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 22nd DECEMBER 2001 1200-1230 BBC RADIO 4

Mortgages

Zeros

Annuities

Pensioners Tax

Mobile Phone Credit Limits

LEWIS: Hello. In today's programme

A million mortgage payments may fall by up to 30% in the new year.

A new bid to release pension funds from the annuity trap

Investing in zeroes - have some people been mis-sold these complex investments?

MAN: It should be a low risk investment and it's not, I think they should give me my money back

LEWIS: Why thousands of pensioners are being charged too much tax and the One-2-One customer who ended up none-2-none

LEWIS: First though mortgages. And Money Box can provide some seasonal good news for around a million people who'll soon hear that their mortgage payments are being cut by up to 30%. They're people whose mortgages are calculated using an 'annual review'. If your mortgage is worked out this way, it doesn't change during the year when interest rates rise and fall. Instead, at the end of the year, the mortgage rate is changed to reflect the interest rate movements over the preceding twelve months.

A year ago, after a sharp rise in rates early in 2000, the end-of-year adjustment came as a nasty surprise. But this year bank interest rates have been cut seven times, falling by a third to just 4%. So mortgages which are reviewed annually should come down substantially - and that's just what will happen. Chris A'Court has more on this.

CHRIS: Yes Paul this week Money Box has contacted all the major mortgage lenders who operate this 'annual review' system and the good news is that all of them say they'll be reducing customers payments in the New Year, as indeed they should. Let's take an example, all the three hundred thousand people with Bradford and Bingley mortgages will see a substantial reduction in their monthly payments. Bradford and Bingley says someone with a �50,000 interest only mortgage paying around �350 a month during this year will find that reduced to around �250 from February, saving �100 a month. Those on a �50,000 Bradford and Bingley repayment mortgage will pay �85 less each month. These customers will get notice of their exact reduction in a statement they'll receive in January.

LEWIS: Well that's Bradford & Bingley, but other mortgage lenders do things this way too don't they, presumably their customers will see a big reduction in their monthly payments?

CHRIS: There's a string of banks and building societies. Big names like Halifax and Nationwide, each of those has several hundred thousand people on mortgage annual review. Yorkshire Building Society has all of its customers on this system and most Norwich and Peterborough customers are too, and there are 100,000 Abbey National customers who took out their mortgages with National and Provincial, which has since been taken over by the Abbey. Now depending on who you're with you might have to wait until the Spring to learn how much your monthly payment is being reduced by, different banks and building societies work to different timetables, Halifax, for example, will be one of the last to tell its customers and the cut will be effective from April. But whoever you're with, if you're on the mortgage annual review payment system monthly payments should be down in the New Year - so good news indeed!

LEWIS: Thanks Chris. And listening to us in Bath is Patrick Bunton of London and Country mortgages. Patrick, good news for these people - but are annual reviews generally a good idea?

BUNTON: It's certainly good news this time because obviously payments are going down but if we asked borrowers in this situation this time last year they would have said actually it's bad news because they saw their payments going up.

LEWIS: And going up very substantially, as I recall?

BUNTON: Absolutely and of course it was very confusing for them because their payments were going up very early in the New Year at precisely the time that Bank of England base rates started to fall so they hear on your programme and in the news that rates are falling yet their own circumstances dictate that their payments are going up.

LEWIS: Although many mortgage lenders still operate this system can individuals opt out of it then if they don't want this once a year change?

BUNTON: They can and as long as you actually put it in writing to the majority of lenders they will actually switch you but of course if you're going to do that right now you have to bear in mind that the balance of your account as at today's date will remain exactly where it is. You've effectively been overpaying in the last year, they won't just write you out a cheque for that overpayment that you've made.

LEWIS: No indeed and talking of overpaying, I suppose that one option, as the mortgage repayments come down is just to carry on paying them if you can afford it, because that will reduce your mortgage debt and that really is a good thing.

BUNTON: That's a very sensible idea in today's low interest paying environment because if you're going to put that money on deposit in the bank or building society you're going to get taxed on the return in the majority of instances and you're not going to get anything like the rate of return you'd need to cover the mortgage, so reduction of debt is a very sensible idea, although I have to say that our experience right now is that with interest rates being so low a lot of people are looking to increase debt rather than reduce debt.

LEWIS: Yes unfortunately. Now we've had an e-mail this morning actually Patrick from a listener who says 'Will interest rates go down again in January, will that be the last time and should I go for a fixed rate mortgage now?

BUNTON: Well guessing exactly where the bottom of the cycle is always very, very difficult. I think our view, to be honest, is yes many people are predicting that there will be a further reduction early in the New Year, whether that will be January or February, of a quarter point. But there are also many, many economists now starting to predict that interest rates will turn and towards the last quarter of this year and the first quarter of next year we could see rises.

LEWIS: So does that mean we should go for fixed rates now if we can?

BUNTON: It means that the fixed rates that are out there right now are probably about as good as they're going to get realistically, yeah.

LEWIS: Good and presumably other advice is if you haven't remortgaged, try that because you could save yourself a lot of money.

BUNTON: Absolutely, a typical Standard Variable Rate now with most of the major lenders is around five and three quarters per cent, you can get that down to four per cent quite easily by remortgaging.

LEWIS: Patrick Bunton of London and Country mortgages thanks.

LEWIS: Now one of the largest unit trust companies in the UK is being accused of misleading customers and mis-selling them an investment which was promoted as low risk but which lost a third of its value in a few weeks. The Aberdeen Asset Progressive Growth Unit Trust was promoted as a low risk way to enjoy stock market growth and thousands of people have put tens of millions of pounds into it since it was launched in August 2000. The money was invested in products called Zero Dividend Preference Shares. They were heavily promoted by the financial services industry earlier this year, claiming good returns and low risk. But far from offering security and stability this fund has left people like Money Box listener Michael believing they've been victims of mis-selling.

MICHAEL: Their brochure was selling a low risk investment, I invested �1000, I got a statement approximately ten weeks later saying it was �563. It is a huge fall for a low risk investment

LEWIS: Well it certainly is - a loss of nearly 44% in just a few weeks - far more than the fall in the stock market over that period. Incensed by what had happened, Michael complained to the fund's owners, Aberdeen Asset Management.

MICHAEL: Three times I've asked them to say, look at the figures, do you think this is a low risk investment? And they never answer. When it says low risk you think 'Well I can't lose very much can I?' but that's not true. What they were selling and what they've sold me are two different things and therefore I should have my money back.

LEWIS: And here's a flavour of what the promotional literature said about Aberdeen's Progressive Growth Fund

WOMAN: This fund offers a low risk way to benefit from stock market returns. Although returns are not guaranteed the risk to your capital is low. Zeros are one of the safest types of share listed on the UK stock market and this makes it especially suitable for cautious investors.

LEWIS: Well with me is Gary Marshall, Managing Director of Aberdeen Unit Trust Managers.

Gary do you accept your customers have been mis-sold this product as low risk when it wasn't ?

MARSHALL: Well I have to say the situation clearly is one which we're uncomfortable with. There's clearly a situation where we've been promoting a produce which in the event has turned out to be something quite different. I'm very confident that at the time of promoting the product that the statements we made at that time were entirely appropriate for the market. What in fact has happened is quite unprecedented change in the risk profile of Zeros.

LEWIS: But surely you're the experts, you should have predicted that. People pay you a management fee, they pay you an annual fee, surely you're there to warn them about things like that?

MARSHALL: I wish we could say that we could predict the stock market moves in the future. This is one of the things with the stock market, it is an unpredictable machine.

LEWIS: Yes but the whole concept of low risk is that somehow you're minimising those risks, people expect the stock market is risky, these were people who didn't want to take that risk, they wanted lower risk. Now you're saying 'well it's the stock market, that's what happens'

MARSHALL: Well I think if you look at, take what one would regard as the lowest risk type of investment in the marketplace which would perhaps be gilts, the government bonds. Now if you look back to '94 some gilts actually fell in value by up to 20%, now these things happen in the market from time to time.

LEWIS: But let's go back to what you said, it was the low risk way to benefit from stock market returns, they're not guaranteed, the risk is low, they're one of the safest type, do you accept that by promoting those things you actually mis-sold a product that turned out to have a very different risk profile?

MARSHALL: No because I think at the time ...

LEWIS: So you don't think these people were mis-sold?

MARSHALL: No not at that time, no.

LEWIS: Do you think you misled them with those statements?

MARSHALL: At that time, as I say, those were entirely correct statements, at the time. It was the benefit of hindsight, it's very easy to say that risks which have become apparent.

LEWIS: So you're saying that when something is low risk you mean that it has been low risk in the past, you're not saying it's low risk in the future?

MARSHALL: That's correct, I mean you can't say that, you cannot predict events that are beyond the experience of a particular type of asset class going forward into the future and if you look at from about mid-September the volatility which is one way of measuring risk , accepting there are many, the volatility of Zeros which was much lower than government stocks, actually went off the scale.

LEWIS: But if you can't predict those things why do you use phrases like 'low risk'. Why do you pretend, if you like, that a particular investment is a lower risk than another one, because you've just said 'no one can predict the future'?

MARSHALL: I think it's reasonable to assume if you look back right throughout the history of Zeros, I would say it's reasonable to assume that that sort of risk profile is going to continue. There was a combination of circumstances which were extremely unusual in that period.

LEWIS: So although these statements were made, although people relied on them, they now turn out to be wrong, you're saying that you are not accepting they were mis-sold and what are you going to do about giving them their money back or compensation?

MARSHALL: Well I mean I wish we could be in a position where we could wave a magic wand and say that there was a way of trying to sort this issue out.

LEWIS: Well one way would be to give people their money back, you promised them low risk and it hasn't happened has it?

MARSHALL: Well I think that there are probably two points. One that we don't believe that we've done anything which was wrong, ultimately we acted in the best knowledge that we had at the time, secondly I think it's exceptionally difficult to, to try and be equitable across all unit holders, all investors. You know if you said that people should be compensated for an event which is beyond the

LEWIS: No we're not saying that, we're saying people should be compensated because you said they were low risk, they're the safest type of share on the stock market and they're very suitable for cautious investors, none of those things, as you've agreed, turned out to be true. That's why we say they should be compensated.

MARSHALL: As I say, at the time the statements were made any market commentator would have been quite happy to have agreed with those statements, so I think it's difficult to argue against that.

LEWIS: Well I'm sure our customers will be taking the matter further, Gary Marshall from Aberdeen Unit Trust Managers thanks very much for talking to us.

LEWIS: Now there'll be a fresh attempt in the New Year to change the law that makes us all buy an annuity with a pension fund. The Government has promised a review of this controversial law. But last week on Money Box, the Economic Secretary Ruth Kelly made clear that any changes would be more about promoting competition than removing the rule. But that policy faces a new challenge. In the strange way these things work in Parliament, Tory MP David Curry has secured a high place in a ballot which means he can get his own Bill debated in the House. And his Pensions Annuities (Amendment) Bill will be considered by MPs on January 11th. I asked David Curry what the Bill would do.

CURRY: What I want my bill to achieve is to enable people to escape from the trap which they now find themselves in because of the requirement to convert seventy five per cent of their pension into an annuity before they reach the age of seventy five, while at the same time trying to reassure the government that if it does reform it won't find itself with some whopping new amount of public expenditure which it can't control.

LEWIS: But of course the purpose of annuities is to make sure that people don't, if you like, squander or badly invest the fund they've got and then end up having to claim further help from the taxpayer. How will you make sure that people won't put themselves in that position?

CURRY: Because we are going to maintain the requirement to buy an annuity. But what we're saying is you must buy an annuity to keep you off welfare. What you've got left you can then invest in a retirement income fund in order to be able to get some additional income which of course was the original idea of the whole scheme.

LEWIS: You're certainly right that people are bothered about it, and Money Box gets a lot of letters and e-mails about it ourselves but the thing that concerns me about these proposals is that you would be giving people freedom but maybe freedom to be no better off because they could invest the money badly, they could be badly advised, they could end up paying high costs and end up with a lower income than an annuity would give them. An annuity after all is the best professional advice about what that fund is worth over the rest of your life.

CURRY: But that is what freedom is about. If they want to pile the whole of their seventy five per cent into an annuity we're not saying you can't do that, we're giving people choice and when you give people choice it includes the freedom to make mistakes, that's part of life.

LEWIS: David Curry. With me is Stuart Bayliss of Annuity Direct, which is an independent financial advisor, specialising in annuities. Stuart Bayliss, does this Bill have any chance?

BAYLISS: I don't think so. They're really asking the wrong questions. There are a group of people, they probably represent less than five per cent of the retirees, who have significant funds, who could benefit from not buying an annuity. But there's a much larger group of people who currently go and get advice about where the best annuity is and that seventy five per cent according to the Financial Services Authority, and if they got best advice they would improve their pension incomes by ten per cent.

LEWIS: But these are the people who don't choose to buy an annuity on the market and of course that is the thing that will boost your income but it will only boost it up to the level of the best annuity, a return people are still very disappointed in.

BAYLISS: Yes but as we've shown now, I think through answers to these Bills, the annuity is a response to economic conditions and exactly the same as you've had item after item about endowment policies not meeting mortgages the return you can get today on a fund is limited and what people have got to understand is that the size of pot they need to have saved, and that they would have saved if they had saved for example ten per cent of average earnings would have increased between 1990, if they'd invested in exactly the same way, to the year 2000 by over two times.

LEWIS: But this is really saying to people you should have done better in the past, we all know that don't we, we should have saved more. What about these new products that are on the market that seem to avoid some of the old problems of annuities, they're more flexible.

BAYLISS: Certainly one of the problems with the annuity, that if you compare it with the original rules, and we're in favour of significant reform of those rules, is that you are, with a conventional annuity, buying today's value of bond yields and you are fixed with that for the rest of your life, the new products allow you to buy a living investment that changes to the change in economic circumstances and particularly the with-profit or unit linked ones do give people a chance to see their investment change. The thing that's not been accommodated yet is to give live cover, protection for that fund.

LEWIS: Stuart Bayliss, thanks very much. And some indication the government is moving that way at least, we'll find out more in the New Year.

LEWIS: Now thousands of older people could be paying too much tax this year because the Inland Revenue has got their tax code wrong. The code is the way the Revenue collects tax from earnings or company pensions. It tells the employer or pension fund how much tax to deduct. If you have a state pension, that is paid in full without tax being taken off. But it is still taxable and the tax is collected by reducing the code and taking more tax off your earnings or company pension. But the Low Income Tax Reform Group claims this week that the Revenue often gets it wrong and thousands of pensioners are paying too much tax as a result. John Andrews, the campaign's chairman, explained.

ANDREWS: The problem is that the amount included in pensioners coding notices for the state pension is assumed by pensioners to be right. It's an official figure, they see it on the form, but at our clinic and letters that we've received, about one in twenty seems not to be right. Sometimes this means that it's too low but more often than not it's too high which means that pensioners are paying too much tax.

LEWIS: When I talk to the Revenue about this they say that they take the figure from the Department of Work and Pensions.

ANDREWS: I think that's generally the case, but very often they're not able to link up the Department of Work and Pensions information with the tax records and then they have to do something, which is either to get the information from the pensioner, or alternatively take what they did know and move it one year forward. Something seems to go wrong there.

LEWIS: I suppose it's important to remind people isn't it that these are tax codes, they collect tax - they don't actually assess tax. They are by their nature approximate.

ANDREWS: Indeed they are, pensioners should check the figures, go back to their pension books, see the amount that they've got in there and to check it against the figure that the Revenue have used. Better still, if the Revenue know that they haven't got an up to date figure, perhaps they'd just put 'estimate' there and then people would be encouraged to check.

LEWIS: Yes, I don't, I'm not convinced they're going to do that. They couldn't even tell me how many people did have estimated pensions out of the five point three million who do pay. But if people do make that check that you suggested and find, or think that the Revenue is using the wrong figure, what should they do?

ANDREWS: They should just take the amount out of their pension book, write to the Inland Revenue, tell them what figure they're actually receiving and ask for the Revenue to check that it's right.

LEWIS: And if they have been taking the wrong tax off for a considerable period is there compensation?

ANDREWS: They can claim repayments for previous periods and if necessary they'll get interest on top of that.

LEWIS: John Andrews. So when that tax code arrives in the New Year, always worth checking it.

LEWIS: Now we get emails on [email protected] about all sorts of financial problems. Money Box's Louise Greenwood is with me. Louise, we had an email form a customer of the mobile phone company One-2-One recently who suddenly found she was having a none-2-none.

GREENWOOD: Yes Paul, Angela contacted us from East London. In the week before Christmas she has had her mobile phone cut off for the third month running. Her crime was to exceed a spending limit on her phone that she didn't even know existed and the phone company wanted paying there and then.

ANGELA: It's wrong for telephone companies to operate a credit limit which is not disclosed to the user. It has never been said to me what my credit limit is, I've asked on several occasions and I'm a high mobile phone user and it seems to me that usage limits should be consistent with peoples' usage, otherwise as now seems to be happening to me, I hit the buffers every month and every month get my telephone suspended.

GREENWOOD: Angela's mobile phone company is One-2-One. It's confirmed to Moneybox that it does operate a limit on the cost of calls in a month. Customers are told in the small print of the terms and conditions that there is a usage limit on their phone but they aren't told what that is. One-2-One says the policy is in the customers interest as a precaution against fraud and theft. Angela says that she tried several times to find out what the limit on her phone is and to get it changed. But no-one at the company seemed able to help.

ANGELA: They don't tell their customers. There was a mumbling somewhere about �180 on Monday, that's the first time I've ever heard of �180. It's very important that the relationship between the user and the telephone company is crystal clear and to have somebody mumbling figures which I've never heard of before on the third occasion when my phone gets cut off is really unacceptable.

LEWIS: So Louise what did One-2-One say and what about the other operators?

GREENWOOD: Well One-2-One say Angela should have been able to find out what her limit was. They along with Orange, sell direct to customers. Orange says it doesn't operate such a system. BT Cellnet and Vodafone also told Moneybox that they don't put a limit on the amount of calls customers can make, except when people specifically ask for one. However, both these operators sell their product through more than 30 independent service providers who have their own billing systems and Money Box has contacted some of these. Singlepoint, which describes itself as the largest independent service provider in the UK, says it does put a limit on calls allowed by new customers, but customers would need to ask credit control for that sort of information, as front line service staff wouldn't have it. Carphone Warehouse has recently acknowledged this as an issue and is now putting credit limit information on all new customer bills.

LEWIS: And, Louise, has Angela got her service back?

GREENWOOD: Fortunately for Angela she has managed to have her phone reconnected after making an extra payment. And One-2-One has assured Money Box that customers who are concerned about their limit can ring the helpline number. So, if you are a One-2-One customer put them to the test.

LEWIS: Thanks Louise. And that number, which is open 7am to 10pm every day is on our website and with our helpline - details at the end of programme. And if you are with another network contact the helpline number on your bill to check if you have a limit and what it is.

LEWIS: Now we've had a wonderful response from Money Box listeners to our Christmas Challenge. You'll remember that last week we asked you to translate into Latin our motto: "If it seems too good to be true, it probably is". So if you think you can translate: "If it seems too good to be true, it probably is" into Latin then e-mail your answer to us - [email protected] or ring the help line - that number later. The prize will be some of the new euro notes and coins, hot off the press from Italy - where the programme will be over New Year. And there'll be marks for style and elegance as well as accuracy. More details on our website.

Now Chris is here, and another good reason to check the website this Christmas.

CHRIS: Yes, Paul. If you want to get to your bank over the festive season, you will need to know when it is open of course. There is a link on our website to the full list of opening hours for the main high street banks during the holidays and if you have some coins or a few notes from the 12 countries which are converting to the euro from January 1st, you may want to donate them to charity. Now most UK banks will accept these old currencies and give them to charity. There is a link on our site which tells you which charity the various banks support, so do go and visit the website now.

LEWIS: Thanks Chris. That's all we have time for today. You can get more information, as Chris said, on all the items on today's programme, including that tax code question, by calling the BBC Action Line 0800 044 044. Calls are free on 0800 044 044. Or you can look at our website and the address is www.bbc.co.uk/moneybox.

There's no Money Box Live on Monday, but Money Box is back as usual at the same time next week. Our email, [email protected]

From Chris A'Court, from producer Louise Greenwood, and from me Paul Lewis - have a very good Christmas.