Questions of Cash: January 2015

Q. I am in dispute with the Cheltenham & Gloucester Building Society.  Back in 2007 we had an interest only mortgage with the Bank of Scotland for £48,000.  This was covered by two endowment policies: a 25 year policy for £32,000 maturing in 2014 and a 20 year policy for £16,000 maturing in May 2016.  We received ‘red’ warning letters on both and needed to act. We approached the Cheltenham & Gloucester with details of the endowment policies.  The agreed remedy was to take out a smaller interest only mortgage, putting the balance onto repayment terms. We took the opportunity to increase the mortgage to carry out some works. We expected between the two endowment policies a return of £32,000.  Details of the policies were noted separately on the application form, which caused confusion.  The maturity date of the first endowment policy was entered onto the Cheltenham & Gloucester computer as the expiry date of the interest only part of the mortgage.  The result of this was that in May 2014 we were asked to pay the balance of £8,100 or “apply for an extension”  The first endowment policy returned £24,000, which was paid in its entirety against the mortgage, and the second policy is on target for £10,000, leaving us with an excess of £2,000.  Cheltenham and Gloucester does not believe that the second endowment policy should be counted against my mortgage. It has told me the second policy was taken out for “some other reason” and only now being applied against this mortgage. It also told me that back in 2007 no one knew that endowment policies would be underperforming. It added that they do not read letters, so everything I have written to them has been a total waste of time, including the letters I sent telling them not to ring me at home as I work, but ring me on my mobile. It has also involved a third party, a company called NCI. I rang NCI before they made a scheduled ‘site visit’ and explained the problem. The representative agreed with me and recommended that Cheltenham & Gloucester change the expiry date of the mortgage to the correct date. Cheltenham & Gloucester has ignored his recommendation and charged me £40 for the site visit.  I have told Cheltenham & Gloucester it must either change the expiry date of the interest only mortgage to the correct date, or ask me to take early redemption of the second endowment policy. with it covering any cost. It has failed to respond.  TS, Oxfordshire.

A, The Cheltenham & Gloucester ceased to be a building society in 1995, when it was acquired by Lloyds Bank.  Over recent months, much of the Lloyds business was transferred into the now separate TSB bank, with part of the old Cheltenham & Gloucester operation going to TSB,,while some stayed with Lloyds.  We initially raised your query with Lloyds, which told us that your account was now part of the TSB business.  We then contacted TSB – which (correctly) referred us back to Lloyds, saying that your account was still with Lloyds.  When we eventually made contact with the right people, we obtained a result – the £40 charge has been cancelled and compensation of £300 will be paid to you in recognition of the bank’s service failings. A spokesman for Lloyds says:“We have contacted [the reader] and agreed a way forward to align his endowment policies with his mortgage. We acknowledge that the level of service we provided did not meet expectations and apologise for this. We have also offered a payment to [the reader] in recognition of the inconvenience caused and to ensure that he has not been financially disadvantaged as a result of this matter.”

Q  Can you give me advice on final salary pension schemes please.  I have some defined benefit final salary pension scheme entitlement,with protected rights.  But I was forced to join a defined contributions pension when the defined benefits pension scheme was closed. I also have an AVC – additional voluntary contribution – policy. Upon being made redundant from the company I hold the defined benefits and defined contributions pension with, I joined the NHS.  T

The NHS does not strictly have a final salary scheme because from April 2015 most NHS employees will be in a ‘career average’ scheme, including me.  So should I transfer both my previous defined benefits and defined contributions pensions to the NHS scheme?  If I transfer one, I have to transfer both.  I am unclear why I am not permitted to just transfer the defined contributions pension.  Should I also transfer the AVC pot?  RK, by email.

A.  Tom McPhail,head of pensions research at Hargreaves Lansdown, answers:  “To assess whether a transfer makes sense or not you may need to engage the services of a suitably qualified financial adviser. The first question to ask is what level of benefits you are being offered by the NHS if you do transfer across to their scheme. You need to know this before you can start to compare whether it would be a better deal.  I see no particular issue in putting all your eggs in one NHS pension scheme basket; you could take the view that on principle risk diversification is a good idea so it is better to keep the two pensions separate, however the NHS scheme is probably more secure than most. Nevertheless, this eggs in one basket consideration is one to bear in mind if you are particularly risk averse.  The career average scheme type is generally considered to be poorer than final salary. This depends though on whether you expect your salary to increase rapidly when in the NHS; potentially the career average revaluation rate could offer you a better deal if you are expecting a relatively flat career path.  I suggest you obtain a transfer value for your old workplace pension, find out from the NHS what terms they would offer, and then take advice from an IFA.”

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