. Ignore the slick sales patter which usually reads as though it is generated by a PR machine. You'll find similar meaningless platitudes on most of them.

Most adviser websites do not tell you how much they charge - I would tend to pick only those that do. Certainly make that your first question when you meet them. If the answer is anythnig but clea that is a warning flag. Also ask what it will be in pounds (if they haven't told you) and then ask what you get for that fee.

Most advisers will give you one free session. Go prepared with details and information about yourself. Try two or three and see which you prefer. Do not be embarrassed to say 'no' to them.

If you pick an adviser but later regret it you can leave by just writing them a letter telling them that they are no longer your adviser. Ask them to return any documents and destroy all your data. If you feel you have been badly advised or locked into investments you did not want, then complain and pursue the complaint to the Financial Ombudsman Service.

Free financial advice 
If you want financial advice outside the regulated professionals, then try the free, Government approved Money Helper site. That is the new name for what used to be called the Money Advice Serivce. Its website is very good on a whole range of money issues, some of which many financial advisers will know little or nothing about. Or you may want to consider joining Which? and subscribing to its Which? Money Helpline. That will cost you £10.75 a month.

If you have pension questions then you can still contact the Pensions Advisory Service which has a helpful helpline on 0300 123 1047. The service is now part of Money Helper. It is free and approved by the Government.

Specific advice about the pension freedoms which began in April 2015 can be found at Pension Wise. If you are over 50 you can call 0300 330 1001 to book an appointment for one-to-one telephone advice, or a face-to-face interview at a nearby Citizen's Advice office. Again, Pension Wise is now part of  Money Helper.

Only the term 'independent financial advice' is regulated. Anyone can call themselves a 'financial adviser', an 'investment manager', or a 'property specialist'. And they do. All those terms are meaningless. Some call themselves International Financial Advisers which they abbreviate to IFA trying to give the impression that they are Independent Financial Advisers. They are not and are probably not even regulated. All these people are allowed to operate unregulated as long as they only sell unregulated investments in things like whisky, property, or art. Your money is completely at risk. 

If an adviser does not use the word 'independent' or does not say simply say 'yes' when you ask if they are independent, then they are not. Avoid them. Always ask for a Financial Conduct Authority number and check it out on the Financial Services Register. Not all individual regulated advisers are on it. But all regulated firms are so ask the adviser about their firm. Then use the contact details on the FSA Register to check with that firm is the person who claims to work for them does so. 

Sadly - and madly - the register does not say if the adviser is independent or restricted. Sadly - and madly - again, changes to the Register mean that it is not as comprehensive as it was. But never trust someone who is not on it. And be cautious even about those who are.

If you are ever cold called or receive a text or email from an adviser you have not found and researched just say 'no'. No-one ever lost money by doing that. Many have lost money by not doing that.

Paul Lewis
05 August 2021
Vs. 2.66

Thursday, 29 April 2021




Millions of people on benefits will get just a few pence a week more in smallest uprating

The week beginning April 12 was a big one for people who are so disabled they need help with their bodily functions from another person by day and by night. They got an extra 60p a week on their Attendance Allowance – less than the price of a 2nd class stamp to write and complain. Their carer will get an extra 35p a week which, for the minimum 35 hours they must do their caring, amounts at best to an extra 1p an hour. In total their weekly stipends will creep up to £89.60 and £67.60 a week. A carer who tries to work their way out of poverty loses all their carer’s allowance the moment their wages rise above £128 a week – 14 hours at minimum wage if they are aged 23 or more.

Other benefits rose by similarly inconsequential amounts. Those on employment and support allowance got 35p a week more, slightly less if they are under 25. People on long-term incapacity benefit because they are, guess what, incapacitated over the long term, were given an extra 55p, barely enough for a pint of semi-skimmed.

Child benefit paid to millions of mothers will rise by just 10p for the oldest child and 5p for each other – less than the cost of a visit to a public toilet.

Even widowed mothers, once in the pantheon of those we should help, will see their allowance rise by just 60p a week to £122.55. They are lucky. More recently bereaved spouses will get zilch. Bereavement Support Payments, which began for deaths from 6 April 2017, are only made for eighteen months so the Government has seen no need to raise them at any of the four Aprils since they were introduced. Many other amounts are also frozen. The benefit cap – the maximum allowed which generally cuts the benefits of people with high rents and several children – remains where it was fixed five years ago at £20,000 a year. The amount of savings which denies entitlement to means-tested benefits is still frozen at £16,000, an amount set fifteen years ago. The Local Housing allowance – the maximum amount of rent that can be paid – has also been frozen for 2021/21. So as rents rise, tenants are poorer.

I am old enough to remember the trouble Gordon Brown got into in 1999 when he announced a rise in the state pension of just 75p a week. That is more than the increase in every working age benefit rate on 12 April this year. But there is no outrage this year, even though Brown’s 75p pension increase was the correct amount according to the same rules. Each April benefits rise in line with the inflation rate the previous September. In 1999 that was 1.1%. In 2020 it was 0.5%. That 75p rise would be worth £1.77 in today’s money.

There have been two changes to that rule. From 2011 the CPI replaced the RPI as the measure of inflation, a change which reduces inflation by almost one percentage point just because of the different arithmetic the two measures use. Indeed, in September 2020 while the CPI was 0.5% the RPI was at the 1999 Brownian level of 1.1%! Five years later austerity kicked in and most working age benefits were frozen from 2016 to 2019. Over that period prices rose 7.4% (CPI) or 10% (RPI).

Even pensioners are not exempt from this parsimony.  Of course, at the moment the old basic state pension and the flat rate new state pension are increased each year by the magic triple lock – forged from the Gordon Brown embarrassment and tempered in the fire of six general elections. Those amounts are raised each year by the highest of the rise in prices or wages or 2.5%. This year with pay increases negative in the autumn and a 0.5% rise in the CPI, the default rate of 2.5% was used. So from April 12th the basic state pension went up to £137.60 a week – a rise of £3.35, almost ten times the increase paid to a carer, and the new state pension is now £179.60, a full £4.40 a week more – equal to the rise in child benefit for a mother with 87 children. But pensioners are not free of the CPI shackle. Only the two headline rates get that triple lock treatment. The extras – SERPS and its enfeebled lookalike state second pension, the old graduated pension, the protected amount paid with some new state pensions above the flat rate, and the extra for deferring your claim which is paid (at different rates) with old and new pensions, all rose by 0.5%. As a result many state pensioners will see an increase in their weekly benefit of less than 2.5%. A rise of less than 2.5% was also given to those who get the means-tested pension credit.

I recite all these facts partly because I am the Mr Gradgrind of financial journalism “Facts alone are wanted in life. Plant nothing else….You can only form the minds of reasoning animals upon Facts…Stick to facts, sir!” (Charles Dickens, Hard Times 1854, Chapter 1). But mainly because they are little known, seldom acknowledged, and rarely understood. As Thomas Cranmer said – read, mark, learn, and inwardly digest.

A version of this blogpost was first published in Money Marketing 

29 April 2021 

vs 1.00 

Monday, 12 April 2021


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.

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.

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.

Reach State Pension Age in
Men born
Women born
Years you can pay
Maximum pension boost (2021/22 rates)
6 April 1951
5 April 1952
6 April 1953
5 July 1953
6 April 1952
5 April 1953
6 July 1953
5 Oct 1953
6 April 1953
5 Jan 1954
6 Oct 1953
5 Jan 1954

Men and women born

from 6 January 1954
to 5 July 1954
from 6 July 1954
to 5 April 1955
from 6 April 1955
to 5 April 1956
from 6 April 1956
to 5 April 1957
from 6 April 1957
to 5 April 1958
from 6 April 1958
to 5 April 1959
and later
from 6 April 1959
to 5 April 1960
and later

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. 

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.

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

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 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