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. Tape Transcript by JANE TEMPLE MONEY BOX Presenter: Paul Lewis TRANSMISSION 14th JUNE 2003 1200-1230 RADIO 4 _________________________________________________________ ____________ ANNOUNCER: And now it’s time for MONEY BOX with Paul Lewis: LEWIS: Hello. In today’s programme radical changes in company pensions but they won’t help up to 40,000 people whose employer has gone bust leaving their pension in tatters – the fears for savings if we join the Euro: WOMAN: People are having to supplement their incomes here by income from savings will just lose out big time. LEWIS: Mike Johnson’s here reporting today: JOHNSON: I’ll be looking at plans to revive regional stock markets – will investors profit from thinking local and acting local? LEWIS: And if you’re going abroad this year cancel the milk and the papers, put the cat in a home and call your credit card company. But first, this week’s major announcement on pensions. We’ve been waiting six months for the government to set out its plans after it published a draft of them in December. So what did it say? Well as predicted on Money Box, the government is planning to protect people in company pensions if their scheme is wound up. At the moment people who’ve not yet retired can end up with nothing, even after contributing for 30 years. In future, companies which choose to wind up their pension will have to set aside enough money to meet their pension promises in full and that change begins at once. If a company goes bust and can’t set aside money then 90% of the pensions promised will be guaranteed up to a limit of around £50,000 a year. That’ll be done through a new pensions protection fund basically an insurance scheme, but that won’t begin until 2005. Well they’re radical proposals as far as they go, but ministers have made it clear they won’t help people whose scheme has already been wound up or where a company goes bust before 2005 – people like Money Box listener Maurice Jones – he worked for a Bolton textile firm for 38 years but when the firm was put into administration five years ago it left him with no pension at all: JONES: Their answer to the problem is to look after pensions in the future. Obviously as a way of restoring peoples’ confidence and ensuring people to save into pension schemes for the future. But personally, I’m obviously very angry and upset when I listened to what was said that it does not seem to address the issue of the people like myself who have already been told their pensions have been lost due to no fault of their own- people like myself and others who’ve taken all the pain and get none of the gain. These people have lost pension funds ranging from £50,000 to £600,000 – an awful lot of money. LEWIS: Maurice Jones and nothing for him in this week’s announcement. Ros Altmann is an independent pensions consultant and for some time she was a lone voice calling for an insurance scheme, not least here on Money Box. Despite the gaps in the plans she was of course delighted: ALTMANN: I think it’s fantastic news – at last the government has done something to stop this awful situation where people can save for 30 years and end up with no pension. Our pension system is much better after these moves than it was before – better for the people in the schemes to know that they will be able to rely on getting a pension if their company becomes insolvent and that employers are going to have to keep the promises that they’ve made or consult with their workforce as to how to change the promise. DAY: But it won’t happen till April 2005 at the earliest and we heard from Maurice Jones earlier, he’s lost everything – it’s not going to help him and people like him is it? ALTMANN: No I think we have to take it step by step. This is the first step to make sure that we’ve got something to stop it happening to other people. But I still believe that we must compensate the people who have lost their pensions. If it was up to me I think we should feel morally obliged to compensate all of these people and I do think that the government as a statutory duty to protect pensions and has not done so. LEWIS: In the past the government’s told everyone who can to join an occupational pension scheme. Do you think at that stage they should have been warning people about the risks? ALTMANN: That’s where I think we have to own up to the failure of our system. The government encouraged you with tax relief to put your money into a pension. The Inland Revenue didn’t allow you to put your money into any other pension if you were in your employer’s scheme so you couldn’t diversify and then the government said if your scheme becomes insolvent all your contributions may be used to pay somebody else a pension and not you. There’s no other financial investment that you can make where if you are at risk of losing your money nobody has to warn you. LEWIS: Ros Altmann. The government of course was also very positive about the changes. The Minister in the House of Lords who deals with pension is Patricia Hollis. I asked her exactly how the new pensions insurance scheme would work? HOLLIS: We’re saying that if people can get insurance for their cars and for their holidays, it’s right that they should have insurance for possibly the single largest purchase apart from their home which is their pension. We’re going to be doing it by having a double levy on the industry. Part of that levy will be a flat rate scheme – everybody contributing the same for each member, but then a second element which is a risk levy so it’s those companies who are under funded who are furtherist away from being able to guarantee their members their benefits – they will be paying an increased levy. So put the two together and we get the pension protection fund and that way we hope we will get protection for members in risky schemes without asking good schemes unreasonably to cross subsidise weak schemes. LEWIS: And how would it cope if a couple of major pension funds went bust and had to be bailed out? HOLLIS: I have no reason to think given the American experience on which this model is based that it wouldn’t cope perfectly well. But obviously at the end of the day the level of the levy and the risk related premium would obviously have to be negotiated with the industry to cover such contingencies. LEWIS: Who’s going to run it and decide where that money’s invested and how it’s going to be safeguarded? HOLLIS: We still haven’t worked out all the detail on that and we want to do this in conjunction with the industry. LEWIS: But will it be appointed by the government or will it be appointed by the Association of British Insurers or the pension funds? HOLLIS: No, that I can’t tell you at the moment- we’re still working on those details. LEWIS: And what about the people whose scheme has gone bust before that – I mean we heard from one earlier in the programme – people at ASW – Blyth & Blyth – Ravenshead Glass – many other companies, they have already lost their pensions. What are you doing for them? HOLLIS: Very little I’m afraid. I wish we could. I really do. LEWIS: But you could decide to do something and do it? HOLLIS: I don’t think you can make retrospective payments from a fund that won’t even exist for two years. What we have done however and I’m sure you’ll welcome this is we’re doing our damnedest to prevent the repetition of that situation in two ways – as of Wednesday any company who are a solvent company who walked away from their pension promise will not be able to do so ever again as from last Wednesday. They have to meet their obligations in cash terms in full. Secondly, and this will also be a degree of protection – for those schemes not where the employer is solvent but where there is insolvency and the scheme is winding up – we expect to lay regulations in the autumn this autumn to alter the winding up rules so that someone for example who’s perhaps one year away from retirement doesn’t find themselves with sort of only 20% of their pension. LEWIS: The concern is though for those people who have been encouraged to join occupational pensions by the government in some ways almost forced to because of the Inland Revenue rules and the government has not issued them with a warning that the money they’re paying in could be lost. So the government has a responsibility to those people who it has helped encourage to join the scheme? HOLLIS: No…no – this is not a government pension – it is a private contract voluntarily entered into by the employer and voluntarily entered into by the employee. What you can’t do is retrospectively throw government money at it. LEWIS: Patricia Hollis of the Department for Work & Pensions. Now with me in the studio is Mick McAteer, a senior policy advisor at Consumers’ Association. Mick, do you welcome these plans? McATEER: Yeah I think it’s our view that creating a secure, sustainable and affordable pension system should be given the same priority at government level as the NHS or education or public transport system. But so far I think the government response has been very disappointing. Now the new insurance fund is clearly good news but I think it’s important to remember that only one in five workers are active members of final salary schemes. And there’s very little in the government’s proposals for the majority of ordinary people particularly those in low incomes who have to use the stock market based pensions or else the pensions sold by the pensions and insurance industry. So overall I think it’s been very, very disappointing. LEWIS: So you’re saying in a way although it’s good as far as it goes it’s a bit of a distraction because as you say most people aren’t in these schemes and of course even those that are the schemes are now closed to new members aren’t they so there aren’t going to be many more people joining them? McATEER: That’s right yeah. Essentially what’s happening is there’s a huge transfer of risk and responsibility away from the State and away from big employers on to the shoulders of individuals having to use the stock market and private sector pension providers. But just to give an example of how that impacts on ordinary people – somebody who retired in December 2002 would have got a pension fund worth less than half somebody retiring in December 2000. That is the extent to which you’re exposed to stock market LEWIS: Yeah that’s because of stock market falls and increasing longevity and reduced annuities – that’s quite frightening. McATEER: Well actually that’s even before you factor the annuities in. that’s just LEWIS: So the same amount of savings will give you half the pension. And there was nothing either was there to encourage new saving – no incentives, no subsidies for people at the poorer end of society who don’t actually have the money to save? McATEER: Again, that’s right. Not surprisingly there’s been a real collapse in confidence in stock market based pensions – our recent survey found that just about only half of people are actually contributing to a pension and four out of five of those here not contributing say they have no plans to invest in a pension. And the biggest reason is the collapse in confidence in the stock market and the lack of trust and faith in the insurance and pensions industry. So unless the government actually address that collapse in confidence it’s difficult to see how they’re going to close the pensions gap. LEWIS: Mick McAteer from Consumers’ Association thanks. Well the pensions announcement pushed the news about the Euro off the front pages, but yes it really was only this week the Chancellor told us that membership of a successful single currency would be of benefit to the British people, but of course he wasn’t going to recommend joining just yet and one key factor in that decision is what he calls stability and he blames the housing market for a lot of the instability in the UK economy. He said the stop go problems of the last 50 years had been led by the housing market and his answer – well, the same as he had in his budget in April: we should move towards long term fixed rate mortgages – that would bring more order to house prices. But they’re still aren’t many around. Money Box’s Chris A’Court has been looking into this – Chris? A’COURT: Yes, exploring this Paul there’s slightly more choice available now – you can fix for 25 years with the Cheshire Building Society – they’ve offered this for some time. But there are also 25 year fixes now available at Leeds and Holbeck and the Manchester Building Society which launched its product this week. At all of these the rate you’ll pay will be around 5.25%. The Yorkshire Building Society’s offering a 15 year fix at that rate too. Overall though still quite a limited market if you’re searching for a long term fixed rate mortgage of the type the Chancellor’s keen on. LEWIS: Though Chris the other side of borrowing of course is saving. There are far more savers than borrowers. It’s hard enough to earn money on your savings now. But interest rates are even lower in Euros though and how would savers cope if we joined? A’COURT: That’s a very big question isn’t it? And amazingly Paul there wasn’t a single mention of savers and the impact on them in the 1700 pages of background documents issued by the Chancellor this week. Money Box listener Elizabeth had noticed this as an issue the Chancellor never talks about: ELIZABETH: They think it has been overlooked because when the Chancellor was talking on Monday he was just talking about job creation, but interest rates are lower in Euroland than they are in the UK so people who are having to supplement their incomes here by income from savings will just lose out big time. Joining the Euro would lower interest rates would obviously have a knock on impact on savings rates available from High St. banks or from the various savings products. A’COURT: Now interest rates in Europe are set by the Central Bank of course. It’s just cut rates to 2% - about half what they are here at present so what does that mean for savers? – well we looked at Ireland where financial services are perhaps the most similar to ours. There at the moment it’s hard to get any interest on your money. Some banks pay literally 0% on amounts up to £14,000. In Irish National Bank you need £7,500 to get 1% on your savings and the top rate we found Paul was First Active which offered 2% but only on amounts above £90,000. LEWIS: Well a very bleak picture Chris for people looking to get anything like a reasonable return? A’COURT: And remember Paul that in Ireland inflation is the highest in the European Union at 4.6%. So in real terms your money’s disappearing fast. LEWIS: Well thanks for that. Bad news all round. Now should there be a national financial planning service to look at the financial circumstances of individuals in the round, helping them see if they should pay off debts, claim benefits, reduce their tax, and then if they can afford it perhaps save more? Well that’s just one idea from a body called the Consumer Panel. It puts the consumer’s point of view to the Financial Services Authority. I suppose it’s a sort of watchdog’s watchdog. And this year it warns that consumers face a tough time – misleading adverts, complex products and what it calls a lack of clear strategy in consumer education. And the FSA? Well it’s not doing enough. With me is the panels’ chairman Colin Brown. Colin, tell us where the FSA has failed this year? BROWN: Well as you see in our report, we castigate the FSA for a number of shortcomings. We also praise them for getting a few things right, but what we say is wrong now principally is that they haven’t tackled misleading advertising toughly enough. We think they should have been much more public about which adverts were the bad ones and you know got the gloves off a bit on these often very misleading adverts. LEWIS: They’re very slow aren’t they? I mean they see a misleading advert, they don’t do much about it for a number of months or until the damage is done? BROWN: Well they do say that they have their hands tied a bit by the way the law is drafted but we think they could have done a lot more and we would like to see the law changed as well but we think that they could get tougher. They do agree with us now. I think we’ve convinced them – they’ve said in their plan and budget that they intend to get tougher. LEWIS: Yes, and of course there have been a whole series of problems haven’t there with split capital investment trusts, mortgage, annuities. I mean these are old problems but how has the FSA been dealing with them this year? BROWN: We have said that the FSA needs to get ahead of the game. It needs to work out how to tackle problems that it has spotted –how to tackle those problems practically, faster and often it does come down to the way financial promotions are run. And I think both of those issues – the splits and the precipice bonds could have been made much easier on consumers if they’d got to the adverts and promotions. LEWIS: Yes I mean the promotions often don’t actually tell untruths but they don’t quite always tell the whole truth do they? BROWN: Exactly – we’re hoping for some reform there. LEWIS: Its website is much better isn’t it? – it’s got comparative tables. You can find the best products. All that is good as far as it goes? BROWN: There’s quite a lot going on. You have to remember there’s a huge programme of regulatory reform going on – a massive amount of change hoping to put things right for the future. And we’ve supported the FSA in a lot of what they’re doing. LEWIS: And what are your priorities for the next year – what do you want to see happen? BROWN: Well we’ll be watching to see whether these adverts get sorted out but many other things: this idea of the financial advice service – something which can step into this huge gap where people who don’t get independent advice and only get sales advice from the High Street – we think a lot of people need this so called generic advice and both the government and the FSA have to work out a way of delivering it. LEWIS: Well, let’s hope they manage that. Colin Brown from the Consumers’ panel thanks for talking to us. Now once upon a time Britain’s major cities outside London had their own stock markets – Birmingham, Manchester, Bristol, Edinburgh, Glasgow – all had markets trading local shares in local companies. But the cost of operating them led to their closure and by the early l970s the London stock exchange was left to dominate. Now though there are calls for the revival of local stock markets as Mike Johnson’s been discovering: PRATT We’re standing in Margaret St. in Birmingham’s city centre –outside the elegant and imposing old stock exchange building –white stone with two lions staring down at us. The building was opened in l928 – it’s now no longer used as a stock exchange. It’s used as offices. JOHNSON: John Pratt is President of the Birmingham Chamber of Commerce. He has a dream: the return of stock market trading to England’s second city: PRATT: In the West Midlands companies rely too heavily on bank finance and they do that because there simply aren’t alternative sources. And all our research shows that local companies would like to make use of stock exchanges as a way of raising finance. They’re not going to do it on the London stock exchange. Their only hope is with a regional stock exchange. JOHNSON: What’s the problem with the London stock exchange? PRATT: The costs of obtaining a quotation are so huge and that puts people off. JOHNSON: According to John Pratt, smaller companies have been trampled in the stampede towards global markets. Advisors’ fees can swallow up more than 20% of the money they end up raising – even on the alternative investment market – the existing exchange for small firms. PRATT: In Birmingham’s hayday there was a stock exchange. It was easy to raise money. And all our research shows that the ability to raise money is central to expansion and innovation in the region. If you rely on bank finance you have to pay interest and so on. If you rely on your shares you don’t and that’s a major, major plus in favour of raising finance through a stock exchange listing. JOHNSON: Now, the area’s regional development agency, Advantage West Midlands, is drawing up a blue print for how a local exchange might work and who might invest. Its director is Mary Martin: MARTIN: We would want it to be a not for profit exchange – any surpluses could be ploughed back into developing the market further. It would be web based, connecting companies who want cash to the investors. It would have the facility obviously for people to trade the shares they own, but not on an expensive continuous trading basis – on an auction basis which the company itself would control. We’re looking to the private investors – people who traditionally have often wanted to support local businesses – business that their family work for, businesses that they can see every day. SIMPSON: I’m Jim Simpson. I teach English at South Birmingham College. I’m chairman of an investment club we call Sparklets. There are eight of us. We get together once a month in our local church hall and we really try to make money on the stock exchange. JOHNSON: If anyone needed a new place to put his money it’s Jim Simpson. His share club is nursing losses of 60%. Jim says a local exchange might give him a better chance to turn that round: SIMPSON: I think it is attractive because it would be more interesting and more helpful for us as a share club to go and visit a local company and just see what they’re making, how their balance sheet is, what they think the future holds for them. Yes, I think that would be really helpful to just see what’s going on and you know their projections for the future. JOHNSON: It’s the first rule of investing – know your company. But what about the risk of backing smaller firms on a regional market which may have less strict rules when it comes to qualifying for entry? A battle scared Jim Simpson says that’s a risk he’d be prepared to take: SIMPSON: Even in the London stock exchange you can still lose your shirt with as many regulations as you have – if the company goes bust then your shirt’s gone anyway. The share price goes down. You still lose your money. So we probably would be more able to take a risk if we know the company better. JOHNSON: Investors like Jim will have to wait a while yet for their chance to show local loyalty though other areas like Manchester are also interested in a regional exchange, Birmingham’s plans are the most advanced. It’s hoping to reveal more in the autumn. LEWIS: Mike Johnson reporting and we’ll let you know of course if they do. Now you go abroad, you hand over your credit card and the shop or restaurant says it’s been refused. It’s embarrassing, annoying – some Money Box listeners even think it’s defamatory if you indeed have credit there. It happens though because card providers are trying to clamp down on fraud and Barclaycard has introduced a new service this year to reduce these embarrassing moments but won’t eliminate them entirely as Barclaycards’ Ian Barber explained: BARBER: We never block cards overseas. We have had problems in the past with referrals. It’s where we ask the retailer to give us a call so as we can check that the cardholder is genuine. Now that works well 99% of the times but when you get a retailer who perhaps doesn’t speak English too well he may well see that message and think that we’ve blocked the card and you know for the cardholder it ends up meaning the same thing. They can’t use their card. LEWIS: So if people ring you and say we’re going to Italy or Spain you won’t put a referral on their card? BARBER: We can’t say that 100%. What we can say is it’s much less likely. Clearly, even if someone says I’m going on holiday to Spain and then we see on their account that they’ve suddenly bought £2000 pounds worth of computer equipment in a Spanish store – and it may well be that they’ve had fraud committed against them while they’re in Spain. What this allows us to do is obviously to look at the spending and take a much more informed decision on whether this is unusual spending or not. LEWIS: Now you’ve got over eight million Barclaycard users. How many of those do use their card abroad over the summer? BARBER: I don’t honestly know the answer to that question. LEWIS: Well let me put this another way – I mean are you sure you’ve got enough people on your lines so that when somebody’s rushing around at the last minute about to go on holiday and then oh gosh I’ve got to ring the credit card as well – they won’t be kept hanging on for hours on voicemail? BARBER: They shouldn’t be. The number that we’ve put out this week is a dedicated line. We’ve also set up a sort of dedicated part of the call centre to deal with this so LEWIS: So how many people are in that? BARBER: Suffice to say we’ve also done a lot of thinking around what sort of demand this may drive. The reason we haven’t publicised this number particularly widely in the past is for exactly this reason. We didn’t want people calling in and us not being able to deal with the call. If any Money Box listeners do have any problems I’m sure we’ll be the first to hear about it. LEWIS: I’m sure he will. Ian Barber of Barclaycard and that number is on our website and with the help line. Well so far Barclaycard’s the only company we could find offering a dedicated service but Mike Johnson has been looking at more? JOHNSON: Yes Paul. We spoke to most of Barclaycard’s big rivals including RBS Advanta, Lloyds, MBNA and Capital One. RBS said they didn’t operate like this and customers must ring them from abroad if they’re having problems. Meanwhile Lloyds and MBNA did say they were looking at whether they might provide the same kind of service as Barclaycard. Their customers can already ring and say they’re going abroad. And it might help avoid embarrassments but these companies aren’t actively telling people to contact them first. LEWIS: And finally Mike, we have a Pensions Minister? JOHNSON: Hurrah – 70 days after the previous minister was moved the government’s finally filled this vital job and with an insider. Late last night Downing Street confirmed that Malcolm Wicks, a junior minister at the Department for Work & Pensions had been promoted to Pensions Minister – the sixth since l997. LEWIS: Thanks Mike. It’ll be interesting to see how long he lasts won’t it? That’s all we have time for today. You can follow up of course all today’s items on our website – bbc.co.uk/moneybox - where there are links and stories and details of how to contact the programme. And of course that vital Barclaycard number if you’re going abroad. That information also with the BBC Action Line 0800 044 044 Calls are free 0800 044 044 I’m back on Monday with our phone-in MONEY BOX LIVE to answer your questions on insurance from your car to your dog, your home to your holiday – all aspects of insurance Monday afternoon. There are personal finance stories all week on Working Lunch each weekday at 12.30 on BBC-2 and I’m back with MONEY BOX as usual next weekend. Today the reporter was Mike Johnson, the producer Chris A’Court, and I’m Paul Lewis. 19