Capita Investigation and ISA changes

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1:14For problems worth solving, get started with Claude at claude.ai.solve. That's claude.ai.solve. And check out Claude Pro, which includes access to all of the features mentioned in today's episode. Claude.ai. Hello, welcome to this Moneybox podcast. Major changes in the rules for tax-free savings accounts, ISAs, due to start in April, should be put on hold, building societies say. And the guaranteed income for life you get with a pension annuity is the highest it's been for two decades, is now the time to buy. But first, Capita. The firm which has mismanaged the civil service pension scheme for nearly a year is to be investigated by the National Audit Office.

2:01In an exclusive interview, the man in charge tells Moneybox he hopes that will begin a process of improvement. I hope our report acts as a catalyst for improving performance. We think now is the right time for us to look at this, put it all down in one place effectively for Parliament to start holding some people to account. The audit office investigation into Capita is the latest development in a scandal that's seen tens of thousands of former civil servants and their loved ones waiting months before their pensions or bereavement payments are made. The backlog has grown and there's been little from Capita except numerous apologies as it has failed to meet promised deadlines for improvement.

2:42With 1.7 million members, the civil service pension scheme is one of the largest in the UK. Its members include people we all rely on to keep government services running, from court staff to call handlers, border force officers to job centre coaches, tax inspectors to prison officers. Capita has left them without money that is theirs which they and their loved ones need when they retire or after they die. The man in charge of the National Audit Office investigation is Lee Summerfield, and he gave his first interview since it was opened to our reporter Dan Whitworth. We have obviously been monitoring the situation quite closely and carefully and deciding when was the right time so that we could add the most value in terms of our report for Parliament.

3:27And now's the time we think that the value is added by us providing that transparency for Parliament as to what has actually gone on. And also looking future, what can Cabinet Office learn from this and how does Cabinet Office get the service into performing as they would expect? What power do you have? What consequences for those you find to be in the wrong can you bring to bear? Can you, for example, can you find capita? Can you hold ministers to account? The Cabinet Office, after all, is ultimately responsible for the administration of the Civil Service Pension Scheme. Yeah, so our job is to audit what Cabinet Office has been doing and working alongside Capita.

4:05Our report will set out the facts. Our report will set out a series of findings based on what evidence we see. And that will then be presented to Parliament. And this is then down to Parliament to decide how they would want to take that forward. You will obviously be looking at the financial implications of this. I mean, you're the National Audit Office. The clue is in the name. But are you mindful of the... And I can't say this loudly enough, the extremely painful human costs behind all those numbers you'll no doubt uncover, because Moneybox has constantly heard from people in real distress. Yeah, and we understand entirely the distress this is causing.

4:45I think Capita and Cabinet Office have acknowledged themselves the impact on individuals. You know, we are actively monitoring how many loans, for example, that government bodies are having to give out transition or support loans for people that haven't yet received their payment. We expect to find that the number of payments and loans that are being offered has increased as a consequence of the ongoing issues that people are reporting. so we are acutely aware and that's why we think now is the right time for us to look at this to set out all of those facts and to put it all down in one place effectively for parliament to start holding some people to account.

5:22This as you'll know Lee is a 239 million pound contract from the government so what that means is that's taxpayers money. Taxpayers are also funding at the moment millions of pounds being spent on extra staff brought in by HMRC to try to help clear the backlog to try to get this service up and running. Who's going to pay for all of that, capital or the taxpayer? So my understanding at the moment, based on what we've seen from parliamentary hearings with the Public Accounts Committee, is that that is a negotiation that's ongoing between capital and cabinet office. My expectation, or I think cabinet office's expectation is that capital will reimburse some of that cost.

6:00But look, that's some of what we will be looking to uncover in our new piece of work, where we're looking at both the performance of the contract, but also what cabinet office are doing and what lessons they are learning as to how they get that contractor to deliver the services they require. So I would expect all of that to be something that we would look at and cover in our new report. Will your report be full and frank? And how significant do you think it could be in what listeners would say, what members of that civil service scheme would say has been a long and sorry episode. Yeah, so I hope our report acts as a catalyst for improving performance.

6:39We hope that our report provides some lessons for Cabinet Office that are relevant for a civil service pension scheme, but more widely, other schemes potentially. We are going to be looking at how capita has performed. We hope to put that in one place in our report. And we are going to look at actually what led up to the transition and what preparations anyone did to prepare for the transition of a provider from my CSP to Capita. So I hope that will give users of the service or current pensioners or future civil service pension holders some evidence that they need to know what is happening with this particular service.

7:18We've been reporting on this story at Radio 4 Moneybox for nearly a year. People would say they've been through enough already. How long And here's another report. Here's another investigation. How long is this going to take and when will you publish your findings? So we're expecting to produce our report for winter 2026. As I said, we are at the very early stages of our fieldwork. We are examining documents as we would normally do. We are setting ourselves that ambition of doing it within a shortish period of time, which is not uncommon. Our investigations are typically done within three to four months.

7:54So I would not expect this one to be any different to that. Lee Summerfield. And Dan's with us now. Dan, it's unusual, isn't it, for the National Audit Office to give interviews before an investigation is complete? It is. But you know what, Paul? Such is the level of interest from members of the civil service pension scheme, of course. But politicians and the wider public too, I just feel they clearly felt it was important to share their intentions. Now, you're in touch with many people who've suffered from these delays. Have you asked any of them what they make of this new investigation? Yes, and I've been speaking to some of them.

8:26Sean Nicholson, for example, he was a dockyard worker for the MOD, south coast of England, for more than 40 years. He's been waiting for a large lump sum and an annual pension of£13 ,000 for very nearly a year, leaving him stressed, anxious, and as he told me, having sleepless nights. It just needs to help the normal people like myself who are caught up in this. It is just normal people who have retired and we're just getting absolutely nowhere. No information, no information. Someone needs to be held accountable for this. It's just got to be cleared up. It's got people need to know why it's become such a shambles and why it's affecting people so much.

9:09You know, people have to be held accountable for this. It's just it's just ridiculous the way it's affecting everybody. I also heard from Leslie, who lives with spina bifida, and despite her condition, had a career of 47 years at HMRC. I would like Capita to be held to account for the mess that they've caused regarding the pensions and some transparency regarding when us that have been waiting for some time are going to get our money. I would also like all the government contracts the Capita have got to be taken off them and for them not to be given any more. Now, Lesley's been waiting for a quote, let alone any money for her pension, for the last six months.

9:56Now, in terms of her point about not getting any more contracts, well, the Cabinet Office has already said it wants to bring this particular contract for the civil service pension scheme back in-house, but no word yet on when. And what's Capita had to say to you about the National Audit Office investigation? Well, Capita has said it will cooperate with the investigation. You'd expect that, of course. And that it accepts performance remains below the standards that scheme members and the government rightly expect. I was expecting another apology. Last Wednesday, Dan, you were on Moneybox Live with Felicity Hanna looking into this Capita scandal.

10:31And there's been a big development since that programme. Very much so. Sir Geoffrey Clifton-Brown, he's the Conservative MP who's chair of the Public Accounts Committee. Well, he wrote a letter to Louise Haig, Minister for the Cabinet Office, remember, which appointed Capita to run the scheme after he was on that programme on Wednesday. I've got a copy of it here. It says in Sir Geoffrey's words, quote, I learned today with disbelief that the government intends to tax pension benefit payments for families of deceased civil servants if that lump sum is not paid within two years. And will that affect many people?

11:07We don't know, and it may well be only a small number of people, but the threat of it, well, that's a very real fear for many more. We've been getting messages from relatives who have lost loved ones who are still waiting for pension lump sum benefits, death benefits, 15, 16 months on. And Sir Geoffrey's letter continues, quote, It is unconscionable that the families of loyal and dedicated civil servants who are continuing to suffer through this serious government failing could potentially face such an unjust financial penalty. He then asks for clarification on the matter and to confirm that will not happen and he wants a response, Paul, by Monday.

11:45Oh, that's a tough letter. For a politician, it's a very strongly worded letter, definitely, and we'll of course keep across Louise Hague's response and let you know what she says. Thanks, Dan. And you can hear last Wednesday's Moneybox special on BBC Sounds. Just search Moneybox. And I have to say, emails are still coming in on this this morning.

12:31www.xarxl.com Maxor Excel.

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13:49The government's been told it should pause its plans for major reforms in the rules for ISA's individual savings accounts, which are due to begin in April. The popular savings and investment plans are currently free of income and capital gains tax, and every year an adult can put up to£20 ,000 into one in cash, investments or a mixture of the two. But from April, no more than£12 ,000 a year can be put into a cash ISA by anyone under the age of 65. If they want to use up the rest of their allowance, they must put any of the remaining£8 ,000 into investments like stocks and shares. But with less than six months to go before the rules change, the Building Societies Association warned the Chancellor this week the changes wouldn't encourage investment.

14:35Sarah Harrison, its chief executive, said this to Moneybox. We support the government's aim of helping more people to invest, but weakening cash ISAs could have the opposite effect. Research from the University of Bristol found that people with a cash ISA were 83 % more likely to go on to invest, showing that saving in cash can be a stepping stone towards wider financial confidence. Seven in ten cash ISA savers were opposed to a lower limit, so we believe a sensible approach is for the Chancellor to pause the changes for two years, giving time to assess the full impact of other steps being taken to support people to invest with confidence.

15:16Cash ISA's individual savings accounts are one of the most popular financial products in the UK. More than 15 million people put money into one in 2023-24. But the changes planned for April seem to be much less well-known, as our reporter Joe Krasner found in the Merseyside market town of Formby. I have a cash ICER. I've never put over£10 ,000 in anyway, so it doesn't make a difference to me. I've got savings, but also got cash ICERs. I have probably about£5 ,000 a year, something like that. I didn't realise that there was changes to it. I know you can put£20 ,000 away tax-free. So from next year, it's£12 ,000 after April.

15:55So will that make a difference to you? Will you put additional amounts in then? I might put additional amounts in before that, but I think afterwards, I don't know, I might divert it towards the pension so I can get the tax-free benefit from that. I don't have surplus income really at the moment to save. If you're in the lucky position to use the full£20 ,000, that would have been great to do. It doesn't happen very often. Obviously, being introduced to£12 ,000 for certain people, it reduced their flexibility, but I wasn't actually aware that was coming through. Well, I've now talked to Kirsty Stone, an independent financial advisor at the private office.

16:30Kirsty Stone, I mean, for most people, as we heard, putting£12 ,000 into a cash ISA in a year is an impossible dream. Never mind£20 ,000. Will this change really affect many people? I think, obviously, people that are looking to save aggressively are in a fortunate position to do that. then it will raise questions about how they go about that moving forward. But of course, the average person is just not able to maximise the full 20 at the moment. So it won't be hugely impactful. No, but people saving for a house, for example, or maybe even an expensive wedding, may find they're getting towards that limit.

17:03Yeah, definitely. And I think the easiest and simplest way to save money tax efficiently has been an ISA arrangement. and so the complications here are something completely new and people aren't aware or prepared for it. No, unaware and a new complexity. And it only affects people under 65. It begins in April. We know a lot of people don't know about it. Who does it actually affect? When have you got to be 65 by? Yeah, so turning April 2027, so after April 2027. Right, so that's when it starts, but you've got to be 65 for the whole tax year, I think, for it to affect you. One woman says she'll try to make the most of the£20 ,000 allowance before April.

17:46Have more people been doing that? Yeah, so it definitely encourages people to reflect on how they're saving. A part of a conversation I'll always have is before the end of the tax year, make sure you're aware of any changes that are coming down the line. The budgets over the last few years have changed quite a number of things. So the ISA changing, always reflect in kind of January, February, March and make sure you're not missing out on something that is changing and the cash ISA is a perfect example of that. And what's to stop someone putting their£8 ,000 into an investment ISA and then transferring it to a cash ISA?

18:18You can do that now, can't you? Yeah, so the rules are changing. So moving forward, you won't be able to transfer a stocks and shares ISA allowance to a cash ISA in following years. So you won't be able to do that work around. And there's also conversations around making sure people aren't just opening a stocks and shares ISA and holding cash within it rather than investing it. Yes, that's going to be another new rule. And I think that not transferring to a cash ISA will be banned for the under 65s. It's a big change, isn't it? And as you say, the government fears people will put money in investment ISA, but invest it in something that is like cash.

18:58How would that work? Yeah, so at the moment, you can cherry pick what you invest in your stocks and shares ISA and it makes no difference. Moving forward from next April, if you set up a stocks and shares ISA and simply hold the money in cash, so hold you're up to£8 ,000 in cash, it will be subject to a 22 % income tax charge on any interest that you receive in that. Gosh, I'll interrupt you there because that is the first time any return on an ISA is being taxed. Yeah, and I think the simplicity of an ISA has been really fantastic to engage people in saving. and adding these nuances is obviously, unfortunately, might deter people from wanting to save because it feels more complicated.

19:40But as long as people are aware of that, so if you are putting money in a stocks and shares ISA, you quite simply can't hold it in the cash account. So the workaround is the government are trying to encourage you to invest for your future. And so that's that policy. The alternative would be some people have alluded to you can invest in something called a money market fund, which is ideally a kind of low-risk fund that invests in short-term loans or governments. And it behaves a lot like cash, provides a steady return and tracks interest rates. So people understandably said, well, actually, I'll open a stocks and shares ISA, but I'm going to invest in this cash-like fund.

20:17Now, the government has cotton on to that and they have said, if you have 100 % allocation to cash or a money market fund, it will not qualify and you will pay 22 % tax on the growth. Gosh, it is getting complicated, isn't it? And you mentioned 22 % tax and we've just got a moment to say that will be the rate charged on savings interest that isn't in an ISA from April. That's going up, isn't it? Yeah, and so we've seen tax rates creeping up and up and this is perhaps one that most people won't necessarily be aware of. If you are in the fortunate position to have savings, that's why an ISA is so valuable because it is tax free.

20:53And even more valuable from April. Kirsty Stone from the private office, thanks. And if those changes will affect you, do let us know. Is now the time to convert your pension fund into an income for life? They're called annuities, and the amount you get for your money is at its highest for nearly two decades. The guaranteed income you get for the rest of your life depends on the cost of borrowing at the time you buy it. And at the moment, the ongoing Middle East conflicts, inflation concerns and rising government borrowing, all usually said to be bad news, of course, is actually good news for annuity rates.

21:30At age 65, you can now convert a£100 ,000 pension fund into a fixed income for life of more than£8 ,000 a year. That's higher than it's been for most of this century. Moneywatch listener Mark says he's semi-retired and is wondering whether now is the time to buy an annuity. Well, I've reached retirement age and I've got a pension pot that I need to work out what to do with. One of the things I've been looking at is annuities, which I understand are becoming more popular because the interest rates or the payment rates, whatever they're called, are higher now. But there seem to be different types of annuities, so I wasn't really sure what's available and maybe the programme could go through some of them.

22:10Listening to that is Billy Burrows. He's an independent financial advisor from the Annuity Project. Billy Burrows, how significant are these recent rises in the income you get? Are sales rising as a result? Oh yes, annuity rates are increasing. As you know, an annuity converts capital into income for life. And each payment has two elements. One is return of the capital and the second is interest. And it's the interest rate that has increased in line with the increase in government borrowing. Yes, and as I said, you give an insurance company a lump sum, say,£100 ,000, it gives you a guaranteed income for life.

22:51That is taxable, of course. And at£65 ,000, you'd get just over£8 ,000 a year. Now, 10 years ago, I think you told me it would have been half that. So it sounds quite simple, doesn't it? Go and do it. But Mark's confused about his choices. What are the choices in that conversion? Well, I say to people there are three key issues when you're looking at annuity. One is when is the right time, and now is a good time because rates are high, and also because the stock market is quite high, and there's uncertainty in the future. So looking into guaranteed rates makes sense. Secondly, there are a choice of options.

23:26Three main options, single or joint. If you're married or have a partner, it makes sense to have a joint life annuity. So if you die first, the income continues. The second option is increases. Some people prefer a level annuity. If you're more prudent, you'll have it linked to RPI, increasing with inflation. And the third option is a guarantee period. And I call that insurance against dying soon after buying the annuity. You can have your income guaranteed for five or ten years. Yes, because in a way it is a gamble with an insurance company, isn't it? If you die tomorrow, that can be a big win for them.

24:04But if you live to 100, you hit the jackpot. And you mentioned inflation proofing. But, of course, that means you get less now. doesn't it? Well that's right I mean obviously a level annuity may pay say 8 ,000 an increasing annuity will probably be sort of half of that but don't forget inflations like sin every government denounces it but they all practice it. Yes and it's sort of well over three percent at the moment isn't it? We had an email from some listeners and Duncan sent us one he told us he's buying an annuity, he's in his 70s I think, as a way of reducing inheritance tax from April because he'll have an income rather than capital.

24:44He also says it will make the administration much simpler for his heirs, his executors, than if they had to work out what his pension fund was worth. Well that's right. This is the normal expenditure out of income exemption and HMRC needs to be satisfied that the income you're gifting is surplus to requirements. And an annuity is helpful, I think, for three reasons. First of all, it should be easy to demonstrate that it's surplus income. It certainly keeps the record keeping handy. But don't forget, and many people sort of forget this, is that you pay tax on the income anyway. So if you're a 40 % taxpayer, you'll be You're paying 40 % income tax on income that you're gifting away to, say, 40%.

25:37Yes. So you need to get good financial advice. It may or may not be worth it, but it would make the administration simpler. I think you might agree there. And just briefly, Billy, in a few words, is now a good time to buy an annuity? Well, absolutely. An annuity gives you peace of mind and security. and in certain times I talk about de-risking as you get older. So buying an annuity, A, gives you much higher income than it did in the past and B, it locks into guaranteed return so you're taking less risk. Billy Burrows from the Annuity Project thanks and always get good independent financial advice before you take irreversible steps with a lot of money And from an income for life to an income that stops.

26:30More than 13 ,000 people left the armed forces last year and that can mean a big change in finances. Job security, accommodation, chain of command, all gone. Next to drop on your subscription is Wednesday's Moneybox Live where Felicity Hanna asks how people cope after the military. Housing, bills, jobs, pension, maybe all unfamiliar things. Email your experience to moneybox at bbc.co.uk or send a voice note on WhatsApp 0306 783 183. We do read and listen to them all. And it's the same details to any financial questions or comments that are coming in as I speak. And you might get on the show, of course, like Mark, Leslie and Sean did today.

27:13Your emails drive a lot of what we cover. In this podcast, the reporters were Dan Whitworth and Joe Krasner, researcher Catherine Lund, studio manager Chris Mather, our editor is Jess Quayle. I'm Paul Lewis and this was a BBC News Money and Work production for BBC Sounds. Life Changing on BBC Radio 4. It just felt for a moment like the world had stopped. And this feeling like I couldn't come up for air. The series about life's turning points. I've got to wake up every morning, even though the most harbouring thing ever has happened. And extraordinary accounts of loss, trauma and transformation.

27:53And we stood up and we told these stories. You could have heard a pin drop. And that's when I realised that this was something that mattered. Life-changing with me, Dr Sian Williams. Listen now on BBC Sounds. Sometimes we all need an extra helping hand, especially with a tricky business problem you've been putting off. Claude is the AI for just that. It's the collaborator that understands your entire workflow and thinks with you, not for you. And Claude isn't just for quick questions. Hand it a whole task, like turning a folder of scattered notes into a report, and it does the work and hands back something finished that you can open and edit.

28:38Claude can now draft a dock or deck right in front of you, and Claude Design now lives right inside Claude. Describe the website or prototype you're picturing Attach your design system And it comes back in your own design language Ready to edit right on the canvas It works with your files and the tools you already use Like Gmail and Slack And whether you're debugging code at midnight Building a financial model Or strategizing your next business move Claude extends your thinking to tackle the problems that matter For problems worth solving Get started with Claude at claude.ai.solve That's claude.ai slash solve.

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