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Spend & Save

dear Prudence

An expert answers your queries on money matters
I see the price of gold has reached its best level since 1988, and I would like to buy some gold coins. Is this wise, and if so which are the cheapest and where can I buy them?

Mr P W, Surrey

The price of gold goes up when inflation rates are rising and gold is seen as a way of storing value, and when interest rates are low and the cost of holding gold which earns no interest is therefore painlessly low.

There is a wide choice of gold bullion coins, including sovereigns, Britannias, krugerrands, which contain an ounce of pure gold, Canadian Maple Leaves, Australian nuggets, Austrian ducats, Russian chervontsi and Chinese pandas. They all sell for perhaps 1 per cent to 3 per cent above their gold content.

Unfortunately the trade in gold coins in the UK has been virtually dead since the Seventies when the Chancellor imposed VAT on the price of bullion coins traded essentially for their gold content. He did so because unscrupulous dealers bought coins free of VAT, melted them down and sold them for scrap, reclaimed VAT which did apply to scrap, and then disappeared.

The scam won't work now because Customs & Excise requires the VAT on scrap gold to be paid direct to them, and bullion dealers would love the VAT to be repealed. But meanwhile retail trade in gold coins remains hamstrung by VAT, which individuals cannot reclaim. Some coin dealers and jewellers do sell coins individually but expect to pay 20 per cent above the gold content.

You could now go to countries like Luxembourg where there is no VAT on gold coins and import them legally. The trouble comes if you want to resell them.

I have worked for a number of employers over the years and earned pensions with several of them, although they are frozen until I am 65. I also started a number of personal pension plans in the late Eighties when the whole country was being pressurised into getting a portable pension. I cannot blame an adviser for selling me a plan because I went along with the crowd quite freely, although clearly I should have joined my then employer's company scheme and got a contribution from him.

I am now employed on a series of short-term contracts which might end abruptly or could lead to a staff job. I have three questions. Could I, and should I, try to consolidate my earlier pension plans into a single plan; what should I do about pension contributions in my present employment; and can I reopen my existing personal pension plans?

Mr G H, Manchester

I suspect your problem is quite common and very complex. You can seek to transfer your old company plans into a single scheme. If you get a new staff job and expect to keep it for some years that might be a suitable home, if you don't get a staff job you could transfer into a personal pension scheme, but you have no control over the transfer values on the way out or the way back in, and there is no way you can buy longer service in a company scheme. My instinct is to sit tight and wait until the pensions become payable.

You were certainly a victim of government hype for personal pensions in the Eighties. My understanding is that most providers will let you back into schemes which have become dormant, but some will ask you to pay all the back contributions, plus a fee.

For the future you will not be able to join a company scheme and get tax relief on contributions to a personal pension scheme in the same tax year. You do not say how old you are but contributions to a pensions scheme are tax efficient and as you get older you can put an increasing proportion of your earnings, up to 40 per cent if you are 61 or over, into a scheme. I think however you do need one-to-one advice from a specialist adviser.

I have a savings account in the Woolwich which I have held for many years and am entitled to a vote on the conversion to banking status. I am happy at the prospect of getting a pay-off, but will conversion make the society a better business?

Mrs P W, London

That is the $64,000 question. Societies want to convert because they will be able to raise more money from the London money markets and lend for a full range of purposes. They will also have shares they can use to mount takeover bids to expand their business faster.

But they will have to generate extra profits in future to pay dividends to shareholders, and they will have to come from somewhere, through increased volume or increased efficiency, or at the expense of borrowers or savers. That is why the Bradford & Bingley has deliberately set out to pay more to savers and charge less to borrowers, at the expense of its own profits, in order to embarrass the banks and building societies which are converting to banking status.

Questions from readers are welcome. Write to Prudence, c/o the Features Department, 'The Independent', One Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293 2182. Personal correspondence cannot be entered into.