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 8th DECEMBER 2001 1200-1230 BBC RADIO 4

HSBC Mortgages

Equitable Life Vote

Annuity Reform

Pension Funds

The Complaints Commissioner

Hello. In today's programme...

A million mortgage payers could see their payments slashed after a ruling by the Financial Ombudsman. A Christmas present drops through half a million doors, the 1 kilogram rescue package from Equitable Life. Our reporter this week is Chris A'Court ..

. A'COURT: Investigating new controversy affecting people who must buy annuities

LEWIS: As 46 more companies abandon guaranteed pensions - is the golden era really over? And the watchdog's watchdog shows us her teeth.

First though, more than a million people could be in line for a cheaper mortgage and money back following a ruling this week by the Financial Ombudsman. The case was brought by a customer of HSBC who had a discounted mortgage - that's guaranteed to be 1.25% below HSBC's standard rate. Then in July last year the bank cut its standard rate for new customers and in September it cut the rate for its existing customers too - but not for all of them. People with a discounted rate were excluded. HSBC took the view that they would be given a double advantage - a discount AND a much reduced standard rate. But now the Ombudsman has said that is wrong - there can only be one standard rate and if you are being given a discount it must be off that. 30,000 HSBC customers are in a similar position, and at least three other lenders have offered similar deals. I asked Mick McAteer of the Consumers' Association for his reaction.

McATEER: Well we certainly welcome the Ombudsman's decision and we hope that HSBC does the decent thing and treats the customers fairly, I really hope that they don't make everyone affected apply for redress individually, the reputation of the industry is at stake so I know if I was HSBC and I was worried about corporate image I know that I would make sure that everyone who was affected gets redressed.

LEWIS: Is the Ombudsman failing though - is the system failing because he can't make general rulings that do force companies to apply his ruling to all their customers?

McATEER: Well I think the thing to remember is that the Ombudsman is there to get redress but there are now other alternatives such as the unfair contracts powers, such as yourselves have, and the Financial Services Authority will have as well. We are still investigating this practice of dual rates to see if there is any action that we can take under the unfair contracts legislation. If we can conclude that we can take action rest assured we will do.

LEWIS: Mick McAteer. So what will the bank do? With me is HSBC's head of Banking and Mortgages, Clive Wood. Clive just explain first the circumstances of this successful complainant.

WOOD: We're naturally disappointed by the Ombudsman's decision because I guess it paints us as the bad guys when we think we're the good guys.

LEWIS: They all tell me that

WOOD: Well indeed

LEWIS: Explain what happened in this case

WOOD: Well back in July last year we unilaterally cut the cost of borrowing for hundreds of thousands of our customers by 1% that cost us about 30 million pounds a year . And what we did was everybody on a variable mortgage who could benefit by being transferred to our new rate we automatically transferred them across that rate, 4.75%. Those customers with a discount above that rate were transferred across, those with a discount paid less than our Homebuyer rate, currently 4.75%, could stay on that rate and when their discount came to an end we would automatically transfer them across to our home buyer rate. Now that sounds to me like excellent value not the basis for a court case.

LEWIS: But this customers said that he wanted, or she wanted as I understand it, that she wanted the discount and the lower rate so she'll be paying now 3.5% which is a very nice mortgage rate isn't it ?

WOOD: It's really nice. I guess we profoundly disagree with the Ombudsman's decision here.

LEWIS: But you have no choice do you - he's made his ruling. That is it for this customer you have to give her 3.5%.

WOOD: Absolutely right and we will settle the case - in fact we have already spoken to the customer but if you just put it in context here the average standard variable rate for the top ten lenders on the high street for existing customers is 5.85. We charge 4.75% and all our discount mortgage customers pay less than that typically about 4.5%, that's excellent value.

LEWIS: We're not talking about value or fairness we're talking about the legal position aren't we and as I understand it there are 30,000 other HSBC customers who could be in a similar position. You have a discounted rate but don't have the new lower variable rate. Are you going to move all them across - now that the Ombudsman has made his ruling?

WOOD: No we're not. The Ombudsman was very careful that this was a judgement on this particular customer and these particular circumstances. Um, we know overwhelmingly the great majority of our customers know that a 4.5% or so mortgage is excellent value.

LEWIS: Then I'm sure they would prefer a 3.5 % mortgage so there are 30,000 people are there who could call you, write to you, it would go to the Ombudsman he would find in their favour, wouldn't he?

WOOD: Um

LEWIS: Why make them go through all those hoops?

WOOD: I don't think there is any question of us forcing customers to go to the Ombudsman. What we do know is that fewer than one in a thousand customers have actually written to us to enquire on this and when we tell them that their paying say 4.5% they go away very happy.

LEWIS: So you're fobbing them off really- so you're saying don't bother to complain cause you're getting a good deal but what you should really be saying is if you really want to press this it will go to the Ombudsman.

WOOD: No not at all. If a customer is concerned and wishes to complain we'll be delighted to deal with their complaint sympathetically on its merits, and we would be very, very unlikely to force a customer in the same situation to go to the Ombudsman.

LEWIS: So you'll accept these claims if people make them ?. WOOD: We would certainly look at the circumstances of each case, deal with it sympathetically but I say the over-whelming majority are very, very happy with the deal they get.

LEWIS: But of course if you don't deal with it sympathetically they can go to the Ombudsman and indeed within 8 weeks they have that right anyway.

WOOD: Indeed they have that right but certainly we'll be pleased to look at each case on its merits

LEWIS: Clive Wood thank you very much indeed.

Now a year ago today a million people who thought their pensions were safe heard this news...

('Today' programme .. : " Just getting some news about Equitable Life we thought they might have bought a buyer they have to have a buyer because they're in trouble. Mary Gahan, it isn't like that? No, the Equitable Life has just announced that it's closing to new business with immediate effect. This was a company that was involve in a court....."

LEWIS: The 8th December 2000, the day when we learned that Equitable Life, the world's oldest mutual insurance company and thought to be one of the safest was in deep trouble. Over the last twelve months here on Money Box we have followed the twists and turns of Equitable's attempts to work out how it could deal with pension guarantees made many years ago but which could no longer be afforded although the court said they had to be honored. This week, the final compromise deal has been sent to 485,000 individual members and 6000 pension funds. I have the pack in front of me, it's a hefty thing weighs just over a kilo, that's 2lbs 4ozs to most of the people on Money Box and at least one listener, Keith from Aylesbury, found it too big to go through his letter box.

KEITH: The thing that I received, this large purple package, was quite a tome and my own postman decided that he couldn't get it through my letter box which is a fairly standard size aperture I think. Instead he chose to post a card through the front door simply saying that there was a package available for my collection at the local sorting office. My concern really was that if that was happening to a significant proportion of policy holders there would be risk that the seventy five per cent 'yes' vote for this compromise deal might be seriously compromised itself.

LEWIS: Let's talk live now to Vanni Treves who is of course the Chairman of Equitable Life. Vanni - you have said people should vote - are you worried that significant numbers won't actually reach the recipients?

TREVES: No we're not worried about that we're quiet confident that the great majority will, we've taken enormous trouble that they should and anybody who doesn't receive their pack within the next few days should please telephone the helpline and we'll put that right.

LEWIS: Why is it so important though that everyone votes, you only need a majority of those voting don't you?

TREVES: Yes but we also need seventy five per cent by value to vote in favour, that's an enormous hurdle, it's more of a Bechers Brook than a hurdle isn't it? And if we don't have seventy five per cent in both classes voting in favour, by value, then the compromise won't happen and the Board is unanimous in thinking that's a disaster.

LEWIS: Well you say it's a disaster, what does a disaster mean? Does that mean Equitable Life would no longer be solvent?

TREVES: No we'll do everything in our power to make sure that it will remain solvent, but it would mean growing instability, it'll mean a restricted investment policy, a very bleak outlook for bonuses, a very high cost of fighting all the litigation that would be bound to happen, unacceptable administration standards and perhaps worst of all, continuing anxiety, desperate worry for so many of our members.

LEWIS: Well indeed they've had one, probably two, Christmases ruined by this haven't they? You talk of certainty but can people be sure of the value of their policies if they vote 'yes' if they vote 'no', you haven't actually told them that have you?

TREVES: Well we can't know exactly what the value will be because it depends on the state of the investment markets, as does every society's performance, but what we do know is if there is a compromise that compromise will tackle the GAR related uncertainty.

LEWIS: This is the guaranteed pensions. And if people vote yes they'll get seventeen and a half per cent if they have guarantees, two and a half per cent if they don't. What if they then want to leave, are there plans in place to raise the penalty for those who want to wait for the uplift and then get out?

TREVES: There are no such plans at all and anybody who after the compromise wants to leave can leave according to the rules that then pertain.

LEWIS: Yes but what will those rules be?

TREVES: Well it depends on the state of the investment markets and I can't say now what will happen in three or six months time in the investment markets but we have no plans at all to cut bonuses or to increase the penalties.

LEWIS: Vanni Treves thank you very much. Well with me is Amanda Davidson who's Director of Independent Financial Advisers Holden Meehan - Amanda - what should people do?

DAVIDSON: Well in general people should vote for the compromise. There will always be those people who think they've got a good case to sue Equitable or who are approaching very, very shortly their guaranteed annuitants but they're going to be a very small percentage, so in general you should vote for the compromise.

LEWIS: And of course if those voting thresholds are reached that binds everyone so there's no point in voting 'no' thinking you can do something else because if they get the vote you're bound by it.

DAVIDSON: That's right they need this majority but it will bind everyone and it will end a great deal of uncertainty.

LEWIS: If people don't take that advice and if they don't get the vote or indeed if the Court rejects the scheme because not enough people have voted or some other reason, is insolvency a possibility for Equitable Life?

DAVIDSON: I believe that it is a possibility for Equitable Life and clearly the best outcome in those circumstances would be the uncertainty that Mr Treves has just outlined, but there is a danger of insolvency particularly with the worsening financial situation.

LEWIS: Now they want this vote, they want it clear - how clear is the forms that have been sent out to vote on?

DAVIDSON: The forms could be a little clearer. For instance you have to date the forms and it's much more obvious that you have to do so if you're against the scheme than for the scheme because of the way that the forms are set out.

LEWIS: So if they are not dated they are invalid? That's an important point to get over?

DAVIDSON: It is indeed you must date the forms and there's an awful lot of information to read and for policy holders to take in I'm afraid.

LEWIS: Indeed, I said it weighs a kilogram, I must confess I haven't read it all but I'm sure it's very interesting to those who have to vote. Thanks for that Amanda Davidson. Those votes must be received by Wednesday 9th January or if you want to vote in person there'll be meetings in London on Friday 11th.

LEWIS: Now there's a new controversy over annuities - that's the financial product that many people must buy to give them a pension when they retire. In his pre-Budget statement last week the Chancellor announced that there is to be a public consultation on annuities ahead of possible changes next Spring. But giving notice of possible reform has stirred up anger among people now approaching a crucial age. Chris A'Court has more on this...

A'COURT: Yes, that crucial age is 75. That's the limit when people who've been saving for a pension must buy an annuity rather than hanging on to their pension savings. But there's been growing opposition to this. Some people say the annuity rules are now out of date, that annuities give increasingly poor value and are not the best or fairest way to provide retirement income anymore. Most people will be able to wait until next Spring to see if they can benefit from changes to be announced with the budget, but not John. He's a Money Box listener from Buckinghamshire, born, as it now turns out, at the wrong time...

JOHN: My birthday being the thirteenth of January next year, it's not very far off. It is grossly unfair for people who are approaching their seventy fifth birthday to be forced to take an annuity now when in a few months time, when we've reconsidered it, they may not be compelled to do so.

A'COURT: Like thousands of others with pension savings John has been hoping for annuity reform to allow him more flexibility so that he can get a bigger and better retirement income and possibly still have some money left to hand on to his family when he dies. He knows some of the changes being talked about now would allow him to do this, if they're accepted next Spring, but because he's 75 next month John is locked in to making his crucial annuity decision now.

JOHN: If you don't do that it's taken for you and you're not given the choice of where you have your annuity it has to be with the company that you've taken out your original pension with and I think it's only fair that while they are reconsidering it anybody in my position should be allowed to simply postpone it for a few months.

A'COURT: So for John and others the question now is "will the government suspend the current annuity rules" so that people reaching 75 before next Spring don't have to buy an annuity on their birthday and are allowed to wait and maybe take advantage of annuity changes in a few months time? People like John have saved for their entire working lives and Dr Oonagh Macdonald, former Labour MP and head of the Retirement Income Reform Campaign believes the government could afford to be sympathetic..

MACDONALD: I don't think that the difficulties that people like John face were taken on board with the announcement of the consultation process. I think that the government should suspend the age seventy five rule until they have reached a definite conclusion about the outcome of the consultation process. I cannot see that there would be a tax loss, I cannot see that this would really make much difference as far as the government is concerned, obviously it's going to make a great deal of difference to individuals.

A'COURT: Well Money Box put Dr Macdonald's point, and the cases of people like John, to the Treasury. We asked if they were prepared to suspend the annuity rules until after the consultation on change. Unfortunately the Treasury chose to ignore our direct question on this but in a statement said that the government is committed to consulting on how better to promote competition in the annuity market. We'd have liked to have talked to the Economic Secretary Ruth Kelly about this on the programme but our invitation wasn't taken up.

LEWIS: So Chris, John seems likely to have to buy an annuity next month and the Treasury's stance could be a bad sign for people like Oonagh Macdonald who had hoped for a change in annuities?

A'COURT: Yes, we asked Stuart Bayliss of the firm Annuity Direct what he made of the Treasury's statement and he believes it's a firm indication that the excitement of the reform campaigners will turn to disappointment next Spring.

BAYLISS: In reading what ministers are saying and what the Treasury is writing I see that their emphasis is more on reform of the annuity itself making it more appropriate to today's circumstances. I think we will get to a point where we resolve the issue of people who've put too much money in their pension fund and don't want it all to be locked up in annuities and maybe reform the age seventy five rule as well but I don't see that happening quickly.

A'COURT: So doubtless we're going to hear more on this in the months to come Paul, that was Stuart Bayliss of Annuity Direct

Thanks for that Chris, and there's new evidence this week that more and more of us will have to rely on annuities - or at least whatever replaces them - for our retirement income. A couple of weeks ago on Money Box we said that guaranteed pensions that are a fixed proportion of your final salary were under threat. Now new research shows that these schemes are disappearing more quickly than anyone thought. In the last year, 46 companies have closed their final salary pension schemes to new members, replacing them with schemes that offer no guarantees. Alastair Ross-Goobey runs one of the biggest company pension schemes - Hermes - for BT and Consignia. It still offers final salary schemes to some members but he fears their days are numbered.

ROSS GOOBEY: I think that we are storing up real problems for the future. I come from a golden generation really, born just after the war, I've worked in a period when I've been in defined benefits schemes and I can expect a pretty decent pension in retirement. My children's' generation are not going to be as lucky as that because they are not going to have the same contributions made on their behalf to pension schemes and they will not have the same level of income when they retire in forty years time and I think that a real problem for society to grapple with.

LEWIS: Alistair Ross Goobey. Well with me to discuss that bleak future is Peter Thompson, who's Chairman of the National Association of Pension Funds, and they produced the research on schemes earlier this week. Peter - do you share the bleak view of Alastair Ross Goobey?

THOMPSON: I'm quite glad Alastair's not my doctor really because I have a feeling if I went along with a sore throat he'd start giving me the last rites. I don't think it's as bleak as Alastair is making out. There is definitely a trend out there which has shown clearly in our survey from final pay schemes to money purchase schemes and it seems to be an increasing trend and this is against the background of a big survey that covers 850 pension schemes with over 4 million active members. But let's also bear in mind that in the same survey over five in six of the final pay schemes are still open to new members.

LEWIS: Yes indeed the majority clearly does offer these guaranteed final salary schemes but there were 46, that was 10% of those who responded to that question, that were abandoning them for new members, 20 schemes have even closed final salary schemes to existing members, it does seem like an accelerating trend, indeed your own press release gave that impression.

THOMPSON: It is an accelerating trend I agree with that. It's still not a flood but companies are becoming increasingly concerned about some of the issues involved in final pay pension schemes, they are too complicated, they need too much management time and resources, they're too expensive and a new feature this year is that overwhelmingly companies are concerned about the impact of the new accounting standard and on their ability to continue to provide final pay schemes.

LEWIS: Yes this is called FRS17 isn't it? But it has a dramatic effect. It's just the way they record things, why does it affect them so much?

THOMPSON: It does have a dramatic effect. The whole impact of FRS17 is a bit 'techie' but the impact is that the whole of the pension scheme's assets and liabilities and any surplus or deficit can be shown straight through on the face of the company's annual returns.

LEWIS: So it makes that risk that the company takes of having to bolster the pension fund a reality on its account and makes the company look financially weaker.

THOMPSON: It does, especially in a year like this year when investment returns have generally been negative.

LEWIS: And, briefly Peter, what should we all do? We're all a bit frightened of this now, what should we do to make sure we have a reasonably comfortable retirement?

THOMPSON: One of the other issues that's arising when people switch from final pay schemes to money purchase is that companies are generally contributing less, sometimes a lot less, at a time when we should actually all be saving more for retirement because with generally living longer annuities are much more expensive and so on. People generally need to think about saving more towards retirement and that I think is what we need to think about.

LEWIS: That's the bottom line, Peter Thompson thanks. And you can still hear our special programme Pensions in Peril on our website. Details later.

Now as we reported on Money Box last week, the Financial Services Authority now has its full powers to regulate most of the financial products we buy. But what if you have a complaint about the Financial Services Authority itself? Well there's now a way of making complaints against the Regulator. I got the underground train to find out more.

"Canary Wharf"

LEWIS: Canary Wharf in London's docklands is now the heart of financial regulation in Britain. Over the road from me the Financial Services Authority itself, offices here too of the Financial Ombudsman's service and towering about us in Canary Wharf tower is the watchdog's watchdog - the office or the Complaints Commissioner. So Rosemary Radcliffe what complaints do you consider?

RADCLIFFE: My remit is to look at complaints against the Financial Services Authority. I'm not there to investigate complaints that consumers might have about services or products that's dealt with in other ways, I am there for firms, consumers, anyone who has a complaint about the way in which the FSA has or hasn't done its job.

LEWIS: So it's how it's done its job rather than the job it's done?

RADCLIFFE: That's absolutely right yes. The FSA's policy decisions are not within my jurisdiction but how it goes about its job very definitely is. So whether they have conducted their affairs promptly, whether there's been any undue delay, whether there's been bias or lack of care, unprofessional behaviour, any of those kinds of things are prima facie issues I am concerned about.

LEWIS: And if somebody feels that the organisation has failed in that way what's the procedure, do they come straight to you?

RADCLIFFE: They, in the first instance, should go to the FSA itself and raise their complaint there. The FSA will then launch what they call a stage one inquiry and investigate the matter fully and hopefully they will be able to put things right themselves but if they can't, or the complainant remains dissatisfied then they can turn to me. There may be circumstances where the FSA decide that they're not going to make a stage one investigation, in which case the complainant can come direct to me and I can look at it and decide whether to investigate it myself.

LEWIS: If you find that the Financial Services Authority has behaved against this code what can you do for the individual?

RADCLIFFE: Well I can make recommendations as to how things should be put right. Those recommendations could include suggesting financial recompense but they can certainly include a whole host of other ways of remedying what may have gone wrong. They don't have to accept my recommendations but on the other hand I have the right to publish mine and indeed to publish their reasons for not following them.

LEWIS: And just to put this in the context of a specific example, Equitable Life which has been one of the biggest financial problems of the last couple of years, especially for many Money Box listeners, if those events had happened after the FSA had its full powers which of them could you have looked at and which of them couldn't you have looked at?

RADCLIFFE: I think the Equitable Life was a very good illustration of the way in which the new complaints regime, in its totality, will work. Because of course in the first instance people might well have wished to raise a complaint directly with Equitable Life itself and if dissatisfied then to turn to the Financial Services Ombudsman's Service, which is the proper place to go in those circumstances. Equally though there may be issues about how Equitable Life, or in your example, some other company at some future date, was regulated by the FSA. That might boil down to a policy issue but it might very well include issues of maladministration or incompetence on the part of FSA, if it's the latter then I could become involved.

LEWIS: Now we're here in Canary Wharf, we're a stone's throw from the FSA, your office is paid for by the Financial Services Authority, how independent are you?

RADCLIFFE: Well I am statutorily independent and determined to maintain that independence and indeed to guard it very jealously. I felt it was inappropriate to have my office actually in the FSA building, I am the other side of the road in separate accommodation. It's sensible to be close, one doesn't want to be too close, but maintaining independence is absolutely crucial, one really needs the checks and balances to be seen to be independent.

LEWIS: Rosemary Radcliffe, the Complaints Commissioner.

And Chris, news this weekend of a deal to improve credit card security...

A'COURT: Yes and it means signatures will essentially be replaced by PIN numbers when we make a purchase at checkouts. All cards will have embedded micro-chips. The so called "chip and pin" system, is already in use in France. A full announcement is expected next month and the system should be up and running in three years time, but we have heard promises like that before.

LEWIS: Indeed we have, thanks for that Chris. That's all we have time for today. You can get more information on all the items on today's programme by calling the BBC Action Line 0800 044 044. Calls are free on 0800 044 044. Or you can look at our website - www.bbc.co.uk/moneybox.

I'm here on Monday at 3pm with our phone-in Money Box Live on renting and letting out property. Our email is [email protected].

I'm back with Money Box at the same time next week.

Today, the reporter was Chris A'Court, the producer was Penny Haslam and I'm Paul Lewis.