YOUR HOME AND CARE HOME FEES

 

 

SPENDING THE WINDFALL

 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.

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25 November 2021

DECOMPLEXIFICATION IS THE KEY TO FAIR FINANCES

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

FOR WHOSE BENEFIT?

 

 

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 2^nd 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 12^th 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 

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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

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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

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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'.   

A 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
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