House of Commons - Treasury - Written Evidence

Select Committee on Treasury Written Evidence

Memorandum submitted by Help the Aged

INTRODUCTION

The way older people deal with money is changing. The move to direct payments of benefits, the increased use of credit and debt to manage cash-flow and the introduction of Chip and Pin technology are causing real worry to some older people, a significant number of whom have little experience of banking. Furthermore many older people are finding themselves left behind as the growth of internet banking and efficency savings result in the closures of bank branches.

The changes to the system of housing allowance[138] and direct payments for care[139] present similar challenges. If the initiatives are to succeed, much more needs to be done to tackle financial exclusion and raise the levels of financial capability.

It has been estimated that there are approximately 30,000 financial services products on the market (including insurance for health and social care as well as pension planning) and whilst this extends choice it also places a difficult responsibility on those with limited financial capability.

Demography

In 2002, there were 9.5 million people aged 65 and over in the UK. The number of older people in our population has increased over the past few decades and is projected to continue to grow in the future. During the 50 years from 1971 to 2021, the number of people in the UK aged 65 and over is expected to have increased nearly 70%, from 7.3 million to 12.2 million. The section of the older population which has increased most rapidly, both in actual size and in relation to the total population, is that of people over 75. The proportion of people in this age-group is projected to increase from 4.5% in 1971 to 9% in 2021.

Incomes of older people

Pensioners are over-represented in the lower half of the income distribution and very many live on relatively little: 65% pay no tax or tax only at the 10% level. In recent years the introduction of additional pension benefits such as Minimum Income Guarantee (superseded by Pension Credit) has lifted the incomes of the poorest pensioners, yet two million pensioners remain below the government's poverty line.[140]

In 2003-04, 21% of older people were living in relative poverty (60% below median line) before housing costs.

18% of pensioners were in persistent poverty before housing costs between 2000 and 2003.

For today's pensioners, state pensions and benefits remain the most important source of income, making up 51%[141] of the average pensioner household's income. Women pensioners, older pensioners, and those on low-incomes are even more likely to be heavily reliant on state pensions and benefits. For instance, single pensioners aged 75 and over receive 67%[142] of their income from the state. For most people who have already retired from paid employment the state is also the only hope for an improved income in the future—as private pensions and savings can only remain static or be depleted. Only the Government has the power to ensure today's pensioners share in the growing wealth of the nation.

Relatively large numbers of older people have income levels around the conventional poverty line of 60% of median household income, so small increases in income produce substantial reductions in "official" poverty. By the same token, people who get by on just above the 60% of the median line may have clambered above "official" poverty, but they are not dramatically better off.

Financial exclusion and elder abuse

Whilst there is a clear need for further research, existing evidence shows that financial abuse is one of the most prevalent forms of elder abuse.[143]

Mrs X is a Somali woman. She doesn't speak English well and struggles to understand the benefit system. With the move towards Direct Payments, her benefits were paid automatically into her new Post Office Card Account. However, she didn't know how to use the account and her son now takes her POCA card and withdraws cash for her. He, in effect, now manages her money and she now doesn't see all of the money she is entitled to.

"Hidden Voices, Older People's Experience of Abuse", written by Action on Elder Abuse and published by Help the Aged in September 2004, revealed that 20% of calls to the Action on Elder Abuse Helpline were in relation to financial abuse. This was the second most frequent category of abuse after psychological abuse. Financial exclusion and low levels of financial capability amongst older people can mean that older people become dependent upon others to manage their finances or to access their income or savings. Whilst in the majority of cases, family, friends and professionals are trustworthy, calls to Action on Elder Abuse's helpline show that the vulnerability of some older people, or their reliance on others for assistance, can be abused. To date, recognition and tackling of elder abuse by government has in the main been within the spectrums of health and social care. It will be essential that the DWP and financial agencies work with other departments and bodies to take urgent action to increase the financial capability of older people if financial abuse of older people is to be tackled effectively.

HELP THE AGED ACTIVITIES

Information Resources

Help the Aged produces a range of free advice leaflets and information sheets on money issues including the leaflets:

Thinking about Money

Can You Claim it?

Claiming Disability Benefits

Check Your Tax

Questions on Pensions

We distribute about 700,000 financial advice leaflets to older people each year. All of our information resources can also be downloaded from the Help the Aged website.

Seniorline

Our national freephone telephone helpline, Seniorline, answers over 80,000 calls every year, of which around one third are related to financial matters, including benefit checks. Despite being a small team, last year Seniorline managed to help older people claim over £1.5 million in previously unclaimed benefits.

"Financial Futures"—Barclays and Help the Aged Partnership

Barclays and Help the Aged are working together to improve the skills, confidence and financial situation of older people by providing basic money management and debt advice. Often as people become older, they can face changes in their circumstances which can impact on their financial situation and ability to manage their money. The UK wide programme aims to support over 30,000 older people and their carers to better manage their finances. Barclays staff will be actively involved, helping older people to manage their finances in times of change and plan for their futures. The programme will not only meet the needs of those in debt now, but also help to prevent future debt and disadvantage.

Summary

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Older people are not getting the financial services or advice they need. Further initiatives to promote financial literacy amongst older people are required and the financial services industry must better recognise the needs of this growing sector of the economy. Action is needed by Government and by the financial services industry to reduce the problems older people have accessing financial services.

A common theme throughout this response is age discrimination. Direct discrimination—ie. upper age limits for financial service products—and indirect discrimination—ie services which are inaccessible by design to many older people—remain rife in the industry, despite the huge potential market older people represent. Help the Aged believes that legislation to tackle such age discrimination will be a necessary to make progress in addressing financial exclusion..

RECOMMENDATION

— The Treasury Committee should urge the Government to develop and implement Age Discrimination legislation which covers the provision of goods and services.

ACCESS TO BANKING SERVICES

Access to Banking by Age

Around 6% of UK households do not have a bank account. This figure increases with age so whilst 7% of 50-59 year olds do not have access to an account, this increases to 12% of over 85s.

Households in the UK without an account 2003-04[145]

Total (Whole population)—6%

50-59 60-64 65-74 75-84 85+

UK—percentages 7% 8% 8% 10% 12%

Direct Payments

Over the past two years, the Government has used the move to direct payments for benefits payments to, in effect, force older people into banking. Whilst Help the Aged recognises that there is real value in encouraging older people to open bank accounts, the Government's approach has and continues to be one of coercion rather than encouragement.

The main motivation for delivering direct payments was not financial inclusion but a desire to reduce the administrative costs of delivering benefits for older people. As such, in introducing direct payments, the Government failed to adequately inform older people about the alternatives if they could not deal with a bank or Post Office Card account. Over the past two years Help the Aged have been contacted by many older people who feel they have been bullied onto direct payments. This has left many older people with a bank account or POCA which they struggle to understand threatening their independence and thereby increasing the risks of theft and abuse by others.

Most recently the Pension Service have written to those who have still not transferred onto direct payments. The letters inform people that they will be automatically moved onto direct payments unless they write back to request otherwise. Many of those who remain on cheque payments are those who have particular reasons for not taking up direct payments, for instance they may suffer from visual impairments or dementia making it difficult for them to deal with a bank account. These same people may also have trouble in reading their post in time to reply to an ultimatum such as this. It is important that the Pension Service is understanding of these people's financial needs. They need to develop the capability to keep lists of those who are on their exceptions service for health related reasons so that these people are not bombarded by pressure every year to change onto bank accounts which they are unable to manage.

Bank Closures

Local banking facilities are vital for tackling the financial exclusion of older people. Whilst there have been some 5,000 branch closures since 1989 (40% of the network), independent academic analysis, highlighted by the Campaign for Community Banking Services, has revealed that "rates of closure were higher in areas of high population characterised by poverty and deprivation" (1989-95) and that there has been "a strong correlation between branch closure and areas that were socially and economically disadvantaged and characterised by above average concentrations of ethnic minority groups." (1995-2003).

The risk of further closures has not diminished. Research in 2004 by the Campaign for Community Banking Services highlighted bank branches at risk of closure, and showed how the banks' pledge to keep their branches open when they are the "last bank" in the community, was undermined by decision to define the "last bank" as one with "no other bank within a five mile radius". Although modified slightly in 2005, many hundreds of "last banks" are now without protection". With banking services increasingly moving online there are potential problems for older people, only one in five of whom have ever used the internet. The move towards internet banking alongside other efficiency reviews may lead to yet more bank closures.

Help the Aged remains an active member of the Campaign for Community Banking Services and shares its view that shared banking could provide a flexible alternative to branch closure exists. It could prove useful in areas of high deprivation (inner cities and estates) as well as in suburban areas and smaller rural communities, whilst also serving the needs of older people. Help the Aged believes that this "shared branching" or "white label branch" alternative, which has been academically validated in the UK as "operationally feasible and financially viable" and is proven in operation in the United States, would uniquely benefit from economies of scale in development and operation.

Fee Charging ATMs

In addition to bank closures, over recent years, there has also been an increasing trend away from free ATM access to fee charging cash machines. The Treasury Committee Inquiry (2005) into Cash Machine Charges highlighted that customers are being charged £140 million a year to access their own money at ATMs. The Committee members expressed serious concerns about the trend towards replacing free cash machines with ones that charge.

RECOMMENDATIONS

— The Treasury Committee should revisit the issue of shared banking and consider its potential for tackling financial exclusion and raising financial capability

— The Treasury Committee should consider how the Government can urge the financial services industry to work together to provide at least one free ATM in areas where all banks have been closed.

Basic Bank Accounts and Post Office Card Accounts

There are now around 6 million Basic Bank Accounts[146] and, of these 1.38 million are Post Office accessible accounts opened since benefits changes in April 2003. Whilst Basic Bank Accounts offer a potential way in to banking for vulnerable groups, unfortunately there is little incentive for branch staff to sell Basic Bank Accounts to individuals due to the nature of sales targets. A "mystery shopper" survey published recently by the Banking Code Standards Board highlighted that 62% of bank branches visited did not display information about basic accounts.[147]

The Banking Code now requires participating banks to offer this type of account if it is suitable for a customer's needs or if an applicant specifically requests one. However the mystery shopper survey revealed that about 30% of assessors had difficulty in getting literature and in some cases it was not available at all. In about 20% of mystery shops, attempts were made by Bank and Building Society staff to sell a more complex product than the Basic Bank Account, which would often have been inappropriate for the consumer.

An increasing number of Basic Bank Accounts charge customers for overdrawing when direct debit payments are taken. For vulnerable consumers using such accounts this is very worrying and can be very costly.

On a more positive note, a host of building societies and one high street bank have recently opened instant access bank accounts specifically aimed at pensioners and offering impressive rates of interest at around the Bank of England base rate and which match those on offer via the internet. Two of these, in particular, are available free of charge and with only £1 and £10 starting deposits required, the only condition is that the pension must be paid into them. The government should encourage the major banks to follow this trend.

As a result of the move towards direct payments, over four million people are now using a Post Office Card Account (POCA) to receive their benefit. However the POCA offers extremely limited functionality and does not, for example, permit any direct debit payments. If the Government had intended the move towards POCA to provide a tool to deliver banking services to vulnerable groups then it has clearly failed as a result of its limited functionality.

RECOMMENDATIONS

— The Treasury Committee should consider what should be done by the financial services industry to ensure better promotion of the availability of Basic Bank Accounts to vulnerable consumers.

— The Treasury Committee should consider the case for a universal service obligation to be placed on the banks for the provision of transactional banking services

— The Treasury Committee should review whether the functionality of the POCA can be extended in order to make it a genuinely useful account as a stepping stone towards a full bank account.

Internet Banking

Whilst Internet banking is a convenient and useful way for many people to undertake banking, the development threatens the sustainability of many off-line financial products and services. Only around one in five older people have ever used the internet and the statistics are not increasing significantly with time.

At the same time, the financial services world is continuing to fail older and disabled people in terms of the accessibility of their websites. A survey by Ability-net in February 2004 revealed that only one of nine online banks reached a minimum standard for accessibility[148].

A cursory glance at available savings accounts shows that many of those with the highest rates of interest are available exclusively online. In December 2005[149] five of the top six interest drawing accounts were internet only. Those older people who do not use the internet do not therefore have access to the highest rates of interest and are therefore indirectly discriminated against.

RECOMMENDATIONS

— The Treasury Committee should urge the financial services industry to significantly improve its performance in terms of website accessibility.

— The Treasury Committee should urge the Government to develop and implement Age Discrimination legislation which covers the provision of goods and services.

Premium Bank Accounts

Many banks sell premium accounts for which people pay a small monthly sum. There are often a number of benefits including worldwide family multi-trip travel insurance. Help the Aged receives complaints from individuals who have had such accounts and found at the age of 65 or 70 that they are no longer eligible for the insurance related benefits.

I'm a customer of banking services of Bank of Scotland and Alliance & Leicester. Both have introduced new accounts with additional benefits, including travel insurance. Both exclude people 65+. I have written letters of outrage, as you would suppose. Both have said this condition is imposed by the (different) underwriters and have informed me of my right to refer the issue to the Financial Services Ombudsman.

This practice causes much bad feeling amongst older bank account holders and Help the Aged believes that Age Discrimination legislation is needed to make this practice unlawful

Know your customer

In 2003, the FSA launched new "Know Your Customer" controls which aim to help combat money laundering, crime and terrorism by forcing regulated financial service companies to obtain evidence of their customers' identity. The FSA rules have caused problems for the banks with one high street bank described in a media article as "treating older people like criminals" through the way in which the rules have been implemented. To open an account many banks will require forms of identification which some older people may not have. Some banks have adopted strict rules around the identification required when withdrawing cash at branches whilst others have not.

For older people, problems are also created due to the fact that the longer you have had a bank account the larger the problems you may have in proving your identity. If an account was opened 10 or more years ago you would not have gone through any of the strict procedures which are currently required. There have been examples of people who have had accounts for 40 years being required to prove who they are when, for example, needing to open an investment account with house sale proceeds on going into a care home. Such requirements can be difficult to comply with and destabilising at an emotional time.

The recent mystery shopping exercise by the BCSB noted that this was still very much a live issues and that the Anti-Money Laundering checks still create difficulties. They note "Many benefit recipients do not have documents such as driving licences or passports. Some bank staff need to be more aware of alternative forms of identification: greater flexibility is needed at branch level. Anti-money laundering rules have remained a bar to many applicants getting accounts".

Chip and Pin

In an attempt to reduce fraud, the banking sector has moved towards a "Chip and Pin" system for credit and debit cards. Verification for credit and debit cards will in the future be made by a four digit pin number rather than a signature.

Research has highlighted that those with even low levels of dementia will struggle to remember pin numbers. There is an alternative for those who cannot use pin numbers (chip and signature) but the banking sector is not well promoting this alternative and the process for obtaining chip and signature cards has not proved to be very accessible with only 30,000 chip and signature cards issued as of October 2005. Help the Aged are also concerned that some retailers are not equipped to deal in a flexible and supportive way with those who are struggling with pin numbers.

In addition, from February 2006 retailers will be allowed to only accept pin numbers from people who have chip and pin cards. As chip and pin cards are practically indistinguishable from chip and signature cards many older people are likely to be unaware that their signatures may be refused. Help the Aged hopes that retailers will use sensitivity by allowing vulnerable older people to continue signing for goods if they do not know their pin numbers. Help the Aged has also called for an amendment to the banking code so that the financial service industry is forced to both promote and offer Chip and Signature cards. This offers a further vehicle for older people maintain financial independence, avoiding reliance on others and the risks that this may incur.

RECOMMENDATIONS

— The Treasury Committee should urge the financial services industry to amend the banking code so that banks are forced to promote and provide alternatives to chip and pin for those who cannot use pin numbers.

ACCESS TO AFFORDABLE CREDIT

The Bank of England has revealed that households in Britain now owe over £1,000 billion. With credit being made more available and acceptable, it is likely that older people will be increasingly impacted by this "debt mountain". Some people in their 40s and 50s will currently have problems with debt and will need to be considering how they deal with that debt as they move towards retirement. Equally some older people may, for the first time, be beginning to find themselves with debt problems. There is much interest in debt issues but little work focusing on the impact on older people and considering what will happen to them over the next 15 or 20 years.

RECOMMENDATION

— The Treasury Committee should urge the DWP and DTI to commission research to consider the implications of any changing attitudes towards debt amongst older people.

Age discrimination

Age Discrimination can still be a factor for some people when attempting to secure affordable credit. Upper age limits are discriminatory and prevent older people accessing loans or other forms of credit.

Mr X visited a high street electrical store and asked to take advantage of a 6 month interest free offer. This would have allowed him to buy a washing machine over 6 months rather than all at once. Mr X was told that he couldn't benefit from the interest free offer because he was over the age of 75.

Social Fund

The Social Fund is meant to provide credit via interest free loans or grants to the poorest and most vulnerable members of society for whom conventional financial products are out of reach. The Social Fund provides three types of credit to people: Community Care Grants, Budgeting Loans and Crisis Loans. However, the whole system seems stacked in favour of refusing people help. In addition, compared to the £49 billion owed on credit cards in the UK, the Fund's budget of £560 million seems woefully low. Indeed, in 2001 the Select Committee for Social Security concluded that:

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The Community Care Grant is cited on the DWP website as aiming to help people to live independently. However, what the blurb does not make clear is that the grant will not provide help with housing related costs or medical costs, nor will it help you unless you are currently lacking settled accommodation (known as Direction 4). In 2004-05, of those pensioners refused the grant, 50% were turned away because they lacked settled accommodation. A further 25% were turned away because they were insufficient priority.

The Budgeting Loan, supposed to help people on very low incomes with costs such as home repairs, clothing and existing unmanageable debts, actually refuses applicants who are deemed to have too much debt already—this was the reason for over 70% of the refusals to pensioners in 2004-05.[151]

It is perhaps unsurprising that many people choose to turn to doorstep lenders and credit cards to help them manage, rather than applying to the Social Fund. Help the Aged believes that the Government needs to radically overhaul the way in which Social Fund assistance is provided so that it becomes a clear and supportive process for those who require help. Some small steps are currently being taken, such as increasing the amounts people can borrow and extending the time in which people can repay, but many issues remain. For instance, in order to be eligible for a Budgeting Loan a person can have no more than £1,000 in savings. This is far too low and prevents many older people on low fixed incomes from receiving any help.

Aside from the problems of its operation, the Social Fund also suffers from a lack of public awareness that it exists. Survey work carried out by organisations such as CAB and Leonard Cheshire has shown that people are far more likely to hold debts to doorstep providers, catalogue companies and credit card providers than to the Social Fund[152]. Although there are no specific figures on take-up amongst older people, payouts to pensioners account for only 5% of Budgeting Loans, 12% of Community Care Grants and 1% of Crisis Loans[153]. Many older people are in desperate need of affordable credit to allow them to remain in their own homes or just to manage some of the everyday costs many people take for granted. Help the Aged believes that the Government must ensure that the Social Fund works for older people and raise awareness of its existence.

RECOMMENDATION

— The Treasury Committee should ask the Government to consider radically overhauling the Social Fund so that it meets the needs of the poorest pensioners along with raising awareness of its existence.

FINANCIAL EDUCATION AND ACCESS TO FINANCIAL ADVICE

Current regulations assume a model consumer who is well informed and able to analyse cost and performance in order to discriminate between different financial products or the benefits of switching to other providers. However, many people are not well informed about financial services and have low levels of financial capability. In a recent speech, Callum McCarthy, the Chair of the Financial Service Authority noted that

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Back in 2000 the DFES Adult Financial Literacy Advisory Group (Adflag) noted that there has been limited research carried out to address the financial literacy education needs of consumers and that whilst there is a vast range of initiatives with either a primary or secondary objective to deliver financial literacy, there needs to be a systematic approach to content, delivery, co-ordinating activity and spreading good practice. They also noted that there is a close link between the levels of basic skills and the use of financial products and services.

In addition to the lack of research about how to address the financial literacy education needs of older people, there also remains no benchmarking of the levels of financial capability. The FSA have commissioned some work in this area but it is unlikely to comprehensively cover the financial capability levels amongst older people. This makes it difficult to target financial education and capability support.

One significant development since 2000 has been the development of a schools curriculum by the Personal Finance Education Group and a curriculum for older people by the National Institute of Adult and Continuing Education.

Around one in five over 80s suffer from some form of dementia. In many individual cases, cognitive ability will be declining as part of the ageing process, making money issues more difficult for some to understand.

The Financial Services Authority, who have a legal responsibility to promote financial education and literacy, has been working on a strategy. The strategy is being developed through a series of working group, but unfortunately the financial literacy of older people has not been chosen as a topic for these groups. We are concerned that this will lead to older people being missed out of this strategy.

Financial Advice

One of the FSA's seven priorities for delivering its financial capability strategy was to establish what role generic advice had to play in financial capability.

The experience of non-financial advice services (Community Legal Service Direct, Connexions, Consumer Direct and NHS Direct) suggests that once consumers are aware there is a good source of impartial and trusted advice, this acts as a prompt to seek advice—especially if accessing such advice is made easy.[155]

Therefore making advice available is a first step, but not on its own enough to attract people—especially older people

Many older people struggle to obtain good and independent financial advice. This is partly because they have different needs to the rest of the population in terms of what they need their money to do for them. In the main, older people will need advice as to how to best use their financial resources to ensure a good and consistent income rather than for saving for the long term. This is not a particularly profitable type of business for independent financial advisors who would prefer to be selling long term savings/investment products. For this reason, a fee based approach to financial advice is sometimes better than a commission approach for older people. However, for low income consumers, a fee based approach is unlikely to be of benefit.

Older people's lack of knowledge of the benefits system is linked to their reluctance to use advice services. A CAB report on debt revealed that the over 55s make up 13% of their debt clients, 20% of all clients but 33% of the population as a whole. Similarly, Banking the Unbanked, published by Services Against Financial Exclusion in November 2005, noted that just 1 or 2% of their clients were over the age of 65 and only around 7% were aged over 51.[156]

Older people often rely mainly on informal advice from family, friends or frontline staff, but these sources may not be well-informed or impartial, especially about complex benefits issues and the interaction of benefits with other financial products. Older people generally think of all-age services as being for younger people unless special measures are taken to promote the service. They are less likely to attend office appointments or use the web than younger people (Pannell and Blood 2002 and 2003, Pannell 2003).

FSA research highlighted that there are life stages at which consumers are likely to need support or interventions in the form of financial advice, such as when personal circumstances change; when people reach milestone ages (eg 30, 40 or 50); or when people leave employment. Financial planning at or around the point of retirement is critical as decisions made at this point may affect income/quality of life etc.[157]

Tackling barriers to takeup of advice and other services by older people

One problem faced by public, voluntary and private sector bodies interested in providing financial advice for older people is the complexity of the services many older people have to access. Help the Aged has been working with the Social Exclusion Unit and the DWP to develop the concept of a holistic and fully joined up service for older people based on the SureStart model, which would provide a single point of access for older people to information and advice. Help the Aged has is keen to see financial advice included within future pilots of the SureStart model for older people.

Forthcoming research by Help the Aged[158] will set out some of the reasons why services remain inaccessible to older people. Whilst these apply to all services, they are very relevant to financial advice and they include:

The failure of services to fit with older people's priorities and needs:

— lack of choice and flexibility as to what is on offer;

— failure to meet personal and cultural beliefs, interests and priorities.;

— conflicts between the value base of old and young, professional and layperson; and

— services viewed as patronising or ageist.

Inaccessible services:

— accessibility of services due to sensory and mobility impairments, for example reading small text, listening to recorded messages and accessing e-services;

— practical barriers such as lack of transport; lack of public toilets; fear of crime etc;

— bureaucracy and access criteria; and

— poor quality of services or anticipated poor quality of services

Psychological issues:

— lack of awareness of their own needs by older people themselves;

— lack of trust some older people have of formal services;

— concerns regarding revealing weakness or being associated with negative stereotypes; and

— the fear that one may be considered frail or elderly as a key barrier to engaging with the outside world.

RECOMMENDATION

— The Treasury Committee should consider how Government and service providers can do more to tackle overcome the barriers older people face when attempting to access services.

The barriers have been backed up by Help the Aged's Benefit's Advice programme which has identified the specific issues below which need to be addressed to enable wider access to financial advice and mainstream financial services.

— Older home owners and private tenants are less likely to be in touch with other services which might refer them on for benefits advice.

— Older people from minority communities often face language or cultural barriers (especially women).

— Older people from minority communities or with learning disabilities sometimes suffer from low levels of literacy.

— The lack of transport creates barriers to obtaining financial advice, especially for older people in rural areas and for those with disabilities.

— The lack of funding to support financial capability initiatives (particularly face to face advice) remains a significant problem for small community groups.

— Age Discrimination results in certain products and services being inaccessible to the older population.

— The lack of understanding of age issues by the financial services industry.

— The limited incentives for the financial services industry to provide advice for an older population who may not be interested in buying long term investment products.

— The need for action to raise general education levels of older people. The education levels of older people remain lower than those of younger people. A recent Learndirect report for the Campaign for Learning described the over-50s as a lost generation of learners. However, at the same time, funding for adult education is under threat because priority is being given to the 16-19 age groups.

All of these factors serve as risks to older people's financial independence and capability, increasing the likelihood of dependence upon others for financial management and access. For vulnerable older people with limited access to people whom they can trust, this may increase risks of their being abused financially.

Face to face advice

Help the Aged's benefits advice programme has demonstrated that face to face advice (sometimes delivered through peers or community groups) is vital for many excluded older people. Making good quality face to face advice and guidance available will be key to raising financial capability amongst older people.

Complexity of benefits

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"Both the behavioural barriers to savings and the costs of provision have been made worse by the bewildering complexity of the UK pensions system, state and private combined. This complexity reflects the impact of multiple decisions made over the last several decades, each of which appeared to make sense at the time, but the culminative effect of which has been to create confusion and mistrust. Means-testing within the state system both increases complexity and reduces, and in some cases reverses, the incentives to save which the tax system creates. The scope of this means-testing would grow over time if current indexation approaches were continued indefinitely."—Pensions Commission Interim Report. October 2004.

Many pensioners find the process of navigating the benefits system a less that pleasant one. Although the Pension Service has made efforts over the past few years to improve and simplify the service it provides many problems still exist. This can be seen by the fact that over one million pensioner households still fail to claim pension credit. Pensioners are now encouraged to claim via a call centre which, by taking them through the process, helps to disguise the complexity of the underlying benefits.

Help the Aged believes that it is essential that DWP continue and amplify their efforts towards simplifying the benefits system. The NAO in its recent report "Dealing with the complexity of the benefits system" (18 Nov 2005)' highlighted many of the barriers to simplification. A few examples; the DWP has 14 ways of describing a payment, 300 separate brands, products, and services associated with the department, 230 leaflets along with 35 major IT systems.

The interaction of benefits with other financial products makes it hard for advisers to advise older people as they find it difficult to help them with questions about whether it will affect Pension Credit/Council Tax Benefit etc.

RECOMMENDATION

— Government should tackle the complexity of its own benefits system.

Inappropriate design of information for older people: Research by Exeter Council for Voluntary Service[160] assessed the materials which were available to help raise the levels of financial capability of older people. They concluded that "much of the material trialled was inappropriate. In some cases it was thought to have been designed for younger people or for `people of low intelligence' (rather than people with skills gaps)". This highlights yet another example of age discrimination.

RECOMMENDATION

— The Treasury Committee should encourage the Government, the Private Sector and the voluntary sector to ensure that their information provision meets the needs of older people and that older people are consulted in their design.

THE ROLE OF THE GOVERNMENT, THE FINANCIAL SERVICES AUTHORITY AND OTHER BODIES AND ORGANISATIONS IN PROMOTING FINANCIAL INCLUSION

There are a wide range of Government, private and voluntary organisations with an interest in financial inclusion. It remains the case however, that the organisations continue to fail to work together to address areas of common concern.

The Financial Inclusion Task Force, working with the DWP, has a key role in raising the profile of financial capability issues for older people across Government. At the same time DfES, DFT, the FSA and the OFT also have a significant interest in this work.

Sustainability of Funding

Problems with the sustainability of funding remains a key issue for financial inclusion work, There is a role for the Government to identify how financial capability work can be sustainably funded for the long term

Research Gaps

There remains little research explicitly looking at the issues facing older people in relation to financial exclusion and financial capability. There is a strong role for a coordinating body to both commission and collate research in relation to financial inclusion.

RECOMMENDATION

— The Treasury Committee should recommend a mechanism for joint working across Government departments, the private sector and the voluntary sector.

THE BENEFITS OF FINANCIAL INCLUSION AND THE EXTENT TO WHICH FINANCIAL INCLUSION MEASURES CAN CONTRIBUTE TO COMBATING POVERTY AND REDUCING BARRIERS TO EMPLOYMENT

There are a wide range of benefits of financial inclusion in relation to older people. Tackling financial exclusion and raising the levels of financial capability amongst older people could, for example have a very positive impact in terms of helping older people claim the benefits they are entitled to, as well as helping address financial abuse and reduce the likelihood of older people falling victim to financial scams.

A benefits system that is truly inclusive is one in which all older people are getting the incomes they are entitled to. This would not only have many positive effects in preventing poverty and exclusion, but also in promoting older people's ability to play active roles in their communities and to remain healthy for longer.

Also essential is improving access to the financial products which allow older people to manage their finances. Many of the poorest pensioners are extremely adept at making ends meet. However, fixed incomes mean that when they do face one off costs or high bills, they can struggle to cope. The Social Fund must be thoroughly overhauled so that it serves the needs of the poorest pensioners to prevent crisis. In addition, making it easier and more appealing for older people to use direct debits could help reduce levels of fuel poverty and prevent people from falling into arrears. Companies have a duty to make sure that the good prices and rates aren't just available over the internet or when you pay ahead.

Older people are now one of the most important consumer groups in the UK. The "grey pound" is increasingly being recognised as the force that it is and one which is set to increase with an ageing population. Private companies and retailers must make efforts to reach out and include the older population in the way they operate. There are substantial rewards for those that do, for example an estimated £1.7 billion[161] has flooded into the new pensioner savings accounts which have been opened by building societies and one high street bank. The Government must take the lead by promoting older consumers as one of the positive spin-offs of the demographic changes the country is experiencing.

OTHER ISSUES

Age Discrimination in Insurance

Help the Aged receive a large number of complaints from older people about general insurance, the vast majority of which relate to age discrimination in travel and motor insurance and in car hire. Typically, older people report being unable to hire a car, change motor insurance or buy travel insurance once they reach a certain age. Older people complain that insurance discriminates on the basis of age in two main ways; firstly in terms of cost and secondly in terms of access. They frequently complain that premiums have increased, sometimes significantly, simply because they have gone over an arbitrary age limit. Help the Aged's own research has shown that around 90% of annual travel policies have upper age limits.

In 2005, the Government published Opportunity Age, highlighting its strategy for "meeting the challenges of ageing in the 21st century" and its commitment to explore ageism in insurance:

"Some individuals and organisations feel that there is a problem with discrimination in pricing of and access to general insurance for older people. However, insurance companies use a variety of sources of information to assess risk, and, in many cases, premiums will vary according to actuarial data. The Government will consider with the industry whether there are cases where the criticisms made in relation to discrimination are justified".

RECOMMENDATION

— That the Treasury Committee ask that the DWP follow up on this commitment to consider the extent to which criticisms of age discrimination in insurance are justified

Third Party Deductions

The Department for Work and Pensions operates a direct payment system that allows deductions to be made from benefit and paid to a creditor, known as third party direct deductions. It allows particular creditors to make an application to recover certain debts from income-based benefits. This system of debt recovery is limited to creditors that provide specific services and includes local authorities and utility suppliers. Water and sewerage charges and fuel bills are included in the scheme. The scheme has consistently been welcomed by consumers as providing assistance and support in budgeting.

Innovation within the third party direct deductions scheme could enable individual claimants to make choices about payment methods based on their financial circumstances, rather than those presented by Government. A more flexible approach is required which is consistent with financial inclusion.

RECOMMENDATION

— That the Treasury Committee recommends flexibility in the operation of the third party deduction scheme by the Department for Work and Pensions as a way to strengthen financial inclusion.

January 2006

138 Since November 2003, the Department for Work and Pensions has been piloting reforms to housing benefits, introducing a flat rate Local Housing Allowance (LHA) and paying the benefit direct to the tenant rather than the landlord. At May 2005 there were 3.96 million recipients of Housing Benefit, of which 1.52 million were aged 60 and over (DWP Quarterly Statistical Summary, 27 October 2005 http://www.dwp.gov.uk/asd/asd1/stats_summary/Stats_Summary_Oct_2005.pdf) so the changes will impact on a significant number of older people. Recent research by Citizens Advice revealed that whilst the pilots had gone relatively smoothly, the reforms had had little impact on extending choice for consumer, that some private landlords have responded to their reforms by withdrawing from letting to housing benefit claimants and others had increased their rent to the local housing allowance levels so they, rather than their tenants had benefited. In addition, Citizens advice found that opening bank accounts for the receipt of LHA was a significant problem for some clients; the removal of claimant choice of how LHA should be paid created the need for vulnerability assessments which introduce new levels of complexity to the housing benefit scheme, and that the provision of money advice and support services has been key to the success of the reforms. Back

139 November 2005, the Health Minister Liam Byrne MP announced thirteen pilot sites across England would receive a share of £2.6 million to set up systems to test out individual budgets. These pilots were to be designed to help people take control of their own social care budgets and manage their support and choose the services that suit them best. Back

140 Defined as below 60% median income after housing costs. Back

141 The Pensioners' Income Series 2001-02, The Department for Work and Pensions, 2003. Back

142 The Pensioners' Income Series 2003-04, The Department for Work and Pensions, 2003. Back

143 "Hidden Voices: Older People's Experiences of Abuse", p18, Action on Elder Abuse, published by Help the Aged, 2004. Back

144 House of Lords Science and Technology Committee-Ageing: Scientific Aspects July 2005 Volume 1 Paras. 2.4-2.5. Back

145 Source: Family Resource Survey UK 2003-04. Back

147 "Basic Bank Accounts-Substantial progress but room for improvement remains"-Banking Code Standards Board Press Release. 17 November 2005. Back

148 http://www.abilitynet.org.uk/content/oneoffs/e-nation3.htm Back

149 Research conducted on the Motley Fool Website, December 2005. Back