Banks take another bashing from the OFT

July 16, 2008 | posted by Pam Atherton in Banking, Savings | comments (0)

Retail banks are in trouble again with the Office of Fair Trading  -   this time over current accounts, with the watchdog accusing them of  levying opaque charges, totalling £8bn a year.

 OFT chief executive, John Fingleton, accused the banks of   “charging more and more for things we can’t see” on the BBC’s Radio 4 Today programme this morning and that personal bank account holders were paying an average of £152 a year for the privilege.

He accused the banks of charging the most financially stretched individuals the most, with 1.4m customers paying over £500m in charges - or an average of £357 a year.

Today’s OFT report shows that of the £8bn revenue banks receive from current accounts,  £2.6bn derives from overdraft charges and £4.1bn from the difference between the interest banks earn on customers’ in-credit balances and the lower rate of  interest they pay to customers.

Mr Fingleton said that three out of four customers have no idea how much interest they are earning on their accounts and that the complexity of the charges made it difficult for customers to compare accounts.

“Few customers know how much they will be charged either before or after costs are incurred. To switch accounts, people need to know the average monthly balance on their account which only the bank can tell them. The complexity and lack of transparency mean people have little incentive to switch,” he said.

But the British Bankers’ Association hit back saying that free in-credit banking was almost unique to the UK and that those customers who don’t go overdrawn can get exceptionally good deals.

A case in point is the Lloyds TSB Classic and Classic Plus accounts which are currently paying 6 per cent on in-credit balances up to £2,500, despite base rate being at 5 per cent.

That said, many banks pay as little as 0.1 per cent on current accounts, particularly where the customer pays in small amounts or less than £500 a month.

Elsewhere, the legal fight between consumers and the banks over the fairness of overdraft charges looks set to be a drawn out battle lasting several years.

David Black, Defaqto banking consultant, comments: “I expect we will see a cap on overdraft charges and eventually the banks will recoup this revenue by ending free in-credit banking.”

In the meantime, you can compare account features in detail by using the Defaqto current account Compare Tool:

http://www.defaqto.com/consumer/current-accounts/compare-current-accounts.aspx

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Intestacy law due for a shake-up

July 15, 2008 | posted by Pam Atherton in House prices, Investments, Taxation | comments (0)

The antiquated rules which apply to the estates of people who die intestate urgently need updating if they are to reflect today’s property values and lifestyles.

 Currently, if you die intestate (without a will) in England or Wales, and are legally married or in a registered civil partnership, your spouse or partner will inherit only the first £125,000 of your estate, plus possessions. Different rules apply in Scotland and Northern Ireland.

 If there are children, your spouse or civil partner will receive the first £125,000, personal possessions and the right to income from half of the rest of the estate. The rest passes to the children.

If there are no children, but your parents are still alive, your spouse or civil partner will receive the first £200,000 of the estate, plus half the balance, and the rest goes to your parents.

The same applies (as above)  if your parents are dead, but you have siblings.

It is only in the unlikely event that you have no surviving parents or siblings that your spouse or civil partner will receive everything.

These rules have meant that bereaved spouses have been left with inadequate funds to live on because their deceased spouse’s estate over £125,000 has gone to the children who may have to pay inheritance tax at 40 per cent.

This has recently led to a mother having to sue her own children for a larger share of the assets because her husband died intestate and the bulk of his estate passed to her two dependant children.

According to the National Consumer Council, only one in five parents writes a will, demonstrating the degree of ignorance in the general population about the law of intestacy.

However, the position is even worse for the unmarried partners of individuals who die intestate. In this case, if there are no children, the estate goes to the parents, or if they are not alive, to any brothers and sisters.

If you are not married and have children, the estate is shared between offspring. This often comes as a complete shock to individuals who may have been in an enduring relationship and have children, but who never got married or registered a civil partnership.

The surviving partner is entitled to nothing. The term ‘common law’ wife or husband has no standing in terms of inheritance rights.

The £125,000 limit was set in 1993 and has long been overdue for updating, given the huge increase in UK property values in the last 15 years and the fact that 40 per cent of children in the UK are born out of wedlock.

Another pitfall is that it is only spouses and civil partners who have any exemption from inheritance tax, so if dependant children inherit directly from a deceased parent, they may well  be liable to pay inheritance tax at 40 per cent, which might trigger the sale of the family home.

For more on inheritance laws visit: The Society of Trust and Estate Practitioners website: www.step.org

Read our guide on inheritance tax:http://www.defaqto.com/consumer/investments/tax/inheritance-tax.aspx

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New mortgage protection product worth a look

July 14, 2008 | posted by Pam Atherton in Insurance, Mortgages | comments (0)

It’s not often that I’m impressed with a new product launch, but LV= (formerly known as Liverpool Victoria) has recently launched a mortgage protection insurance  plan which doubles up as an income protection plan.

Crucially, it offers ‘own occupation’ cover to all but the riskiest of jobs, allows applications up to age 65 and only charges ‘guaranteed’ rates, which means that your premiums will not rise as you grow older.

It provides cover for accident, sickness and unemployment, with level mortgage payment protection and a choice of level or index-linked living expenses protection.

You can choose a deferred period of one, two, three or six months and waiver of premium automatically kicks in during a claim.

Another plus point is that the plan allows you to run the plan until you are able to resume work, until the end of your mortgage term or until you die, unlike most MPPI policies which terminate at age 55, 60 or 65.

LV= employs telephone underwriting which means that clients are interviewed over the phone by medically qualified staff - a process which has been found to lessen the risk of the insured failing to disclose relevant medical details and hence the chances of non-disclosure disputes.

Premiums reflect age, gender, smoker status and occupation and premiums for lower-risk occupations are especially competitive.

The product has a Defaqto 5 Star rating. Defaqto insurance principal, Mike Powell, says: “This product is flexible, simple and easy to understand, and can be tailored to the consumer’s needs. The introduction of a long term contract with guaranteed premiums for an MPPI product is a massive step in the right direction for the MPPI market”

For more on income protection, read our guide: http://www.defaqto.com/consumer/insurance/life/income-protection.aspx

For more on LV=s products visit: https://www.lvmlp.co.uk/

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Are aggregator sites more aggravation than they’re worth?

July 4, 2008 | posted by Pam Atherton in Insurance | comments (0)

Defaqto’s sixth annual home insurance report “UK Home Insurance – Aggregation or aggravation?” comes to some pretty damning conclusions  as to the quality of home insurance aggregator sites.

The report looks at the problems that consumers  face  when purchasing home insurance through  such sites, based on detailed analysis of the services offered by 28 aggregators including Comparethemarket, Confused.com GoCompare, Moneysupermarket and Tesco Compare.

Defaqto concludes that only five of these sites merit the title ‘aggregator,’ but is unable to recommend any of them for providing true ‘whole-of-market’ coverage, despite the bold claims many of them make about their breadth of coverage.

A further criticism is that few sites allow customers to compare policies on anything other than price. Even worse is the fact that some sites make a number of dangerous assumptions about underwriting factors in order to obtain quotations.

 These include assumptions as to  occupancy periods (that the property won’t be unoccupied for more than 14 days|), type of construction (conventional brick), the nature of usage (permanent residence,  not a holiday home) and that the property has not suffered from flooding.

 If these assumptions are not correct, they could invalidate the policy, so customers need to  check the eventual quotation from the insurer extremely carefully. Other sites do not allow you to cover all your insurance needs, such as cover for “possessions outside the home.”

Excesses should also be checked as they may be higher in practice than those originally quoted online.

Defaqto general insurance consultant, Mike Powell, says: “The home insurance aggregation market is no where near as developed as the car insurance market….Our research into this market has left us with the opinion that there are only five true aggregator sites. The remainder predominently provide quotations from intermediary panels, which could easily be obtained from a local broker.”

Brian Brown, head of the Defaqto Insight team,  says that aggregator sites can play a useful role in giving consumers an indication of what they might pay, but that they need to check with the provider’s site as to the exact terms and conditions of the policy.

So you need to check that the assumptions made are correct, particularly those regarding job title, occupancy levels, type of property, flood risk and claims history.

“The onus is on the consumer to check that all the details the insurer holds are correct,” says Brown.

By contrast, the Defaqto buildings and contents insurance comparison tools allow you to compare policies based on cover, rather than  price.

Visit: http://www.defaqto.com/consumer/insurance/home/compare-buildings.aspx
http://www.defaqto.com/consumer/insurance/home/compare-contents.aspx
http://www.defaqto.com/consumer/insurance/home/compare-high-net-worth.aspx

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Savings protection not all its seems

July 3, 2008 | posted by Pam Atherton in Banking, Savings | comments (0)

The Government’s proposed increase in the savings compensation guarantee from £35,000 to £50,000, while a welcome  improvement, will provide scant reassurance for many savers.

The problem is that the £50,000 limit is per person, per bank. If you happen to save with a number of  institutions which are all  authorised by one parent bank, the £50,000 compensation would cover all these accounts in aggregate, not individually.

For instance, if you save with Bank of Scotland, Halifax, Birmingham Midshires, Intelligent Finance and St James’s Place bank, the savings guarantee would cover £50,000 of your savings in total, not per institution. 

The same principle operates under the current £35,000 savings compensation guarantee, so anyone with large amounts with institutions which are linked in this way might wish to consider spreading their risk across other banking groups.

The British Bankers’ Association recommends that savers check on the FSA website to see how an institution is authorised by visiting  www.fsa.gov.uk/register and typing in the firm’s name. This will show whether it is separately authorised or authorised by a parent bank. By typing in ‘Intelligent Finance,’ it is clear that IF is linked to Bank of Scotland and all the firms mentioned above.

However, just because one institution owns another, does not mean that they can’t be separately authorised. Although Royal Bank of Scotland owns NatWest, the two banks have separate authorisations, so a saver could hold £35,000 with both banks and be eligible for compensation  of up to £70,000, in the unlikely event that both banks went bust. 

But the FSA recommends that savers check with the institution itself as to its status with regard to compensation. Robin Gordon Walker of the FSA press office says: “Brands come and go, so it is advisable that savers check on the institution’s website or with the customer service helpline as to the extent of compensation.”

The limited nature of bank deposit compensation rose to prominence last year when the run on Northern Rock revealed some savers with deposits of £1m  and who would only have been covered for £35,000, if the Bank of England had not stepped in to guarantee customers’ deposits.

For the top instant accesss savings rates visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx

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Flooding poses new threat to property market

July 2, 2008 | posted by Pam Atherton in House prices, Insurance, Mortgages | comments (0)

Defaqto’s 2008 Insight Report on the home insurance market makes interesting reading, or perhaps I should say, ‘interesting and grim,’  as some of its conclusions are enough to make any homeowner turn grey.

With 1 million homes at risk of flooding in the UK, many homeowners will have difficulty in the years to come in finding buildings and contents insurance, as insurers increasingly reject properties which are remotely risky.

With the ABI’s agreement with the Government over the willingness of its members to continue to insure flood-risk properties at breaking point, there will no doubt come a time when all properties in flood-risk areas will become uninsurable.

 Such properties are not only a personal liability, but unmortgageable and therefore unsellable.

As the report’s author, Defatqto principal, Brian Brown, says: “Such a threat to thousands of houses would have a massive impact on the already fragile housing market….. Already many householders in flood-hit areas are finding that new insurers will not take them on their books and that their existing insurer will only continue if they accept significant premium rises, coupled with significant excess levels.”

In fact, it is even worse than that. Halifax has started to increase the excess on properties  to as much as £350 for properties which are simply near to flood risk areas, and even for homeowners who have never made a flood-related claim. 

Brian Brown predicts that for some homeowners, the level of excess will force them to change the way they live. Changes will be needed in the construction standards of homes in flood plains, with features such as plasterboard walls and wooden floors being  having to be replaced with concrete flooring.

Electrical sockets will have to be installed well above ground level and homeowners will need to buy furniture which can be moved easily and at short notice.

Brian Brown warns that otherwise homeowners owning flood-risk properties will face a clean-up bill of £20,000 to £30,000 at least once every 20-30 years. Some householders have already begun to employ private companies to install individual flood protection systems for their homes, he says.

Most worrying of all is the fact that the Government collected more money in VAT revenue from flood repair claims in 2007, than it spent on flood protection measures in the same year.

It’s a bit like the sale of tobacco and the tax revenue it generates. We all know it’s bad for us, but it sometimes it seems as though it is the Government which is the most addicted.

To compare insurance products, visit Defaqto’s unique Compare tool:
http://www.defaqto.com/consumer/insurance/home/compare-buildings.aspx

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IFA news round up

July 1, 2008 | posted by Pam Atherton in Banking, Insurance, Investments, Pensions | comments (0)

June saw a continuing lively debate on the implications of the FSA’s interim feedback report on the future of financial services distribution.

While IFAs see it as an opportunity to differentiate themselves as true advisers, the banks are fighting a fierce rearguard action to have the proposals overturned.

Independent analyst, Ned Cazalet, warned that the FSA could face “high legal hurdles”, if it tries to carry through its planned separation of sales and advice, saying that the regulator should have given more focus to issues such as churning and the sustainability of business models rather than multi-ties.

But Pump Court barrister, Peter Hamilton, disputed this, saying that the meaning of ‘adviser’ should boil down to for whom the intermediary is acting: “If an intermediary is an agent of a product provider, then anything said to investors can be no more than a recommendation.”

Actuarial firm, Towers Perrin, meanwhile, said the RDR had failed to recognise that tied or multi-tied advisers can in many cases deliver a better service than whole of market advisers.

AIFA warned that the banks are fighting a rearguard action to get the interim proposals of the RDR reversed, prompting the trade body to reconvene its RDR working party, consisting of executives from the principal networks and a number of IFA firms.

But the FSA is reported to be standing its ground against heavy lobbying by the British Bankers’ Association, with FSA officials understood to have rebuffed calls from the BBA for a rethink on a primary advice channel. The ABI and the BBA are currently conducting research into assisted purchase with a report due in August.

However, the Smaller Businesses Practitioner Panel fears that the RDR may force some small firms out of business and push up regulatory fees.

AIFA director general, Chris Cummings, urged advisers to grasp the opportunity handed to them by the RDR by rising to the challenge and raising their game. The RDR proposals would give IFAs the chance to take sole ownership of the ‘advice tag’ and push out the sales people who are currently masquerading as advisers.

Cummings also welcomed the interim feedback’s stipulation that QCA level 4 should be the minimum qualification for advisers but called for membership of a professional body to be voluntary so that firms can differentiate themselves.

FSA RDR associate, William Tolmie, told delegates on PIMS not to worry about the timescale to conform with the RDR because the final shape of the regulation was not decided and because “qualifications take time to acquire.” CII head of policy and public affairs, David Thompson called for a transition period of four to six years.

Elsewhere, personal accounts continued to attract differing views. Ned Cazalet dubbed the government-sponsored pensions “a mis-selling scandal in the making” because of the effect of means testing on poorer workers pension pots, an issue much publicised by Scottish Life’s Steve Bee and pensions economist, Ros Altmann.

But Clerical Medical managing director, John van Der Wielen, called for compulsion, rather than soft compulsion, while a growing band of industry bodies is calling for  auto-enrolment for GPPs to be allowed before 2012.

Personal Accounts Delivery Authority, chief executive Tim Jones, admitted at a meeting that it would not be able to check whether contributions to personal accounts were correct and Alan Whalley of the Actuarial Profession doubted whether the two year timetable to test the new scheme was achievable.

Meanwhile, the Court of Appeal rejected the county court judgement which said it is unfair for advisers to have to pay a FOS case fee where a complaint is not upheld. Dolly and Brian Pickering of IFA firm Heath Moor & Edgecomb (HME) are to take their case to the House of Lords.

HME also lost another Appeal Court case in which it had argued that the FOS should follow common law when adjudicating complaints.

Elsewhere, investment bond business fell by nearly 40 per cent in Q1 2008 compared with the previous quarter because of the changes to the capital gains tax regime.

The ABI extended until 2014 the moratorium on genetic test results, allowing consumers to buy substantial amounts of insurance without having to disclose adverse results of predictive genetic tests.

Norwich Union is to join Legal & General by introducing postcode pricing for annuities from September.

Clive Cowdery astonished the City by making a play for Bradford& Bingley, along with some its principal investors, but then withdrew his offer when B&B refused to open its books.

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