Ikea - prices you assemble yourself?

READERS' LIVES; Consumer rights ... terminal bonuses. Your financial queries answered

I ordered some computer furniture from an Ikea catalogue with prices valid at the time but due to change. At about pounds 170, the items cost more than I had originally intended to spend so I was stretching my budget. A week or so later, when the prices had changed, the items were ready to collect but the final bill was more than pounds 200. I needed the items so I decided to pay. Is Ikea within its rights to charge me what I assume are the prices in the new catalogue? This came out after I placed my order. JM, Manchester

You assume wrong. You did pay the original prices. The pounds 170 you expected to pay excluded VAT. The final bill had VAT added. The real question is whether Ikea is allowed to give prices that exclude VAT.

The Consumer Protection Act 1987 makes it an offence to give consumers misleading prices. A code of practice, issued by the Department of Trade and Industry to accompany the act, says that all price indications given to private consumers should include VAT. However, prices can exclude VAT where most of a shop's business is with business customers.

Overall, Ikea deals mainly with private customers and a business section is an integral part of an Ikea store. But, says Ikea, its business section does deal mainly with business customers. Prices in the catalogue from which you placed your order in the shop excluded VAT. But, says Ikea, a note about prices excluding VAT was on the cover and first page of the catalogue. And goods on display in the business section of the shop do include VAT.

Grey areas apart, a further complication is that the code of guidance has no force in law. So, regardless of the intention of the Consumer Protection Act, it seems the old warning caveat emptor still applies.

Ikea says that yours is the first complaint of this kind since the business section opened two years ago. But it will take your complaint seriously and see what further steps it can take to avoid confusion. In fact, says Ikea, the business catalogue does now point out on most double-page spreads that prices exclude VAT, an acknowledgement, perhaps, that the old catalogue you looked at was not as clear as it should have been.

You recently stated that Britannia Life was reducing annual bonuses but increasing terminal bonuses on its endowment and other with-profits life insurance policies. Are you sure? As far as I can make out from any annual statements, terminal bonuses have also been falling throughout the 1990s. Also, doesn't reducing guaranteed annual bonuses in favour of increased terminal bonuses make a life policy more risky? RM, London

Britannia Life has clarified the position. The company says that most of its policies saw an increase in terminal bonus between 1996 and 1997. However, it acknowledges that this did not apply across the board. Some policies originally issued by LAS (Life Association of Scotland) and Crusader, companies that Britannia has taken over, did not see an increase in terminal bonuses.

You are right to suggest that the general trend among life companies to reduce guaranteed annual bonuses and rely more on terminal bonuses does introduce more of a stock market-related risk. The life companies say reducing guaranteed annual bonuses reduces future commitments and so reduces the need to invest cautiously. They can invest more in equities and less in fixed interest stocks, in the hope of boosting overall returns. But this investment approach does rather remove one of the few remaining reasons for investing in a long-term with-profits policy, namely that they smooth out the ups and downs of the stock market and so allow the cautious to sleep at night.

The truth is that it is hard to find any good reason to start a new investment- linked life insurance policy in 1997. Nowadays, the PEP provides a more flexible and tax-efficient alternative and can cater for a range of investment risks. There has been a trend to reduce overall returns on with-profit life policies across the life insurance business in the 1990s. Defenders of falling returns say that what matters is the real return over and above inflation. Inflation in the 1990s is much lower than the 1980s and, especially, the 1970s, so investment returns are likely to be lower. The problem with this argument is that that many people who took out endowment policies to pay off a mortgage are less interested in real returns than in actual cash returns. In other words, they are expecting a definite cash sum (plus a promised likely surplus) to pay off a mortgage at a fixed date. It remains to be seen how many people will experience a cash shortfall.

q Write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number. Alternatively, fax 0171-293 2096/2098 or e-mail: s.lodge@independent.co.uk. Do not enclose SAEs or any documents that you wish to be returned. We cannot give personal replies or guarantee to answer every letter. We accept no legal responsibility for any advice given.

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