Ofgem Back Billing and Pensions and IHT

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Hello, welcome to this Moneybox podcast. Inflation rose this week, but what is pushing it up? And listeners want to know what to do to reduce the inheritance tax the government plans to charge on their unused pensions. But first...

Electricity and gas suppliers have been warned they'll be fined if they continue to send out bills to customers for money they have no right to collect. The energy regulator Ofgem has told Moneybox it sent this warning to the chief executives and also demanded to know.

How many people have been sent these so-called back bills? As recent listeners will know, energy suppliers aren't allowed to send out new bills for electricity and gas, which was used more than 12 months beforehand. That was banned in 2018. But as we've reported over the last three weeks, it's still happening to thousands or more likely tens of thousands of people.

In his first interview following our investigation, an Ofgem director stressed that suppliers must stop doing it and give people their money back. We'll hear that interview in a few minutes, but first, a reminder of the story so far, starting with some listeners. This is the bill, £5,768.09. And that's two and a half years ago.

Yes. On New Year's Eve out of the blue I was sent an electricity bill for £11,500 with seven days to pay for alleged energy usage going back to 2021. I have received... more and more threatening letters, demanding money with what I consider to be menaces.

It is a disgrace. I took my case to the energy ombudsman who decided in my favour the debt was eventually wiped off by my energy supplier. I think the energy companies are so big they've been doing this for... since probably backbilling rules were brought in and they have continued to break them and break them and now they're being asked to provide details of how often they've broken the rules they're not going to do that and how

How often have they broken the rules? How do people know? I think it's absolutely appalling and they should be ashamed of themselves.

Well, just some of the hundreds of listeners who've contacted us about this issue. It's not just the customers who've had something to say either. Alex Belsham-Harris from Citizens Advice and the chair of the Energy Select Committee, Bill Esterson, told this programme recently. These bills should never have gone out. It's really not good enough. This is utterly outrageous and really quite chilling. And a week ago, the boss of the trade body, Energy UK, Dara Vyas, admitted to me...

things were going wrong. I think over the last couple of weeks and what your programme's uncovered is that there may be some... systemic issues that we aren't aware of, that the numbers that are collected industry-wide aren't showing. So I think it's right, where you're highlighting there are concerns, we need to look into it and we need to really understand where the issues are occurring, how and why.

and how to stop them. With me now to bring us new developments is Moneybox's Sarah Rogers. Sarah, in the last few days, the stories developed further. Yes, and a big development. The Secretary of State for Energy, Ed Miliband, is now involved. He published a letter he'd written to the... chief executive of Ofgem, which I have. In it, he sets out a list of points he wants Ofgem to urgently address. And the number one issue, Paul, is about bills and back billing in particular.

He said he wants Offterm to continue to, quote, challenge unlawful backbilling and accelerate work on reviewing backbilling rules. And something else potentially significant, we all know by now that energy companies cannot issue a new bill. for energy used more than 12 months ago. But something interesting, if you're on a smart meter, Ed Miliband also talks about cutting the back-billing window for people on those from 12 months to six. That's quite an intervention from a cabinet minister.

Well, it is strong language from the Secretary of State and shows his clear interest in the issue. And to remind people that this is after the chair of the Energy Select Committee, Bill Esterson, you just heard him courting backbilling outrageous, also wrote to off...

quoting our investigation and demanded answers from the regulator by Monday so his committee can look at the next steps. Thanks, Sarah. Ofgem agreed to do an interview this week. I played its Director General of Markets, Tim Jarvis. Those clips from listeners. Well, I'm shocked and disappointed to hear those clips because our rules are very clear and we introduced them in 2018 precisely to stop people getting shock bills that go back over 12 months.

are pretty clear um suppliers should not be billing people for the first time for energy that was uh consumed over 12 months ago and so uh i am unhappy about this we have written to the suppliers and asked them to urgently look into their processes to work out what is going on and we will continue to press with them to make sure that these things stop happening and that customers that do have disputes over their bills are dealt with quickly and sensitively.

so that these situations can be resolved before they end up going to the Ombudsman. You say you're shocked and disappointed but you did introduce this rule in May 2018 nearly seven years ago to control malpractice and to protect consumers. It's still happening and the question people are asking is why has Ofgem

failed to enforce its own rule in thousands of cases. So we monitor billing practices and supplier practices very carefully and we've seen a spike in billing complaints generally. I think it's billing disputes of which backbilling... is a subset and we have started our action with suppliers at the start of this year to look at billing practices and we have taken action against suppliers over the years when they have not complied with our rules. I think what we need to do is understand

what is happening at the moment what the scale of this problem is what is causing it why the systems and processes in in supplies are not automatically ensuring that people are not getting these bills and if there are manual overrides making sure that staff are trained to make sure that people aren't getting these bills.

But surely it's simple what's happening. The simple rule is not incorporated into computer programs that send out bills and is not incorporated in training for people who deal with customers because it's still happening.

Do you know how widespread it is? Well, the data that we've got from the ombudsman shows that around 3,500 complaints over 12 months. That's about 5% of all complaints that went to the... ombudsman and that's obviously in the context of tens of millions of bills that are going out each year but look i mean one of these cases is too many just because of the

impact that it has on people I mean we've heard that in the clips people are getting huge bills out of the blue and are being pursued for them and that is not right that is not compliant with our rules and we are urgently taking action with suppliers to make sure they can stop this

practice happening. How many firms have you sanctioned in the last seven years or fined for breaking the license condition on back billing? So we've taken action with suppliers over the last few years on a number of billing issues relating to... But on this particular one?

On this particular issue, I would need to check that. We look at billing as a whole because I think a lot of these disputes and a lot of the... come down to inaccurate billing and concerns about an accurate billing and that is one of the things that we are focused on and we have taken action against suppliers and we have fined them over the years we are looking to see what is happening here how widespread

this is, we are urgently looking into this, the suppliers are urgently looking into this to look at what is happening with these processes and to find out how widespread this actually is and why it is happening. So you don't know. Do you not know how widespread it is? Can't the companies tell you how often they've sent out a bill more than 12 months after it was due?

So that's exactly what we've asked them to supply to us. And I've written out to the suppliers and I've also spoken to the CEOs of the suppliers to make sure we can get this information and find out what's going on. So you are going to get that information about how often it happens. But why can't you commit?

from Monday to stop this happening. Was the energy used more than 12 months ago? Is this the first bill for that energy? If yes, cancel the bill. I said last week you could put it on a post-it note. Yes and that is exactly what we would expect suppliers processes to do and they are telling us that that is what their processes do and the evidence seems to be that you are seeing from customers that is that is not

always happening and not happening consistently enough. So that is what we're urgently asking them to look into and to make sure that their systems and processes are not routinely doing this. And what about the way people are treated when they complain? Because, again, this is what... We're told by Energy UK and by others they should complain, but we hear from dozens of people who are faced with intimidation and threats of damaging their credit ratings, threats of debt collected, even bailiffs.

Will you be issuing specific instructions not to do that? If it's backbilling, they should just cancel the bill, shouldn't they? Yes, if the bill is over 12 months and it is the first time that that energy has been recorded, that bill should not have gone out and it should be cancelled. That is a simple rule. But that's your rule. But how do you get them to do that? Because they're clearly not. I mean, you say you're going to ask and investigate and so on. What people want is you to stop it.

So look, we've been very clear with suppliers that they need to stop this happening and we will take action if we see them not taking the action that they need to take to stop this happening. Will you be fining firms that you discover have been systematically breaching this backbilling licence condition?

If we find that suppliers are systematically breaching our rules, we will find them, and we have done so on a number of occasions. What, for back billing? We have fined suppliers for a number of issues around billing and where they have not complied with our billing rules. whole range of rules that we apply to billing where we set out our expectations of what customers should expect and where suppliers are systematically not complying with our rules, we will take action.

Will you force firms to return the money that they've wrongly billed, which I'm sure many people are frightened into paying? Will you force them to return it because they never owed it in the first place, did they? Yes, I mean, if customers have received bills for the first time for a period beyond 12 months that they should not have received that bill and they have paid it, then the suppliers should be returning the excess.

And you will make them return that money. Find the people who they've done that to and return the money. Yes, and I would absolutely urge any customer who thinks they're in this situation to contact their supplier. I would urge them to look at our website. We set out the rules very clearly. There's a link to a template letter there from...

as advice that you can send to your supplier. And I will be absolutely urging suppliers to take these issues really very seriously and start addressing any questions that they get back from customers on this issue. I mean, more than once you've explained this rule in the simplest language and it still baffles me and I'm sure baffles a lot of listeners. Why isn't it implemented both in terms of the people who respond to customers who've been wrongly billed?

and in the IT systems, it is the simplest rule to implement. Why is that happening at all? You and I can explain it in 20 words. So I think that's one of the things that we need to find out from the suppliers and what is happening, whether that is manual overrides to their systems or whether they're...

There are problems in their IT systems that are not stopping these bills going out. I should put this in some sort of context. If you look at the last 12 months and the last 24 months, we have seen generally a reduction in the number of complaints.

improvements in their systems. But clearly there is something going wrong here for a small but significant minority of customers. And I think we need to act quickly and suppliers need to act quickly. Firstly, to stop it happening and secondly, to deal with those. to whom it has already happened.

Tim Jarvis, Director General of Markets at Ofgem. And if you get a first bill for electricity or gas you used more than 12 months ago, don't pay it. Complain to your supplier, perhaps reminding them, that it breaches licence condition 21... And you expect the bill cancelled. If they persist, go to the Energy Ombudsman and do let us know how you get on. At the BBC, we go further so you see clearer.

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Official figures for price rises published this week showed that inflation in the UK rose to 3% in the 12 months to January, a big jump from 2.5% a month ago. It's the highest rate of inflation for 10 months. has been looking at the figures in a bit more detail, Sarah.

Yes, so getting into the numbers, it's food staples like meat, eggs, butter and cereals, which were all more expensive than a year ago. On average, the cost of your food shop is up 3.3%. In particular, butter and lamb, which have increased... quite a bit, over 17% and 19% respectively. And other price rises had an impact too. Plane tickets went up. Yes, so airfares tend to rise in December and then fall into January, but the drop was less than in previous years.

according to the Office for National Statistics. Private school fees also played a part and grew by around 13% at the beginning of the year. That might be due to the VAT being added on from New Year's Day after the government removed that VAT. exemption. But that's a one-off change, says the ONS. And this rise in inflation, of course, comes ahead of predicted increases to energy bills in April that we also heard about this week. Yes, so analysts at the forecaster Cornwall...

Insight which tracks the energy market said they expect gas and electricity prices to rise by 5% in April which means a household using a typical amount of gas and electricity would pay an extra £85 a year more with a total bill of £1,823. Also, as we've reported on Moneybox, water bills, council tax, broadband and mobile bills, as well as the TV licence, will all rise in April, pushing up the cost of living, Paul. Thanks Sarah.

Nice take on the spring from you there. People who die before they've spent all their pension funds can currently leave it to their heirs free of inheritance tax. But that will end in a couple of years. The heirs of people who die from the 6th of April 2027 will find any unused pension funds form part of their estate. An inheritance tax will be due if the total amount exceeds their normal thresholds of between £325,000 and a million in some cases.

Because pensions have been free of inheritance tax for some years, many people have used them as part of their end-of-life planning. often encouraged by advisers to boost their pensions as a way to pass more on, largely tax-free, to the next generation. But since the Chancellor announced the change in the autumn budget, those plans may no longer be sensible.

Sonnybox gets a lot of emails from listeners worried and indeed upset by this plan, like Felicity, an 80-year-old widow who worked into her late 70s. I was devastated because I'd spent my working life building up my pensions, which I hoped to pass on to my children, free of inheritance tax. I contributed to my pension, and the reason, chiefly, is to provide for old age.

But also it is attractive because it was not subject to inheritance tax. And for me, I worked very hard all my life, not just for myself. but to hand on to them. Julian retired three years ago at 64. He'd built up a big pension for himself and, he hoped, for his children too. I feel somewhat cheated by the government. because I had always been told that it was the place to invest my money, that it was the place, the thing to do would be to invest in my pension fund.

And that would secure that money as an inheritance for my children. And that's now not the case. I built up a pension pot through my various private pensions to just over a million pounds. I took 25% tax-free out of the pension pot and put that into another investment account. And I'm using that as a drawdown. So that's tax-free income I live off every month. Plus, I've got my state pension.

And that left about £850,000. The idea was that that would be for my son. But I'm in a position now where that pot of money that's left would be plundered. For tax, I'm now looking for alternatives, another way to do things. And I'm looking forward to listening to your program to find out what other people think. So is there anything people like Julian and Felicity can do to reduce the impact of this tax? Steve Hitchener is from the Society of Pension Professionals and he chairs its tax group.

well i think i've got a lot of sympathy with your listeners because i think yeah these are examples of those that are facing the most significant impact from these changes but i think also in fairness to the government I think it's important to stress that pension schemes were never intended as an inheritance tax planning tool. And the fact that they're often being used in that way is a consequence of other changes that the government have made to provide.

greater flexibility with pension schemes. I mean, the fundamental purpose of a pension scheme is to provide an income in retirement until that individual dies, not as a tool to plan for inheritance tax.

told us in a statement it rather agrees with that, you know, that it incentivises pension savings, as it calls it, with tax relief, because their intended purpose is funding retirement. But nevertheless, people have used them like that recently, though, you know, Felicity and Julian seem to think... you could pass them on free of IHT forever, but that's only really been possible in the last 10 years, hasn't it?

Indeed, yes. As I say, it's because of the extra flexibilities that were introduced around 10 years ago that were intended to give people more choice about how they access their pension savings, not to give them at all so as to protect their savings from inheritance tax. And you mentioned that...

the incentives i mean you're right there are a lot of incentives to encourage pension saving um yeah the contributions that your listeners would have paid would not have been subject to income tax and the investment returns they would have earned on those savings

over time will also have not been subject to income tax and then the idea is is that then those benefits are then taxed whilst in retirement or in this case you know on death and yeah this is costing the government a lot of money this this pensions tax relief it's it's quite difficult to

get a single estimate and views differ. But on any reasonable estimate, we're talking about tens and tens of billions of pounds that this is costing the government. So given the state of government finances, there is a need to reduce that in the eyes of the government. yeah people may be able to understand that but certainly for the last 10 years or so advisors have been saying

This is a good we, so why don't you bung all your money into a pension fund and you can bypass inheritance tax? Have advisors been overselling it or have people been overselling it to themselves, thinking this concession would never be taken away?

well the pensions tax rules are always changing yeah and they're always subject to change not just in terms of the inheritance tax rules but across the whole plethora of rules yeah they're always changing i mean advisors can only ever advise on the situation that applies at a point in time and as things change that advice needs to be updated and people's actions need to be updated to reflect that. Julian had a plea for help in what we heard a few minutes ago.

What can he do to preserve this tax advantage? What should people be doing now to re-plan their affairs, given that their pension fund can't be passed on free of tax? Clearly anyone looking at this needs to speak to a reputable financial advisor. And people should be very wary of moving their pension assets to avoid inheritance tax, because I think there is the potential here for pension scams where unscrupulous individuals may use this as an opportunity. And if anyone's in any doubt, they can.

contact Money Helper who can provide free and impartial guidance. That's the online service that's partly paid for by the industry and supported by the government. yes that's correct yes so so they can i mean they can't provide advice as such but they can provide impartial guidance and point people to the right direction particularly if they're concerned about pension scans

some of the details are still subject to change. So it's important to see the final detail, which we expect later this year, although we don't expect the fundamental point that pensions are subject to inheritance tax to change. But the kind of things to consider, potentially withdrawing more of the pension fund now to spend now, I mean, as I said earlier, that is the primary function of pensions. So, you know, the more that people withdraw.

the less there is to potentially be subject to inheritance tax in due course. Spend those assets, use them for their purpose. or potentially also gift it to their beneficiaries. And as long as that is more than seven years from their death, then of course that won't fall under inheritance tax. The other thing to consider is updating.

expression of wishes to indicate that people want any benefits to be passed to their spouse on death, because there is, of course, a spousal exemption, so the inheritance tax. doesn't apply where benefits are paid to the spouse. So an expressional wish form is a form that individuals can fill in to indicate to the pension scheme who they would like their benefits paid to in the event of their death. And if that's paid to a spouse, then that then sits outside the inheritance tax ratio.

Yeah, so this is the form that people fill in. in effect to give it to their children because you don't do it through your will you have to make a special declaration to the pension fund trustees and and they pass it on so it's important if people want to give it to their spouse if they have one or civil partner they fill in that form they changed that form from share it among my children to

Give it to my spouse. Yes, that's correct. Steve Hitchener from the Society of Pension Professionals. He mentioned that website for free and impartial advice and guidance. It's moneyhelper.org.uk and gave a very useful warning. about.

pension scams. And I have to say, Steve has tweeted saying pensions are supposed to be for spending. And a number of people agreeing with him there. And Sarah's back. She's been watching your emails come in. We're working you very hard today, Sarah. Some good news, though, about backbilling. Tenacious Moneybox listeners, of course. Jill told us she got a bill for £160 from her supplier for energy from 2021 and 2022. I refused to pay, she said, and demanded a refund, which she said they did.

Wendy said, I've been hounded for 26 months. I settled and then they asked me for more at one point reaching £1,500. But she contacted a supplier quoting our reporting and she said two days ago they agreed. I don't owe anything and they paid me back £290. And then Hina said that we received a bill dated from 2020 for £328. We weren't aware of the backbilling rule and paid it. Chase them up, Hina. Precisely. Thanks, Sarah. And don't forget to quote licence condition 21.

And we do love to hear from you, of course, and you might hear yourself on the programme if you email us with your concerns and questions, as those listeners did today. It's moneybox.pbc.co.uk or you can send us a message or a... voice note to our WhatsApp number 0306 783 183. And it's the same email and WhatsApp to ask your questions to Felicity Hanna and her panel. Now on Wednesday, next up is Moneybox Live.

Rates are slightly down. The government plans to build 1.5 million new homes. Will it get easier to become a homeowner? She'd love to hear from you. In this podcast, the team was Sarah Rogers, Dan Whitworth, Ema Devlin and Joe Krasner. Studio manager was Joe Stickler. Our editor is Jess Quayle. I'm Paul Lewis and this was a BBC News Money and Work production for BBC Sounds.

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