Questions of cash: Should we clear debt or get an Isa?
Saturday 08 January 2005
Our granddaughter, who works for a bank, says we should invest this in an Isa, but we wondered whether we should reduce our credit-card debts
Q. We are senior citizens aged 66 and 64, receiving pensions and benefits totalling £700 a month. My husband is about to receive a £4,000 lump sum on reaching 65. Our granddaughter, who works for a bank, says we should invest this in an Isa, but we wondered whether we should reduce our credit-card debts. Would any credit-card company be interested in offering us an interest-free period if we transferred the balance to it?
A. The best rate of interest for an instant-access cash Isa is currently Abbey's postal Isa, which pays 5.35 per cent. Compare that to the more than 10 per cent rate you are probably paying on your credit card and it is obvious that the priority is to reduce your credit-card debt. You may have difficulty in obtaining an interest-free transfer credit card in your circumstances and, even if you did, you would still need to clear the debt at the end of the interest-free period.
Q. When my wife died, it emerged that Barclays had sold her a £30,000 life annuity, although she was 63 and had a mere six months' life expectancy after cancer diagnosis. I consider this exploitation.
A. Your wife died in 1995. Barclays says it is clearly untrue that the policy was mis-sold because your wife died four-and-a-half years after she bought the annuity. Your complaint has been rejected by the Financial Ombudsman; you have threatened legal action against Barclays; and you took your case to another newspaper, which declined to pursue it. You must accept that you have exhausted all routes available to you and after almost a decade of pursuing your grievance you should consider closure.
Q. The Financial Ombudsman Service (FOS) has upheld our complaint of endowment mortgage mis-selling and proposed a payment of £16,973 for the surrender value plus £6,972 in compensation. We are considering maintaining the Legal & General endowment as a savings vehicle; is this wise? The compensation offer uses assumptions based on information we provided on our mortgage history form, relating to a discount on the mortgage for Unison membership and lump sums we paid after we converted to a repayment mortgage in March last year. We can request the exact compensation figure from L&G, but we do not want to delay the payment.
RD and AD, by e-mail.
A. Compensation is always calculated to put you in the position you would be in if you had been sold the more appropriate product. Whether you should maintain your endowment solely as a savings policy is a matter of judgement, but FOS reports more complainants are doing this. Stock markets have recovered significantly, so endowments should show improved performance.
By maintaining the policy, you will be eligible for a terminal bonus, but endowments are so varied that L&G is unable to provide guidance on recent terminal bonus payments. L&G with-profits endowments are not held in a closed fund, which means that performance is likely to be better than that of many other providers.
If you do choose not to maintain your endowment, you should consider selling it on the traded endowment market, rather than surrendering it to L&G. The FOS compensation calculation is based on your situation as at March, so lump-sum payments since that date should have no effect on the final compensation.
The only assumption likely to influence the payout is the union discount. Whether this works for or against you depends on what assumption has been made and whether a discount would have been given if you had taken out a repayment mortgage. You might ask L&G what assumption it made. If the assumption was unfavourable, the difference may be significant; if it was incorrect, you should seriously consider seeking the exact figure.
* If you have any queries, write to: Questions of Cash, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail: cash@independent. co.uk. Please send copies, not originals.
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