Money Help Desk: Have I lost money in failed London Scottish Bank?

Published on Saturday 6 December 2008 13:37

I HAVE £75,000 with London Scottish, which collapsed last week. I am very worried that I have lost my money. Is this the case, and if not who do I contact for information about what I should do next?

EG, Edinburgh

Michelle Slade, savings expert at Moneyfacts, writes:

LONDON Scottish Bank, based in Manchester, which specialised in lending to former council tenants, did indeed go into administration, potentially leaving its 10,000 borrowers at risk.

The good news is these investments, largely in fixed rate bonds, have been guaranteed by Chancellor Alistair Darling.

The Financial Services Compensation Scheme will shortly be writing to all investors with a form inviting them to apply for compensation. Under the rules of the FSCS, you can reclaim 50,000 per person, per deposit, at any institution which defaults.

In normal circumstances this means you would stand to risk losing the remaining 25,000. However, the Government has announced that they will cover 100% of all deposits in London Scottish, so you will get all of your money back.

The claim for the whole lot will be handled via the FSCS, even though it does not meet its normal criteria, and will be paid for by a top-up from the Treasury. But this may not be the case in future, so when you reinvest the money it is best to put no more than 50,000 with any one institution. That way you know your money will be 100% covered.

Keep an eye on the FSCS website, www.fscs.org.uk/consumer, to stay up to date with developments.

Should I postpone my state pension?

I AM 65 in January but have decided, in the light of the pounding my investments have taken of late, that I need to work for a couple more years. Should I start taking my state pension now or wait?

PW (by e-mail)

Tom McPhail, Hargreaves Lansdown head of pensions research, writes:

I SUSPECT you are not alone in delaying retirement given the current economic conditions. You can defer your state pension and take a lump sum when you retire or opt for a bigger pension when you start drawing it. If you take the lump sum you get interest paid on the money you defer at a rate of 2% above bank base. This is a good deal in relative terms, but in the near future given the way that base rate is heading this may only yield a small return in absolute terms.

The deal on taking an increased income is fixed and is pretty attractive. For each year you defer you get an extra 10.4% added to your state pension. That 10.4% is calculated on the value of the state pension in the year that you start drawing it. For instance, the basic state pension is 90.70 a week this year, and next year it is going up to 95.25. If you deferred your state pension until next year you would therefore get a 10.4% uplift on 95.25, or 105.16 a week.

In the meantime you have missed a whole year's worth of pension, but we calculate that you break even after about 10 years; after that you will be better off and reap the reward of deferring.

The tax situation may also be relevant. If you are continuing to work then you are likely to be paying more tax now than when you retire. So if you draw your state pension now you may well pay a higher rate of tax on it than you will when you stop working.

Where can I still get a good rate?

I HAVE 20,000 in a savings account and I was earning a good rate of interest. However, the rate has been cut and is likely to be so again soon if base rate falls further.

Where can I get a good return without it dropping dramatically as soon as I switch?

PM, Edinburgh

Michelle Slade of Moneyfacts writes:

FIXED rate bonds are available for terms of between three months and five years and they guarantee the rate you will get for the term of the deal.

The highest rates now on offer are from Birmingham Midshires (six-month bond) paying 5.75%. You can get the same rate for a year at Anglo Irish Bank, but that means leaving mainland UK.

The majority don't allow access during the term of the deal, although some allow access subject to a penalty of loss of some interest.

If you need access to all or part of your money then Manchester BS is paying 5.35% on its Premier Guarantee account and Anglo Irish Bank is paying 5.25% on its Easy Access Deposit.