Tag Archives: UK

Credit Card Jungle

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Credit Card Jungle was how Mike Hogan described the situation in a Barrons article earlier in the year. Even though there are some good business credit card deals to be found, it is very much a case of Buyer Beware.

If you’re among the two-thirds of credit-card holders who carry an outstanding balance, you might have noticed that your interest rate was hiked recently, or your billing cycle shortened. Failure to navigate card providers’ labyrinthine payment terms successfully can earn you one of several consumer-unfriendly fees.  These aren’t really new gambits. But they are being pursued with such gusto lately that they’ve generated a record number of consumer complaints.

That word jungle conjures up phrases like Nature Red In Tooth And Claw or Survival of the Fittest.  You have got to keep your wits about you, if you wish to stay ahead of those claws.  Hogan was describing the situation in the US but you will find similar discontent with the credit card suppliers in the UK and in Canada.

Consumers are often riled by two key hot button issues in most cases:

  1. The way the interest is calculated on their balance owing often creates lots of surprises for consumers
  2. The way any money that is paid is then applied to interest-bearing amounts owed is another cause for concern

It all comes down to the small print that is added to credit card contracts and it is not surprising that many feel there are hidden ‘gotchas’ in these contracts.

There is a popular wish for action so it is not surprising that you will find that politicians are now taking up this cause not only in the US but also in the UK and in Canada.

Even if tighter regulations are instituted they will never cover all problem issues. The wise user of credit cards will always do a detailed comparison of what the different credit cards are offering and what may be in the small print.

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Tax deductible mortgages

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Any one in the US or the UK will wonder why such a post is necessary. They all automatically have their mortgage interest payments tax deductible. Not so in Canada. However with a little work, even in Canada you may find that Tax deductible mortgages are worth the hassle. According to Jonathan Chevreau, Financial Post, the Canada Revenue Agency is unlikely to challenge if they are done properly.

Why it should take such effort is unclear. It is accomplished by applying the so-called Smith Manoeuvre, popularized first in British Columbia by Fraser Smith in a book of the same name. It has now spread across the country, apart from Quebec. Smith developed and packaged a variation on the standard tax-permissible strategy of selling off non-registered securities; using the proceeds to pay off the mortgage; then reborrowing to repurchase the securities, thereby creating legally sanctioned tax-deductible debt.

A major competitor to Smith, TDMP or Tax Deductible Mortgage Plan, has been named one of Canada’s fastest-growing companies by Profit magazine. It ranked 88th on the 21st annual Profit 100 ranking.

TDMP has a $39 per month fee charged to homeowners, a fee which is itself tax deductible. For this, TDMP takes on all the back-office work and saves the homeowner the bother of having to move the money around every month in order to make their mortgage payments and purchase securities. The fee is considered a carrying charge for administration of income from investments.

Why Canada does not follow the lead of the UK and the US on tax deductible mortgages is unclear. Such an approach does help the residential housing construction market, which can create large numbers of jobs. However until it does, the TDMP approach seems a good way to proceed.

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Predatory Credit Card Practices

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Predatory Credit Card Practices seem to be a hot topic at the moment.  A CBC story suggests that Canadians want a credit card ‘bill of rights’.

Canadians feel powerless when it comes to their credit cards — whether the problem is high interest rates, confusing fine print or hidden fees — and they want a consumers’ “bill of rights” to protect them, according to an EKOS poll conducted for CBC’s Marketplace.  At this time of widespread financial uncertainty, respondents to a four-day survey conducted Feb. 12-16 were asked, “Would you support a credit card bill of rights that would provide legal protections for consumers in their dealings with companies that issue credit cards?”  Eighty-two per cent of respondents answered yes.

The poll was done as part of a larger investigation by the CBC’s investigative consumer program Marketplace (Friday, 8:30 p.m.) into hidden charges lurking on some credit card bills.

There are many causes for concern, with a major one being the credit card loan-insurance schemes.  What is often not mentioned in the promotional literature is how expensive credit card balance insurance can be and how little it often pays off. Fully 51 per cent of those polled in the CBC survey who have the insurance said they did not know it only covers the minimum monthly payments if you lose your job or get sick.

The Financial Consumer Agency of Canada is the government’s watchdog over financial institutions.  It informs Canadians of their rights and responsibilities when dealing with financial institutions and ensures compliance with the federal consumer protection laws that apply to banks and federally incorporated trust, loan and insurance companies.

In the United Kingdom, this type of credit card balance or loan insurance has caused a huge outcry and investigation. It is often called Payment protection insurance (PPI). A BBC article indicates the UK government has cracked down and Loan insurance is to be restricted

Payment protection insurance (PPI) sales will be banned while customers take out a loan.  Such insurance cost borrowers more than £4bn in 2007 and is supposed to repay borrowers’ loans if they fall ill or lose their jobs. Leading providers had faced little competition for PPI and, as a result, had charged persistently high prices.  The Competition Commission’s final set of proposals on PPI is the culmination of a four-year campaign by consumer organisations, and then regulators, against the mis-selling of the insurance by banks and other lenders.

This seems to be a topic that is coming up in a number of countries at the same time.  President Obama is also promising to Address Predatory Credit Card Practices.

Obama and Biden will establish a five-star rating system so that every consumer knows the risk involved in every credit card. They also will establish a Credit Card Bill of Rights to stop credit card companies from exploiting consumers with unfair practices.  Such a Credit Card Bill of Rights will:

  • Ban Unilateral Changes
  • Apply Interest Rate Increases Only to Future Debt
  • Prohibit Interest on Fees
  • Prohibit “Universal Defaults”
  • Require Prompt and Fair Crediting of Cardholder Payments

It seems clear that such a credit card Bill of Rights will be very well received both in the USA and in Canada.  Certainly it would address many of the credit card concerns expressed in that CBC Canadian survey.

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Bankruptcies Soar And There Will Be More

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As a confirmation of the depth of the recession around the world the numbers of filings for bankruptcy seem to be soaring wherever you look.  Here are just some of those headlines.

Canadian bankruptcies soar 47 percent in December

The Office of the Superintendent of Bankruptcy said Monday 8,299 individuals and businesses went bankrupt in December, up from 5,659 for December, 2007, a jump of 46.7 percent.  The latest numbers are a staggering sign of how quickly the Canadian economy has slowed.

Japan company bankruptcies soar

Corporate bankruptcies rose 16 percent to a six-year high for the month of January, and the number of bankruptcies among listed companies is already at a record high for any financial year since World War Two, research firm Tokyo Shoko Research said.

Personal bankruptcies ballooned in Mass. US, last year

“There were 11,638 filings under Chapter 7 of the US bankruptcy code last year, up from 8,245 in 2007 and more than double the number in 2006 when there were 4,698 filings,” the Warren Group, a Boston firm that tracks such data, said in a press release. “Nearly all of the filings, or 98 percent, were by individuals.”

Record numbers are declared bankrupt in the UK as recession bites

The number of people being made bankrupt hit an all-time high during the last three months of 2008, as the country’s worst recession in three decades left thousands of individuals unable to pay their debts.

The increase in the number of people declaring themselves insolvent was particularly high in Scotland and Northern Ireland – jumping 75 and 39 per cent respectively in the final quarter of 2008, compared to the same period a year ago. In England and Wales, there was an 18.5 per cent jump in personal insolvencies. In total, 35,694 people declared themselves insolvent across the UK during the quarter.

Numbers are up for both personal and company filings for bankruptcy.  However given the recent fate of Iceland, questions are even raised about the bankruptcy of countries.  The Huffington Post suggests that the UK Will Be Hardest Hit By Global Recession: IMF.

World economists predicted today that the UK would be hit harder than any other developed nation by the worst recession in more than 60 years.  The International Monetary Fund’s (IMF) grim outlook showed the economy shrinking by 2.8 per cent this year, more than twice as bad as it previously thought and well above the 2 per cent average for advanced countries.

The Institute for Fiscal Studies (IFS) also predicted that swollen levels of public sector debt would not return to pre-crisis levels for more than 20 years.

It may be a overly pessimistic view but Web TV Hub suggests that Britain itself may be on the road to bankruptcy.  You can read the details of its arguments in the following three part series on Bankrupt Britain:

Part 1: Europe Blames America While U.K Warned of Bankruptcy

Part 2: U.K Government Destroying Britain to Help Banks?

Part 3: Is the BBC Hiding Britain’s Bankruptcy?

With this concern for the possibility of the U.K government becoming bankrupt, the series suggests that many U.K news organizations are failing to inform the public of the issues in this argument.

The strength of an economy depends in part on the confidence that the government can generate in the nation.  Clearly in the US, President Obama has been able to create a confidence-building stimulus deal.

Obama’s success at steering a stimulus package from promise to reality is a confidence booster, in and of itself, almost without respect to the actual content of the package. A couple more accomplishments like this, and he might begin to create the illusion that he is an effective leader who can get things done. For a nation shell-shocked after eight years of fiascos, that could be a pretty key step toward facilitating an eventual recovery.

One hopes that other national leaders will be equally effective in building confidence through the economic actions they are taking to counter the recession.

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UK Pensioners In Poverty

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100 years after first state pension – and 2.5m older people still live in poverty. That is the headline in the latest issue of the Mature Times.    If you are unfamiliar with the Mature Times,  it is well worth a read.  For example there is a Guide To Retirement available on the website.

The figures it quotes on pensioner poverty are most distressing.

In 2007/8 the number of pensioners living below the official poverty line of £151 a week (60% of median population income before housing costs) rose by 300,000 to 2.5m.

Between 1997 and 2006, the number of people living in severe poverty – defined as living on less than 40% of median population income – increased by 600,000. The poorest quarter of pensioner households saw their incomes rise by less than 1% last year, well below inflation. The poorest single pensioners saw their real incomes drop by 4%.

About two thirds of those pensioners living in poverty are women.

Joe Harris, National Pensioners Convention general secretary is quoted as follow:

We owe the original pension pioneers a great debt of gratitude, but they would be turning in their graves if they knew that after 100 years, 1 in 4 pensioners
was still living in poverty. In fact, today’s state pension is worth even less in relation to average wages than it was in 1908, and next year’s increase in the state pension will be a measly £4.55 a week – at a time when millions of older people will be faced with the unenviable dilemma of trying to heat their homes or eat properly.

The National Pensioners Convention (NPC) and over 15 individual trade unions in October 2008 joined together to call for a higher basic state pension for the over 60s of today and tomorrow.

They stressed that a decent state pension is an issue not just for today’s pensioners, but for future generations as well. This point has taken on extra significance given the recent financial crisis and the weakness of private pensions which have recently lost £250bn in value – adversely affecting up to 5m people who are about to retire.

For decades, the policy of successive governments has been to rely on means-tested benefits for existing pensioners and good occupational pension schemes for future generations, as a way of avoiding paying a decent state pension. But this approach is unravelling: means-testing remains unpopular and ineffective at getting money to the poorest, and many decent company pensions are being replaced by insecure money-purchase schemes. Billions of pounds have been wiped off private pension funds in recent weeks – and up to nine million workers now face an insecure retirement.

Unfortunately the UK Labour government seems unwilling to address this issue. The opposition has been more vocal.

Jenny Willott, Liberal Democrat Shadow Work and Pensions Secretary, spoke out on Pensioner Poverty during a Parliamentary debate on 4th June. She attacked the Government’s treatment of pensioners. Ms Willott called for the immediate restoration of the link between pensions and earnings.

The Conservatives proclaimed that Pensioners are to lose nearly £100.

Within the EU only pensioners in Cyprus, Spain and Latvia are more likely to fall into poverty than in the UK. By official measures there are now some 2.5 million pensioners in the UK living in poverty.

Labour’s increased use of complex means testing of pensioners has resulted in reduced take-up of benefits. Between 1.2 and 1.8 million pensioners in the UK failed to take up their entitlement of pension credit last year. Up to 1.2 million of those were living in poverty.

This Government is tired, weak and hurting the most vulnerable people in the country with its incoherent and counter-productive policies.

Unfortunately pensioners in poverty do not have the powerful lobbyists that other sectors of the economy have. It is critical that we all speak up for them.

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UK Government and Its State Pensioners

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UK State pensioners should be forgiven for not understanding their treatment by the present UK Government. The Prime Minister, Gordon Brown, often states he is coming from the moral high ground, for example as he said in a speech to the Labour Party conference on 23 September 2008.

What angers me and inspires me to act is when people are treated unfairly.  So when people share with me stories about the hard time they’re having with bills, I want to help, because I was brought up seeing my parents having to juggle their budget like the rest of us.

However we now have a story in the Telegraph that Adults could be forced to take out private insurance to cover nursing home costs.  This is to cover the cost of their care in old age under plans being considered by the Government.

This stands in sharp contrast to the views expressed in a recent blog post by Michael Thompson of Link-Age/Countrywide.

What makes matters much worse is not just the national apathy on this issue from both richer pensioners with other income, from the general public, from the British media, and from the the two major political parties in this country.

It is that the money is there, with this Government sitting on a National Insurance “surplus” of around £40 billion*, which is expected to be 74.1 billion by 2012.  And also that the Government’s Pension Credit Means Test system is costing tax payers 10 times more than the restoration of the earnings link.

To think that our war veterans and younger pensioners are means tested for extra money on a £90 odd quid a week state pension makes me puke, when MP’s themselves are sitting pretty thank you.  Still we British largely do nothing.  We get what we deserve in this country, but our pensioners do not.

It would appear that seniors in the UK do not get the respect they deserve.

* Update: Peter Morris in a comment to another post offered the following information:
Some time ago I received a response under FOI from the UK Government’s Debt Management Office which holds the surplus in the National Insurance Fund in an investment account called “Call Notice Deposits” and the balance was around £50 billion as at 31st March 2008.

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UK State Pensions Lowest In Europe

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UK State Pensioners resident in Canada do not fare as well as their fellow Pensioners, who are resident in the UK.  However that does not mean that UK pensioners who reside in the UK are having an easy time of it.

 Michael Thompson, who is the founder of Link-Age/Countrywide and is a member of The Devon Pensioners Action Forum took the time to respond to another blog post on 10 Downing Street Twitterings While UK Pensioners Freeze.

He also sent me some information on how UK State pensions compare with those in the rest of Europe as a percentage of the average wage.  As this chart shows, Britain is at the bottom of this State Pension league table.

Britain At The Bottom for UK State Pensions

His information made me aware of another useful website, Seniors Network,
which claims to be the Top  Web Site For the Over 50′s in the UK.  If you wander around that website, I think you will find the claim to be well justified.  Thank you, Michael Thompson, for introducing me to that Seniors Network website.  If you wish to contact Michael Thompson then you can do that by email or by telephone at 01803 857020 after 7pm GMT. If others know of useful sites for seniors, then perhaps they could mention them in the comments.  The best will be featured in the Money Resources page.

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Frozen UK State Pensions – Spousal Advice

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Frozen UK State Pensions are never far from my mind, given the severe hardship it creates for many of its recipients.  Naturally when I visited Black Pudding, that incredible cornucopia of UK goodies here in Langley, British Columbia, UK State Pensions did come up in the conversation. 

One surprise to some was the revelation that the spouse of a UK pensioner is entitled to a UK pension on reaching the retirement age.  This is true even if the spouse has never lived in the UK nor paid State Pension contributions.  Given the unfairness of other features of UK State Pensions paid to Canadian residents, it is important not to overlook this useful contribution.  If you are a UK State Pensioner resident in Canada, then I would encourage you to look into this.

Of course there is rarely good news without associated bad news.  The bad news is that the retirement ages are rising as you can see from the following extract from The Pension Service A to Z listing.

State Pension age: The State Pension age is 65 years old for men and 60 years old for women. However, the State Pension age for women is changing – it will rise gradually from age 60 to 65 from 2010 to 2020. The state pension age for both men and women is to increase from 65 to 68 between 2024 and 2046, with each change phased in over two consecutive years in each decade. The first increase, from 65 to 66, will be phased in between April 2024 and April 2026; the second, from 66 to 67, will be phased in between April 2034 and April 2036; and the third, from 67 to 68, between April 2044 and April 2046.

If your spouse is not yet at the UK State Pension retirement age, there is a retirement age calculator provided to determine the age at which the pension will be available.  I guess the bottom line on that is Better Late Than Never.

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Frozen UK Pensions – Should Legality, Equity or Morality Apply?

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Three issues that affect seniors by causing extreme financial distress were handled according to different principles by the UK government during the past month.

In the first case it was legality that rules.  Expats Pension: Appeal against frozen pensions ruling

The International Consortium of British Pensioners will appeal against the European Court of Human Rights’ rejection of its claim that Britain’s frozen pensions policy is discriminating and in breach of the Human Rights Act.  The judgment adversely affects more than half-a-million expat retirees and some of the most vulnerable people in society. It will also deter thousands of Britons still resident in the UK from joining family overseas – surely a right that none expected to have taken away after paying pension dues throughout their working lives.

In the second case, apparently forgetting the principle of legality, the UK government seemed to be looking at equity in this case.  Brit pensioners abroad face fuel pay cuts

A Parliamentary investigation into fuel poverty is to investigate £12 million a year of winter fuel payments made to British pensioners living abroad. Under official rules the £200 winter fuel allowance is paid to anyone living in Britain on their 60th birthday on a state pension, even if that person intends to retire or spend winter months in warmer countries. The payments rise to more than £300 for the over-80s. There is not even a requirement for the money to be used for heating bills.

The payment is only made if British citizens move to one of the 29 countries in the European Economic Area. It is part of the European Union portable allowances scheme and cash is paid into overseas bank accounts.  It does not apply to anyone moving to Commonwealth countries such as Australia, New Zealand or Canada, who have their pension and fuel payments frozen once they leave Britain.

The third case illustrated that the UK government was now moving to the higher plain of morality.  Gordon Brown and Archbishop of Canterbury in moral clash

Mr. Brown said that as the son of a church minister he always listened to senior church figures.  Drawing on the parable of the good Samaritan, he said: “Every time someone becomes unemployed or loses their home or a small business fails it is our duty to act and we should not walk by on the other side when people are facing problems.  That’s the reason why our fiscal policy is designed to give real help to families and businesses and to give them that help now.

Picking and choosing among these different principles is hardly moral.  At the least going forward one might hope that all three cases would be handled with a certain consistency.

PS. If you’re looking for a way of keeping up-to-date on the first topic, the Pension Parity UK website is a complete information source with all the latest news.

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