Money helpdesk: Deadly serious on investment

I MANAGE my elderly father's savings, and want to put some of it in a fixed rate bond to boost the income towards his care home fees. But he is becoming increasingly frail. Can you please let me know what would happen if he died during the term? Can I get the money out before the fixed period ends, and would I lose interest?

Cm, Glasgow

Michelle Slade of Moneyfacts writes

IF YOU are prepared to commit funds for five years, then the highest rate on the market is 5 per cent from the Indian-owned ICICI Bank UK. However, most savers are not looking for such a long term commitment, particularly when interest rates generally are so low, and we know that at some stage they will go up again, and higher income may be available.

It is much better to give yourself some flexibility so that you can switch to better returns when they emerge. For a three-year commitment both the AA and the Post Office are paying 4.1 per cent, while for a two year commitment the Post Office is paying 3.70 per cent and Bank of Scotland is paying 3.55 per cent.

With regards to getting the money out, most providers will allow accounts to be closed on death without penalty. However, some may simply close the account and refund the deposit without interest, as it has not served the term.

Salary sacrifice can double your NI gain

I AM puzzled by the suggestion that NI might be avoided by increasing payments into a pension. I can understand there is a NI saving in the case of a salary sacrifice arrangement (with the employer paying the sacrificed salary as an increased pension contribution), but I can't follow how an individual would cut NI liabilities by increasing payments into a pension.

MB (by e-mail)

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

You are right that if an individual pays money into their pension, this will not directly reduce their National Insurance liability.

NI deductions are unaffected by pension contributions (unless you are in a contracted out final salary scheme, but that's a different story).

If you do opt for salary sacrifice, assuming your employer is willing to cooperate, then you can gain twice over. Firstly your NI liability is reduced at the relevant rate; 11 per cent this year, 12 per cent next year, or if your income is above 43,888 then 1 per cent this year and 2 per cent next year.

You could also benefit to the extent that your employer is willing to give back their own NI saving on the portion of your salary you have given up.

High and dry after airline goes bust

The Consumer Credit Act 1974 can provide additional protection for airline passengers if there is a breach of contract. Photograph: Getty Images

LAST year I booked a holiday to America so that we could go away as a family to celebrate my parents' 50th wedding anniversary. As my gift, I paid for all six sets of return flights for my husband, parents, children and me which cost in total just short of 3,000. I paid for the flights using my credit card.

Just before we were due to fly home, the airline we were booked with went bust. To get home we had to book flights with a different airline, which cost us another 2,000. I contacted my credit card company and they said they're only willing to pay the original cost of our return flights - not the additional amount I've had to pay. Is this right?

WG, Edinburgh

Emma Parker of the Financial Ombudsman's Service writes:

IF YOU buy goods or service using credit, section 75 of the Consumer Credit Act 1974 can provide additional protection if there is a breach of contract or a misrepresentation.

In your circumstances, the fact that your flight was not running because the airline was in liquidation can be seen as a breach of contract. Under section 75 a consumer can make a claim either against the business supplying them with the goods or services - or the business providing the credit. Where a business has gone bust, it may be easier to try and get the money back through the credit company - as you've done.

The Financial Ombudsman Service - the independent free service set up to sort out complaints between consumers and businesses - receives around 300 complaints a month from consumers, mainly relating to purchases they have made using a credit card.

For section 75 to apply there are a number of conditions that need to be met - for example, each item (in your case each return flight) you're claiming for needs to cost between 100 and 30,000.

It looks like you've got evidence that you paid a reasonable amount for the tickets to get home. It would be a different situation if you'd opted to stay an extra week in a luxury hotel and upgraded all your flights. Therefore, as the company agrees that section 75 applies in your circumstances; they should pay the extra amount you've had to pay to return home.

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