THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE.

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 3rd November 2001 1200-1230 BBC RADIO 4

Company Pension Funds

Equitable Life

Minimum Income Guarantee

Banks

Share Incentive Plan

LEWIS: Hello, in today's programme..

A major pension fund boots its shares into touch

The government launches a new claim form to encourage nearly a million people over sixty to get extra money .

The High Street banks are accused of failing ethnic minority communities.

Should we take government advice to invest in the business we work for?

And Equitable Life holders still wait to get hold of their own money

MAN: My pension is dwindling before my eyes and I have no means of getting it out and there's nothing I can do.

LEWIS: All that later but first Boots. The major high street retailer sent shock waves through the investment industry this week by revealing that the firm's entire pension fund worth �2.3 billion has been moved out of the stock market and into safer investments. The unprecedented move is designed to ensure that the seventy two thousand members of the Boots pension scheme will get their promised pensions. No one from Boots or the pension fund could talk about the move until the company publishes its financial results next week but the Chairman of Boots Pension Fund Trustees, John Watson, told his members in a letter..

ACTOR: Our aim is to ensure the value of fund assets is always enough to pay all pensions, regardless of movements in financial markets.

LEWIS: Boots, like all other company funds, is a member of the National Association of Pension Funds. Its Chairman, Peter Thompson, is with me. Peter what do you know about the Boots decision? Why did they do it?

THOMPSON: The Boots decision is an important one to do with investment strategy. It's not a market timing decision.

LEWIS: You mean it's not to do with the fact that the stock market is falling at the moment?

THOMPSON: No it's not to do with that. It's a long term strategic decision that has been taken by the trustees, obviously from what I've read, in consultation with the company, Boots PLC. Investment strategy is a key job of trustees of pension funds like Boots and one of the key parts of that job is the decision about risk and return and this is what this is all about, risk and return. Trustees, like individuals, invest in equities in the hope they will outperform safer forms of investment.

LEWIS: But there is a sense, there is a fear, isn't there that some pension funds won't be able to meet their liabilities, are you saying that that wasn't a factor in the Boots decision?

THOMPSON: As far as I understand it what led to the Boots decision was a concern about risk rather than about absolute levels of return. There was a concern about the downside risk of being in a heavily equity oriented portfolio rather than the bond portfolio which they have now.

LEWIS: But some other big name pension schemes, Corus that was British Steel and some others, the liabilities of the pension fund are greater than the market value of the company, that must be a difficulty for them?

THOMPSON: There's been a gradual shift from equities to bonds over about the last eight years or so amongst a lot of large pension schemes including those where the scheme is worth more than the company itself. And I think you'll find a lot of those have substantial portfolios of bonds and of government gilts rather than being heavily invested in equities.

LEWIS: And although John Watson told the members it was to ensure they could pay the pensions, it sounds as if it's for the benefit of pensioners, in fact isn't it for the benefit of Boots the company because if the pension fund can't meet the liabilities, the pension promise, the company has to do that..

THOMPSON: In a final pay pension scheme like the one run by Boots it's the company that stands behind the obligations that the pension scheme has to its members.

LEWIS: They guarantee it.

THOMPSON: The company, in effect, guarantees it, yes. So the investment strategy decision is not just one for the trustees it's one that the company has to take an active part in as well.

LEWIS: Well with me too is David Hanratty who's a director of Nelson Wealth Managers in Chester. David, the Boots pension fund has been moved out of shares and into bonds. Tell us what bonds are.

HANRATTY: The term bond is used quite a lot but in its purest form it's really only a loan. When you invest in a bond you're lending money to a company or to a government and in doing so, in the most common form of bonds, you get three things. You get a fixed rate of interest, for a fixed term, and at the end of that term you get a known amount of money back. Now that's what makes it ideal for individuals and organisations who've got liabilities to meet.

LEWIS: But it's only as safe as the person or company you lend the money to?

HANRATTY: Yes, if you put the government to one side, then bonds have credit risk, the safer the company the more likely they'll meet all the payments that are due to you.

LEWIS: Now Boots has taken this decision on behalf of its pension fund members, many people of course have personal pensions, not company pensions, should they be taking a similar move, moving their money out of the stock market into bonds?

HANRATTY: Well I think the general answer to that is unless they are approaching retirement - No. On an individual basis they've got different considerations but clearly if your pension strategy is being successful the closer you get to retirement you want to protect and consolidate what you've got. So you should be looking to switch into more secure forms of investment and of course people who are actually in retirement, drawing their pensions, should be looking to make sure that the income that's produced by the pensions is there safe and guaranteed.

LEWIS: David Hanratty, thanks. And thanks to Peter Thompson from the National Association of Pension Funds. And if you have questions on savings and investment you can call our phone in, Money Box Live on Radio 4 on Monday afternoon with Vincent Duggleby.

A government minister came close this week to conceding that state compensation may be due to some customers of Equitable Life. The admission came from Ruth Kelly, the government's Economic Secretary, giving evidence on Tuesday to the Treasury Select Committee..

KELLY: If the Ombudsman reaches a decision that a grave injustice has been carried out for the policyholders then of course that's something we'd look at.

LEWIS: Ruth Kelly. The minister was commenting on a change of heart by the Parliamentary Ombudsman, Michael Buckley. As we predicted on Money Box last week, he announced this Monday that he'd now be investigating claims that the Financial Services Authority had been guilty of maladministration over the way it regulated Equitable Life in 1999 and 2000. Compensation of course is in the future, the concern of thousands of Equitable Life members now is getting their money out and moving it to another pension fund. One man who has been waiting to get his hands on his own money for nearly four months is Keith Baalam�

BAALAM: I decided enough was enough and wanted to get out as quickly as possible, that was middle of July, and I've been trying ever since unsuccessfully to get my pension out of Equitable and into another provider and here we are entering the fourth month. I just feel that my pension is just dwindling before my eyes and I have no means of getting it out and there's nothing I can do.

LEWIS: There was some hope for Keith and others like him this week when Equitable Life finally told them the effects of the sixteen per cent cut in their fund, which was announced in July. I asked the Chairman of Equitable Life, Vanni Treves, why it had taken so long to deduct sixteen per cent?

TREVES: It was absolutely necessary that the decision we had to make on July 16 was kept secret so that all members would be treated in the same way and we therefore weren't able even to tell our own systems people about the decision we were about to make. They therefore had to reset these very complicated systems affecting very large numbers of members from a standing start on July 17. It has taken that long to do.

LEWIS: So it wasn't so much an administrative problem it was the fact that there was a management decision that was made and kept secret, as you put it , from everybody that's led to these difficulties?

TREVES: Well it's a combination. It was a complex decision affecting many people but in addition, as you know, our systems have been, and still are, under great pressure.

LEWIS: Now the letters have gone out this week telling people what their funds are worth. What help will that be to people who do want to move their money out of Equitable Life. I mean one listener, Keith, he contacted you three days after the sixteen per cent cut was announced, he still hasn't had his money transferred, three and a half months later.

TREVES: That is most unusual. Transfers typically take much less than that time. Sometimes the paperwork we receive isn't in order and that's why it takes longer than it normally would, which is a matter of weeks, certainly not months. But now people know what it is they've got in the Society and can take advice, can make their own decision and decide what they want to do next.

LEWIS: So what's your target if somebody now has got this information, they go to another company and say I want to move my money, what's your target time for that happening?

TREVES: Well our target time is much shorter but realistically if the paperwork we receive is in order it takes between four and six weeks to process it. LEWIS: So within four to six weeks people should be able to see their money moved out of Equitable Life, if indeed that's what they decide to do?

TREVES: In a typical case that is so.

LEWIS: Some commitment from Vanni Treves there but his main preoccupation at the moment is the future of Equitable Life, which will not be settled until members vote on the compromise deal which the Board put to them last month. The consultation process is now over and the comments of members have been analysed. So I asked Vanni Treves if the final version of the deal would be changed in the light of members' comments?

TREVES: In substance it is going to be the same and the reason for that is first of all there is only one pot of money. Secondly, we know that for every policy holder who thought that he or she should have more there was another policy holder in another camp who thought that he or she should have more as well and therefore we believe that the proposals were properly discussed and achieve the right balance between the conflicting claims of policy holders.

LEWIS: And if you get the vote you want, the yes vote, and the compromise has been enacted - you've had your money from Halifax - will you then let people leave without an exit penalty?

TREVES: No, not necessarily. The question of exit penalty, the Market Value Adjustor, is kept permanently under review and its purpose is this and only this. The people who take their money out before contractual maturity date should only take their fair slice of the assets with them.

LEWIS: So the MVA, the Market Value Adjustor will remain and even though you've got stability, even though you've got the vote you wanted, there will still be a penalty on people moving out of Equitable Life?

TREVES: It's not a penalty as such. It's simply to ensure people only leave with their fair slice of the assets.

LEWIS: Vanni Treves, the Chairman of Equitable Life.

It should be easier this week for people over sixty to claim help if they have a low income. The Department for Work and Pensions has simplified the form which is used to claim the Minimum Income Guarantee, that's the means tested benefit which should make sure that everyone aged sixty or more with modest savings has an income of no less that �92 a week or around �140 for a couple. Recent government figures though show that despite a fifteen million pound campaign to promote this benefit the number of over sixties who are not claiming it is rising. Nearly a million people lose on average �22 a week. But will cutting the forty page form to just ten pages be enough to change their ways? Vera Batanoni from Age Concern Hammersmith and Fulham deals with hundreds of poorer pensioners every year. Why don't they claim?

BATANONI: (telephone rings) "Age Concern Hammersmith and Fulham, hello"...With a lot of pensioners that come in and I see they really are very reticent about claiming anything. They think that this money is being taken away from other needy people and I have to really explain that the government has this money there for them. And if I say that it is there to subsidise their meagre pensions, they're more inclined to claim, or let me claim for them, they still don't want to do it themselves. I hope the new form will reach more people but from experience I don't think it will make any difference.

LEWIS: Well that was Vera Batanoni from Hammersmith and Fulham. With me is Gary Vaux, who's Head of Money Advice with Hertfordshire County Council, a familiar voice on Money Box, who also was consulted by the government when it was drawing up the new form. Gary, obviously it's shorter and easier but will it be the answer to these nearly a million people who don't claim?

VAUX: Not on its own, no. The new form is an improvement, the old form - forty pages long - in itself put people off from claiming.

LEWIS: It also had questions on it like "Are you pregnant?" and things like that for people over sixty didn't it?

VAUX: Yes, it wasn't the best designed of forms I think. The new form is obviously a lot better, whether it makes a difference I think time will tell, but I think a lot more needs to be done to promote Minimum Income Guarantee, for a start people need to know what it is. It's not a new benefit, it's Income Support social security renamed as Minimum Income Guarantee.

LEWIS: But the government's spent fifteen million pounds promoting it last year and I think if you take certain figures from others you'll end up with about twenty thousand more people claimed it out of possibly a million who could so promoting it is not the only answer is it?

VAUX: It's not. I mean the basic problem is the means test. A lot of pensioners don't want to give details of their income, their savings, their partner's savings, and that in itself is the reason they don't claim. The claim form could be one page long and it wouldn't overcome that particular hurdle.

LEWIS: Because you still have to list every bank, every building society account, every scrap of money you own, and also, although the form is ten pages, I noticed when I printed it off this morning that the explanatory booklet is thirty two pages, so it's still a complex task.

VAUX: Yes I wouldn't recommend dropping it on your foot for certain!

LEWIS: OK, well let's do our bit now Gary. Who should claim, who can claim this money if you're over sixty?

VAUX: If you're sixty or over and you've got an income of less than �92.15 a week, if you're a single person, or �140.55 if you're a couple. Now those figures are only basic figures, they could be higher than that even if for example you're disabled and getting attendance allowance or you have a mortgage. So straightaway there's about seven hundred and fifty thousand pensioners who should be claiming with incomes below that level who in fact haven't yet claimed.

LEWIS: So we've got the income limits and of course if your savings are now below six thousand pounds they don't count at all and even up to twelve thousand pounds you can get something. And how do you do it, how difficult is it?

VAUX: You can contact, there's a MIG claimline, a Minimum Income Guarantee claimline, that people can use or they can contact their local social security office, or go via an agency like Age Concern, or Citizens Advice Bureau or local authority welfare rights unit.

LEWIS: So if you think you can claim get help and do it because there's nothing to lose?

VAUX: Absolutely.

LEWIS: Gary Vaux, thank you very much for talking to us and the details of the helpline number will be on our website and with our helpline, I'll give you those details at the end of the programme.

The High Street banks are being told this week that they should do more to help local communities where there's a high proportion of people from ethnic minorities. In some of these communities as many as a third of all adults don't have a bank account and although some banks are taking action to help there's still a long way to go to provide better access to banking for people from ethnic minorities. Penny Haslam reports..

HASLAM: In an increasingly cash-less society people without access to banking facilities inevitably lose out. They don't have on-line banking and shopping, payment cards or the opportunity to apply for simple credit and loans. That's led David Lammy, MP for Tottenham, one of the most ethnically diverse constituencies in the country, to accuse the banks of failing poorer ethnic minority communities.

LAMMY: Access to finance amongst ethnic minorities is a serious, serious problem. The situation has improved over the last few years, but it has a long, long way to go, I think one of the problems is that banks continue to be national in the way that they approach access to finance, they have to get local, here in Tottenham, and communities like Tottenham, social exclusion means that. Organisations and banks have to drill down to get to those people, to get them access to finance.

HASLAM: Despite launching basic bank accounts for people on lower incomes a year ago, the banks are still seen by many ethnic minority communities as irrelevant to them. According to Sharon Collard at Bristol University's Personal Finance Research Centre, the perception is that the banks just don't want to know.

COLLARD: There is an image problem with banks, that they suffer from amongst people living in disadvantaged communities, and amongst ethnic minority people as well, in that banks are really seen as for not being for people like them, and that's a psychological barrier that the banks will have to work fairly hard to overcome, if they want to include people in the banking system

(Halifax advertisement) HASLAM: This television advert with Halifax's Howard Brown, the singing customer services advisor from Birmingham, is helping the Halifax go some way to alter that image. But it's not an entirely altruistic move, as the banks wake up to the potential business opportunity ethnic minority customers can bring. In Manchester, home to one of Europe's largest Chinese communities, the Halifax wanted to forge a relationship with the local Chinese population. Tyrone Jones, an equal opportunities advisor at the Halifax, says the all-white staff behind the counter was giving out the wrong message.

JONES: What we did was set about changing that by going into the community, actually finding out the barriers what were to us as an employer, but also the way we offered our services. As a result of that we successfully recruited four chinese people to work within our branches, they immediately saw a 60% increase in new mortgage business since the initiative actually began

HASLAM: With dual language posters and leaflets in the branch as well, the Halifax says it aims to repeat this success in other cities, and the main high street banks have all told Money Box they're employing similar tactics. But it's not just the faces behind the counter. HSBC has gone one step further and thinks that specialist units are better placed to understand the needs of ethnic minorities. Its South Asian Banking Service was set up over 4 years ago, and now has eleven teams in branches around the country. Head of the service, KB Shankar, says it's the only way to hold onto customers in the long run as the banks compete for a bigger market share.

SHANKAR: I'm aware that other banks also address or have recognised the needs of people, but they address in their own way. HSBC has always strongly believed in community banking and South Asian banking is based on the same concept, the idea is that we need to be culturally aware in the market place, but we are able to do it much better, as we believe in long term relationships, that grows over generation to generation over a long period of time

HASLAM: But with just 3000 customers it only scratches the surface. HSBC offers no specialist African and Caribbean banking facility as yet. But where the banks try hard their efforts appear to pay off, the success though is at best patchy. If the numbers of people from ethnic communities applying for bank accounts is to significantly increase the banks need to persevere, according to Tottenham MP David Lammy. He says the banks need to think about the long term benefits for entire communities, as well as their profit margins.

LAMMY: It's in banks interests, frankly, to ensure that local economies are moving forward, they get the benefit of that and we all get the benefit of that, in this country, nationally.

LEWIS: David Lammy MP ending that report by Penny Haslam.

The government tried this week to breath new life into a scheme which gives big tax breaks to people who buy or who are given shares in the company they work for. The scheme began more than a year ago and although nearly five hundred companies have joined it the government decided it needed better promotion and a new name. The Share Incentive Plan, or SIP as it's now called, allows companies to give their staff free shares and it allows employees to buy more shares in the company they work for free of all tax and national insurance contributions. Diane Hay is Director of Proshare, the organisation that promotes share ownership, she's been working closely with the government on the relaunch of the scheme. Diane why did you need to relaunch this scheme?

HAY: Well it wasn't so much a relaunch as its first official launch. It didn't really have a name before

LEWIS: Oh come on Gordon Brown's announced it at least three times already.

HAY: Oh well yes we've been working on the plans since 1998, we've wanted to raise awareness of the whole plan and its benefits, so we hope lots of people have heard about it by now.

LEWIS: Tell us how it works?

HAY: It's a plan that's been developed in consultation with companies, trade unions and professional advisors so it's very flexible and it incorporates a lot of features that they wanted to see. Basically it boils down to two types of share plan in one. The employer can give employees shares worth up to three thousand pounds each year and some of those can be profit related and also a share purchase plan which enables employees to use up to one thousand five hundred pounds of their salary to buy shares in a company.

LEWIS: But isn't it a bad idea to put your savings into your own company? If your company goes bust you've lost your job and your savings.

HAY: Well buying shares is obviously more risky than for example taking out an option under a save as you earn scheme. I would agree with you employees do need to be made aware of the risks but to balance that risk potential rewards are much greater under this scheme and the tax breaks are much more generous.

LEWIS: But who warns them of the risk, if the company advises them to buy shares in the company itself, is that financial advice, is it regulated?

HAY: They aren't regulated products and companies aren't able to give advice in that sort of way but what the company can do is put in, if you like, cushions, that will protect the employee from the risk of the share price falling.

LEWIS: Well David Hanratty from Nelson Wealth Managers is still with me. David in your view, is it a good idea to buy shares in the company you work for?

HANRATTY: I think it's an excellent idea to join the share schemes the companies use and offer because they're a fantastic way of creating wealth. But given that many of the people who will participate in these schemes are ordinary people, not the executives or senior managers, then once the schemes have done their job of generating that wealth it is important to consolidate and to diversify so that, as you said, people are not too exposed to a company failing.

LEWIS: So you need advice, where do you go for that?

HANRATTY: Well over the last ten years or so a lot more employers have recognised the need to provide guidance both when they're making their offers for people to join schemes but particularly at maturity. I think there's been a lot of comment recently about Railtrack where it was perceived that a lot of employees had lost money but in fact ninety per cent of the shares that were earmarked for employees hadn't actually been bought because they were in an options scheme. The problems come in an SAYE scheme at maturity so at that time that's when people need tax and diversification advice and more and more employers are providing that.

LEWIS: That's the other type of scheme but of course in this one you are buying the shares and you are buying one company.

HANRATTY: You are but there are generous tax incentives to hang onto them.

LEWIS: David Hanratty thanks and earlier we heard from Diane Hay from Proshare.

Now Penny Haslam's come in and got some news for us.

HASLAM: The Britannia Building Society this week has become the target of a carpetbagging campaign to turn it into a bank, Richard Yendell, who runs carpetbagger.com and who's already tried to force the Skipton, Portman and Chelsea building societies to demutualise has said he want to run as a candidate for the board next year.

LEWIS: Thanks very much for that Penny. That's all we have time for today, for more information about the items on today's programme you can call the action line 0800 044 044, calls are free 0800 044 044 or you can look at our website www.bbc.co.uk\moneybox Personal finance stories carry on throughout the week on Working Lunch, BBC2 at 12.30 and remember our phone in Money Box Live on Monday where Vincent Duggleby is here to take your questions on savings and investment. Our email address is [email protected]. I'm back with Money Box at the same time next week. Today the producer was Penny Haslam and I'm Paul Lewis