Daphne's big money dilemma

The state is failing Daphne even though she is cash poor. Harvey Jones needs your help to solve her dilemma.

My friend Daphne is about as much fun as a 72-year-old woman can be. If there was a World Cup for amiable chat, she would be in the England squad, and she wouldn’t bottle it in the finals.

My girlfriend adores her. So does my five-year old daughter. Daphne rents rooms in a tumbledown old country pile in Kent, her son lives nearby, and her daughters visit regularly. She has four lovely grandchildren. Everything is pretty good in Daphne’s world, except that she misses her husband, who died a couple of years ago, and she’s short of cash.

Could you live on that?

There isn’t much evil in Daphne’s world, but what little there is, money is at the root of it. After working hard all her life, running pubs and restaurants with her husband, the only financial support she gets is the basic state pension, currently worth £97.65 a week. Her rent is £125 a week.

She doesn’t get any additional state support such as pension credit, housing benefit or council tax benefit (apart from the 25% single person’s discount), for the silly reason that she has diligently put a little by in her life. She has around £40,000 in savings, which pay on average 2.5% interest, or less than £20 a week. She dips into her savings to cover the shortfall, which in turn eats away at her income.

Low interest rates and rising inflation aren’t helping. The Consumer Prices Index hit 3.7% in April, and although it since retreated to 3.2%, this is still more than she gets on her savings. Elderly people are hit harder by rising prices, because more of their money goes on basics such as food and heating. Daphne’s certainly does.

Life’s not fair

Daphne doesn’t complain, but what really irritates her is the unfairness of the system. Her 65-year old neighbour, a woman who has never held down a full-time job or paid much (if any) tax, and recently drank herself into bankruptcy, is eligible for pension credit that tops up her income to £132.60 a month, around £35 a week more than Daphne gets.

Her neighbour is also eligible for housing benefit and council tax benefit. And she still complains that she is broke. Daphne never complains, but her son Chris isn’t happy. He is furious that his mother is being punished for saving for their retirement, while her feckless neighbour is being propped up by the state.

Daphne can’t claim pension credit until her savings have been whittled down to under £10,000, the new “capital disregard” limit which Labour upped from £6,000 in November. It still isn’t much. Once she can claim pension credit, she can claim housing benefit and council tax benefit as well. It would make a big difference to her life.

And she’s not the only one

The system is failing Daphne, and millions like her. If you have plentiful personal pension and savings in retirement, you can mostly look after yourself. If you have saved nothing at all, the state will step in. But if you have a modest nest egg, the state rewards you by withdrawing its support. No wonder so many people on average incomes are disillusioned by pensions, it makes more sense to blow their money rather than save it, then go crying to the state.

Labour tried to get round this by introducing the savings credit, which tops up pensions credit for people with modest savings by £20.52 a week for singles and £27.09 for couples. Daphne has too much in savings to qualify.

So what can she do? Chris has suggested that she “gifts” her savings to himself and his sisters to take it out of means testing (and no, he isn’t trying to rob her).

“It’s a bit dodgy, I know,” Chris tells me, “but what’s happening to mum isn’t fair.”

Daphne doesn’t like this kind of talk.

“I don’t know, I’m useless at doing anything underhand,” she says.

Chris isn’t quite so uptight about following rules, especially if they seem unfair. I warn him that local authorities are wise to these manoeuvres, and his scheme could backfire.

Can you help?

Daphne needs help, which is where you lot come in. I feel she is being hard done by, but does she really have any option but to watch her savings dwindle until the state finally steps in?

I’ve been talking to an investment advisor, who suggested switching Daphne’s savings into a life company bond. These pay up to 5% income a year, but are classifed as life insurance rather than savings, and are therefore excluded from means testing, opening the way to claiming pension credit and other benefits. This could be an option, although Daphne is reluctant to tie her money up. She will need to take independent financial advice.

Now I’m calling on you, the lovemoney.com community, to give your views and suggestions. Politely, please, because I want to show Daphne the fruits of your labours. She likes good manners.

This is the kind of problem that could affect all of us. Your grandparents or parents may already be in the same position. One day, it could be you. Is there anything Daphne can do about it - without being too underhand?

Over to you...

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